How does this affect the Construction Performance Guide for New Home Warranty in Alberta?

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3 The New Home Warranty Landscape How the landscape has changed? How the new legislation has changed traditional coverage s? How does this affect the Construction Performance Guide for New Home Warranty in Alberta? 3

4 How the landscape has changed? The Government of Alberta has determined what the new home warranty landscape is going to look like They have painted the picture by introducing legislation The legislation is the New Home Buyer Protection Act. At the media launch of the New Home Buyer Protection Act in January 2014, Minister Hughes stated that the legislation is about raising the standard of construction in Alberta We are now in a legislated environment (warranty Law) for new home warranty in Alberta. The Construction Performance Guide is a snapshot of the expectations of performance, and quality for new homes. Homes that perform better than those built prior to the implementation of the legislation Just like any landscape, new home construction in Alberta will continue to evolve and change. The legislated landscape focuses on : Increased Consumer Protection Accountability of the residential construction industry 4

5 The landscape of legislation Performance of residential buildings Condominiums in Alberta brought awareness of unresolved issues The Government of Alberta s review of building performance identified gaps The Government of Alberta funded a number studies to evaluate construction performance in residential buildings and found that poor workmanship lead to building defects. Key issues of building performance, was water penetration and structure Review of warranty providers The Government of Alberta looked at the mandatory environments in British Columbia and Ontario as templates (what has worked) They looked at the British Columbia and Quebec, not for profit warranty program s after their insolvencies to evaluate (what did not work) They looked at licensing of builders And they took a look at Ontario which is in mandatory environment The Government of Alberta evaluated what has worked and what doesn t work with a focus to close the gaps The legislation closed those gaps Failure of residential buildings to perform, costs money The Government of Alberta wanted to make sure, that building performance failures do not require homeowners to pay unintended costs Also that the Government of Alberta does not want to have to step in and pay claim costs which in British Columbia, for (building envelope failures) reached (3 billion dollars) and Quebec (for structural failures) reached (100 million dollars) 5

6 The Government of Alberta will continue its review and continue it s awareness of how new home warranty as it evolves in the other provinces 5

7 New home warranty in Alberta is the best warranty in Canada A review and implementation of what works and improving the things that do not work so well, in other provincial warranty programs, created the most comprehensive warranty in Canada, here in Alberta This was achieved by Raising the bar for performance of residential buildings Ensuring residential buildings perform better both in the short term and long term Raising the bar for builders Although not going as far as licensing of builders Requiring third party warranty in order for a builder to obtain a building permit Raising the bar for warranty providers Increased coverage s, increased duration, increased financial limits Warranty providers must comply with the requirements of the Insurance Act and New Home Prior to February 1st 2014 warranty was not mandatory, it was voluntary 6

8 What s changed everything changed On February 1st, 2014 the warranty landscape in Alberta changed 6

9 Change of traditional coverage s The new legislation closes the gaps that existed Increase in the duration of warranty Where are we today 1, 2, 5, 10 minimum warranty 1 year defects in materials and labour 2year defects in materials and labour related to delivery and distribution systems 5 year defects in the building envelope, with an option to extent coverage for up to 2 years 10 years for structural defects The legislated warranty coverage includes work done by the homeowner, prior to commencement of the warranty The new legislation closes the gaps that existed by Increasing warranty limits Warranty limits of 265K homes, 130K condo units, 130K times number of units to a maximum of 3.3MM per building for common property and common facilities There are no over all financial warranty limits for a condominium project Example: The warranty commitment on projects with multiple large buildings is significant 3.3 million per building over 26 units times the number of buildings A significant warranty commitment for 10 years for the commencement date Construction Performance Standards 7

10 The Government of Alberta created the minimum standard for construction defects Defects are identified in the Construction Performance Guide 7

11 The Construction Performance Guide The Construction Performance Guide, identifies performance expectations for new home warranty New home warranty starts on commencement date Defects identified prior to the commencement of warranty are not covered under the New Home Buyer Protection Act Commencement date and the terms and conditions of coverage are confirmed by a Home Warranty Insurance Contract The term Warranty Certificate does not exist in the legislation, it is now a Home Warranty Insurance Contract Insurance contracts are governed under the Insurance Act The Home Warranty Insurance Contract, is between the insurer and the insured (warranty provider and homeowner) not the builder and the homeowner The builder is not a party to the warranty insurance contract (What does that mean?) The Government of Alberta is holding the warranty providers directly accountable to the homeowners, to fulfill the Home Warranty Insurance Contract 8

12 Not only the first home owner (your customer), but all homeowners, for the duration of the warranty Warranty providers will typically have agreements with builders, which set out the terms and conditions of their relationship You will want to understand your role and responsibilities within the relationship 8

13 The Construction Performance Guide Use the Construction Performance Guide to assist in setting consumer expectations Understand the new definitions You should be familiar with the definitions, as they may be different from your current understanding. For Example: Everyone knows what a defect is, well let me describe how the Guide defines a defect: defect means any design, construction or material used in the construction of a new home that is discovered after the commencement of coverage under a home warranty insurance contract and (i) is contrary to the building code, (ii) requires repair or replacement due to the negligence of an owner builder or a residential builder or person for whom the builder or residential builder is by law responsible. (iii) constitutes an unreasonable health and safety risk, or (iv) has resulted in material damage to the new home Pre delivery inspection form (PDI) is a new term for some of the builders in in room; you may use the term Certificate of Possession, however that term does not exist in the Act or Construction Performance Guide There are seven pages of commonly used words defined in the Guide, that you will want to know I would suggest that you compare the language in your documents to ensure, that they reflect the new 9

14 terminology. This is a great opportunity to both review and update your documents 9

15 The New Home Buyer Protection Act Consists of the Statue and Regulations; the regulations clarify and support the statute The Statue and Regulations together form the Act The Home Warranty Insurance Contract issued by your warranty provider specifies the terms and conditions coverage for your homeowner The Home Warranty Insurance Contract must comply with the requirements of the Act The Construction Performance Guide for New Home Warranty in Alberta, is a supporting document, and a must read for anyone in residential construction that interacts with home buyers and homeowners The Guide supports and clarifies the New Home Buyer Protection Act expectations More importantly the Guide identifies what is and what is not a defect and what s covered and what is not covered The Guide has a section titled, About This Guide which you will find very helpful as you turn over a new home The Guide provides important information about things you need to know, from the start of the relationship with your home buyer through to the end of the warranty. It is a tool that will help you explain the legislated warranty to your homeowners 10

16 We encourage feedback for updates, to make the Guide as comprehensive as possible, you can provide your feedback to your warranty provider or to Joan Maisonneuve 10

17 The Guide defines what a defect is. A defect not discovered by a reasonably thorough inspection by a homeowner at the commencement of warranty, remain defects and are covered by the Act So what does that mean? Whether the first or second homeowner files a claim within the warranty period and the claim is for an issue that does not meet the standard set out in the Construction Performance Guide, the defect is covered by the Act In the event that a valid defect exists, the homeowner has the applicable warranty period to file a claim. Warranty is now in a legislated environment and you cannot contract out of the law Two examples of patent defects out of plumb wall (1 in 8ft) vinyl flooring (1 in 12ft) Design, contractual and incomplete work issues (seasonal) not covered under the act Commencement date triggers warranty If a defect is identified prior to commencement of warranty it is not covered by the Act If a defect is identified after commencement of warranty it is covered by the Act Design, contractual and incomplete work issues (seasonal) are not covered under the act The guide specifically directs homeowners to ask their builder questions about warranty Understand your company s policies and procedures as they relate to warranty, service schedules, incomplete work, dispute resolution and claims, holdbacks and seasonal work 11

18 Make sure your staff, that interacts directly with homeowners can explain the key aspects of the legislation, and use the Guide to help facilitate communicate 11

19 The Construction Performance Guide is a dispute resolution tool It will help provide a clear understanding of the rights and responsibilities of the parties Don t wait until you have your first dispute, and have a hearing date set, before you understand the New Home Buyer Protection Act or the Construction Performance Guide The dispute resolution process is identified in section 519 of the Insurance Act The Home Warranty Insurance Contract is between the insurer and insured, make sure you know your warranty provider s claims handling process Mediation, conciliation and arbitration are not contemplated in the Construction Performance Guide or the Act Any disputes related to design, or which are contractual, or relate to incomplete work issues (seasonal), if unresolved, will now be resolved through the Alberta Courts, as will other disputes between the Homeowner and builder Design, contractual, financial, and incomplete work issues are not covered by the New Home Buyer Protection Act Disputes filed in the court system are public The documents identified today, are available to the general public, so rest assured in the event of a dispute, your homeowner and their lawyer and consultants will have read the documents Make sure you understand the legislation Residential construction in Alberta has changed. February 1st 2014 was a significant date that changed residential construction in Alberta. Change is the constant and with the new building code and energy code, change will continue 12

20 Make sure that you keep informed and adapt to the ever changing landscape 12

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23 The Guide is an easy to use reference tool for Claims adjudication or assessments and defining the minimum acceptable standards for performance: Guides intended use: Will assist in interpreting commonly submitted Claims items Provides standards for both covered and not covered items. Eg; Hardwood floor contains too many short boards and not enough long boards.(this is not a defect) Builders are encouraged to utilize the Guide to aid in settling disputes with Homeowners. Reminder The Performance Guide is a public document available to everyone. Be knowledgeable. If you are looking for an issue not listed in the Guide your warranty provider can be of assistance. Some standards that Warranty Providers use to evaluate issues outside the Guide are: Manufacturers specifications such as HRV/HVAC, Hardwood flooring, siding or 15

24 roofing specifications. Alberta Building Code and other Codes (Fire, Electrical, National Building Code) Common or accepted trade standards use of aesthetic condition is no longer permissible so Common or typical building standards can still be used. 15

25 The Guide addresses defects in material and labour for the prescribed warranty period. Defects and warranty periods are described in the front matter of the Guide and defined in the NHBPA (the Act) and the Regulations. When a discrepancy exists the Act and Regulations take precedent or will govern interpretation of specific entries in the guide. Some definitions have been changed or altered and Builder s need to be aware of these and the potential impact on warranty Claims: Structural Defect Any defect in materials, labour and design that results in the failure of a load bearing part of the new home, and any defect that causes structural damage that materially and adversely affects the use of the new home for residential occupancy. Load bearing post not supported on a column or insufficient fasteners to hold up joist or beam Walkway With respect to defects discussed in this guide, the walkway is the builder constructed surface that serves as the primary pedestrian access to the front of the new home and may include stairs; the walkway may connect the home to the driveway or connect the home to public property. 16

26 Normal Viewing Position and Normal Lighting are still defined as before but now include some specific viewing distance for exterior standards. Typical or usual viewing conditions are: Flooring is viewed from a standing position; Interior finishes are viewed from 5 feet (1.5 m) at 90 or such other parameter as specified in this guide. Exterior finishes are viewed from 20 feet (6 m) or such other parameters as specified in this guide. 6 for exterior paint. Normal lighting is light sourced from the sun or by the fixtures as installed by the Builder. The use of additional light sources; flood lights, flash lights and flashes to enhance an irregularity is not considered normal. Normal lighting is not associated with a particular time of day. Rectified vs Repaired. Rectify is to make right or correct (the defect) by either repair or replacement. All reference to repair has been removed and replaced by rectified but you will find both definitions in the guide. Previously warranty providers could deem an issue as a one time repair as an industry standard, because of this new definition, this is no longer permissible. Properly Painted Surface Did not change in definition A painted surface that is uniform in appearance, color, and sheen and is free of foreign material, lumps, skins, runs, sags, misses, strike through, or insufficient coverage. It is a surface which is free of drips, splatters, spills or overspray which were caused by the contractor s workforce. The intent of the definitions at the front of the Guide to is to apply them to any pertinent issue for clarification. 16

27 Documenting the condition of the home, with your homeowner, prior to delivery will aid your warranty provider in establishing which items (if any) are covered under your warranty protection and which are not. Noted on COP (Certificate of Possession) or Pre-delivery Inspection is no longer used in each Guide entry. Replacing this is a reference to the Pre-delivery Inspection on page 18 of the front matter Highlights: Pre delivery inspection form completed at the time of closing or settlement. Critical document for builders and warranty providers Depending on your provider they may be called a COP and/or PD Complete them with your homeowner on or just prior to possession day as suggested by your warranty provider. Take as much time as needed and be thorough (ensure this is completed by you or an authorized representative with the homeowner) Record damaged, incomplete or missing items or anything that is not working properly especially major items. It is highly recommended that Builders not use a third party (Realtor, Home Inspector) to complete this document. This document is tied to your 17

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29 Homeowner Maintenance. Warranty Providers may not be able to deny a Claim based on a lack of homeowner maintenance if the homeowner was not given material or information regarding maintenance. This document and your own diligence in preparing it with your homeowner will make a difference in mitigating potential future Claims. Wording in the Standard (14.19 Ice damming) now includes Damage resulting from maintenance not conducted in keeping with maintenance documentation provided to the owner by the warranty provider or Builder, or from additions, deletions or alterations made by the homeowner is not covered. Some critical issues to ensure: Homeowners should be instructed and understand how to operate and maintain the home and the associated systems, all manufacturers warranty documents etc. have been provided. Document the transaction of home owner maintenance training or the exchange of HO maintenance instructions. 18

30 See your provider for maintenance guides. If Homeowners have been instructed and understand how to operate and maintain the home and the associated systems, all manufacturers warranty documents etc. have been provided you can manage your liability exposure. 18

31 Repeat Claims As before, the insured HO can put in a claim multiple times over the warranty period. Record keeping by the Builder will certainly be extended with the standard 10 year structural warranty. For example there may also be instances where a HO whose had a 1 year M&L defect in a foundation wall rectified enter another claim for the same issue but 3 years or 8 years later for a BE or a Structural concern. Repeat Claims on the same issue The Guide also addresses, within a particular standard and in the Claim response, repeat claims on the same issue will be evaluated by warranty provider on a case by case basis. Warranty Providers will be responding to those claims. For example standard 6.14 Exterior door assembly is not providing a seal against elements (elaborate: e.g. Tighten a short hinge screw works for a couple months and then loosens again = 19

32 repeat repair). Again, there are no one time repairs. Prior to Mandatory Warranty, warranty providers were, to some degree, able to interpret standards on many cosmetic or aesthetic issues relative to the home. This will no longer be the case. Home warranty regulations defines warranty of repairs of defects. The Home Warranty Insurance Regulation section 5 9(1) ; Warranty of Repairs of Defects state; All repairs and replacements made to rectify defects in materials and labour until the later of the first anniversary of the date of completion of the repair or replacement /and the expiry of coverage for that type of defect under the home warranty insurance policy. Previously warranty providers could deem an issue as a one time repair as an industry standard, because of this new definition, this is no longer permissible. In the warranty insurance Regulation 5 9(2) it states: If an insured accepts payment from a Warranty Provider in lieu of repairs or replacement to rectify a defect, then no further warranty coverage applies to the defect covered by the payment. Builders and warranty providers need to ensure their record keeping is up to date to avoid repeat payouts or Claims calls. 19

33 The guide is a collection of items used to help interpret coverage afforded to an insured under the legislation and the minimum standards/acceptable performance condition that must be met. It is not related to a Builders specific contracted standard. Previously noted references to outside agencies and standards have been deleted from the Performance Guide, acceptable performance condition. You will not see reference to the COP, Drywall level finish or master painting institute. The issue will be inspected and it will either fall into the APC (defect) or it will not (no defect) 20

34 Builders familiar with previous Standards Guides may notice some significant new content throughout the Performance Guide as well as new coverage terms: Items relating to the Building Envelope or systems in the home may be covered under two warranty provisions. The material and labour warranty is in place for the type of material and the workmanship used in any specific component. The 2 year systems, 5 year BE or 10 year Structural is in place for the performance of those materials as they relate to the envelope or Structure. 2.4 Foundation wall leaks carries a 1 year M&L and 5 year BE. The warranties run concurrently 2.5 Cast in place concrete foundation wall is cracked is 1 year M&L and 10 yr structural. 21

35 Or 4.10 Window unit leaks during rainfall. 1 year M&L and 5 year BE 4.11 Window perimeter detailing is causing water intrusion into the interior living space 5 year BE warranty, It will be more critical to ensure your building envelope details are sound and the on site application of those details are inspected and done correctly to mitigate future liabilities. 21

36 14.7 Asphalt shingles do not overhang the roof sheathing the proper amount; 1 year material and labour 5 year Building Envelope Supply and drain pipes are noisy; 22

37 1year material and labour 2 year delivery and distrubution. New content under Carpentry and framing: 4.1 Floor framing has been damaged by weather during construction! The APC states: joists and sub floors shall be sound and free from defects caused by weathering during construction and must provide a suitable base for further framing and for finished flooring. 1 year material and labour & 10 years Structural. 22

38 Multiple family dwelling means a building containing 2 or more dwelling units. 8 entries to address common concerns of Multi unit Residents. 4 entries address some common noise complaints. 1 addresses air infiltration at suite doors. 1 concrete block foundation cracked. 1 concrete ceiling cracked in High Rise construction. Lastly clothes dryer ducting is leaking moisture. The 4 entries relating to the common noise complaints are noted as Not a Defect all covered under 1 year material and labour warranty only If there is time, elaborate on those that are not warrantable. 23

39 As you navigate your way through the new Performance Guide you may encounter metric conversion miscalculations, errors in language, misdirected references and / or incomplete wording. Contact your warranty provider for clarification, to report errors and omissions, or to provide proposed entries for future revisions of the Guide. Currently the plan going forward is for the Performance Guide to be reviewed at regular intervals. Again, the Regulations and the Act will take precedence in the event of a dispute. Encourage your Site staff to develop an understanding of the new Guide and to be aware of the new coverages. 24

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