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Real Property - ONHWPA (3). McKee v. Tarion Warranty Corp.
In McKee v. Tarion Warranty Corp. (Ont Div Ct, 2026) the Ontario Divisional Court dismissed a LAT Tarion appeal, this brought against the denial of the appellant's "claims, after they refused Tarion’s offer of $14,800 (plus HST upon receipt of paid repair invoices) to resolve the warranted defects" "related to moisture-related defects in the exterior brick cladding".
The court canvasses the ONHWPA consumer protection regime, here in this warranty claim case:II. The statutory scheme
[7] The ONHWPA is consumer protection legislation that imposes mandatory statutory warranties on vendors of new homes under the Ontario New Home Warranties and Protection Plan. Among other things, the ONHWPA provides for the payment of compensation to a new homeowner where the vendor of their home has failed to honour the warranties: ONHWPA, s. 14.
[8] Tarion is a not-for-profit corporation designated under the ONHWPA to administer the statutory warranties: see ONHWPA, ss. 2(1), 11(1); Designation of Corporation, O. Reg. 273/04, s. 1.
[9] The statutory warranties remain in effect for up to seven years from the date of possession by the first owner, as set out in the ONHWPA and Administration of the Plan, R.R.O. 1990, Reg. 892 (“Reg. 892”). Under that legislation, there are warranties that apply for one year (“one-year warranty” or “year-end warranty”), two years (“two-year warranty”) and seven years from the warranty commencement date. According to the Tribunal, the warranty in issue before the Tribunal was the one-year warranty: LAT Decision, at para. 1.
[10] Subject to certain exclusions, the statutory warranties include warranties for workmanlike construction, freedom from defects in material, fitness for habitation, compliance with the Building Code,[1] freedom from water penetration, and freedom from major structural defects.
[11] Section 13(1) of the ONHWPA provides:Warranties
13 (1) Every vendor of a home warrants to the owner,
(a) that the home,
(i) is constructed in a workmanlike manner and is free from defects in material,
(ii) is fit for habitation, and
(iii) is constructed in accordance with the Ontario Building Code;
(b) that the home is free of major structural defects as defined by the regulations; and
(c) such other warranties as are prescribed by the regulations. [12] Sections 15(2)(a) and (3) of Reg. 892 provides a narrower, two-year warranty relating to water penetration. Sections 15(2)(a) and 15(3) provided:15 (2) Every vendor of a new home warrants to the owner,
(a) that the home is constructed in a workmanlike manner and is free from defects in materials including windows, doors and caulking such that the building envelope of the home prevents water penetration;
...
(3) The warranties described in subsection (2) apply only in respect of claims made during a two-year warranty period ending on the second anniversary of the date of possession….
[Emphasis added.] [13] The term “building envelope” is defined in s. 15(1):“building envelope” means the wall and roof assemblies that contain the building space, and includes all those elements of the assembly that contribute to the separation of the outdoor and indoor environments so that the indoor environment can be controlled within acceptable limits; [14] To qualify for statutory warranty coverage, an owner must submit a statutory warranty form to Tarion within the applicable warranty period and describe on the warranty form the symptom giving rise to the specific concern in the claim: Reg. 892, ss. 4.2 to 4.6; ONHWPA, s. 14(5.1).
[15] The vendor is afforded an opportunity to resolve the claim items that a homeowner reports. If the homeowner is not satisfied that the vendor has resolved the claim items, the homeowner can request that Tarion conduct a conciliation to assess the claim items and determine whether the vendor has breached a statutory warranty: Reg. 892, ss. 4.2 to 4.6. In these reasons, (i) a claim item that is found to be subject to a statutory warranty is sometimes referred to as a “warranted claim” or a “warranted defect”, and (ii) the terms “warranted” and “warrantable” are used interchangeably to mean the same thing, that is, covered by a statutory warranty.
[16] If Tarion determines that the vendor has breached a statutory warranty, the vendor is afforded a further opportunity to resolve the breach. If the vendor fails to do so, Tarion will resolve the breach directly with the homeowner, either by payment of compensation out of the Guarantee Fund or by effecting repairs: Reg. 892, ss. 5.1(3), 5.1(4).
[17] Compensation for a breach of warranty has statutory limits. A homeowner is entitled to be paid out of the Guarantee Fund for the cost of repair for the warranted defect, and Tarion has no liability for any other damage, direct or indirect: Reg. 892, ss. 6(3), 6(6).
[18] If a homeowner disagrees with a decision by Tarion, the homeowner has an as-of-right appeal to the Tribunal, in which the homeowner has the onus to prove on a balance of probabilities that there is a breach of warranty and the damages caused by the breach: see ONHWPA, ss. 14(3), 14(4); Gill v. Tarion Warranty Corp., 2010 ONSC 1180, 275 O.A.C. 150 (Div. Ct.), at para. 6, leave to appeal refused, [2010] S.C.C.A No. 491.
[19] A party to an appeal before the Tribunal under the ONHWPA may appeal from the Tribunal’s appeal decision to the Divisional Court: Licence Appeal Tribunal Act, 1999, S.O. 1999, c. 12, Sched. G (the “LAT Act”), s. 11(1).
....
[69] Warranty coverage of items 44 and 45 having been determined, the Tribunal’s task was to determine the damages payable to the McKees from the Guaranty Fund relating to efflorescence and persistent wetness on the exterior cladding on the front of the house. Consistent with s. 14(3) of the ONHWPA and Gill, at para. 6, the Tribunal correctly stated the applicable test, at para. 11 of the LAT Decision:The appellants have the burden of demonstrating, on a balance of probabilities, that the amount of damages arising from the warranted defects (persistent wetness and efflorescence) on the brick on the front of their home exceeds the value offered by Tarion. [70] Contrary to the McKees’ submission, the Tribunal properly considered the scope of damages. The Tribunal’s jurisdiction is limited to considering items the homeowner claims within the warranty period and about which Tarion made a decision relating to coverage and compensation: Gale v. Tarion Warranty Corp., 2024 CanLII 102090 (ON LAT), at para. 74; Toronto Standard Condominium Corp. No. 2541 and Tarion Warranty Corp., 2022 CanLII 78805 (ON LAT), at para. 113; Ragoobar v. Tarion Warranty Corp., 2022 CanLII 46851 (ON LAT), at para. 235. Matters not related to the reported defects are not within the scope of an appeal to the Tribunal: Gale, at para. 75.
....
[73] .... a remedy under the ONHWPA must be proportional: Grewal v. Tarion Warranty Corp., 2023 CanLII 110955 (ON LAT), at para. 30. A complete rebrick of the home is disproportionate and overbroad in response to the warranted defects in this case. The onus was on the McKees to establish, on a balance of probabilities, that their desired remedy was necessary and appropriate to correct the items identified as being covered by the warranty: Grewal, at para. 46; 9632 v. Tarion Warranty Corp., 2018 CanLII 117014 (ON LAT), at para. 23. The Tribunal did not err in law in finding that the McKees failed to do so. . Shah v. 625 Sheppard Bayview Village GP Inc. [arbitration]
In Shah v. 625 Sheppard Bayview Village GP Inc. (Ont Divisional Ct, 2025) the Divisional Court granted a JR which sought "an order of certiorari quashing the costs award", here of an ONHWPA arbitrator.
The court distinguished 'arbitrator costs' and legal fees (which are addressed in "s.15(c) of the Tarion Form addended as part of the APS"):[2] The Applicant seeks an order that it recover from the Respondent his legal fees and disbursements under the specific regime that applies under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (the “ONHWPA”) and his arbitration agreement, including s. 15(c) of the Tarion Addendum to the parties’ Agreement and Purchase and Sale (the “APS”). The Tarion Addendum is statutorily required, as set out in s. 8(1)1 of O. Reg. 165/08 under the ONHWPA.
[3] There is no issue that the ONHWPA is consumer protection legislation aimed at protecting purchasers of new homes in Ontario: Tarion Warranty Corporation v. Kozy, 2011 ONCA 795, at para. 2.
....
[5] With respect to disputes that may arise, s. 17(4) of the ONHWPA states as follows:Every purchase agreement and construction contract between a vendor and prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration, subject to appeal to the Divisional Court, and the Arbitration Act, 1991 applies. [6] In accordance with the above, the Tarion Addendum to the APS included subsection 15(a), which provided that:The Vendor and Purchaser agree that disputes arising between them relating to termination of the Purchase Agreement under section 11 shall be submitted to arbitration in accordance with the Arbitration Act, 1991 (Ontario) and subsection 17(4) of the ONHWP Act. [7] Section 15(c) of the Tarion Addendum to the APS provided for a costs regime that is markedly different from the Rules of Civil Procedure:The Vendor shall pay the costs of the arbitration proceedings and the Purchaser’s reasonable legal expenses in connection with the proceedings unless the arbitrator for just cause orders otherwise. [8] The Applicant commenced an arbitration seeking an order for specific performance and/or an order for damages he alleged to have sustained due to the Respondent’s cancellation of the project.
[9] The parties agreed to appoint Arbitrator Huberman and executed an Agreement to Arbitrate and Terms of the Appointment (the “Arbitration Agreement”). The Arbitration Agreement provided that: “the Award is final, binding, and subject only to the appeal rights under the Arbitration Act, 1991”.
[10] The Arbitration Agreement did not deal with appeals. As a result, there could be an appeal on questions of law, with leave, is provided for under s. 46(1) of the Arbitration Act, 1991.
....
[13] The Applicant/Purchaser argued that the Respondent/Vendor should pay the Arbitrator’s fees and disbursements, and pay his legal fees, both pursuant to s. 15(c) of the Tarion Form addended as part of the APS. As noted above, s. 15(c) requires an order in favour of the Purchaser unless the arbitrator, for just cause, orders otherwise.
[14] The Respondent argued that the Applicant should pay both the Arbitrator’s fees and disbursements and pay the Respondent’s legal fees on a substantial indemnity basis.
[15] The Arbitrator released his decision on March 18, 2024. In it, he held that the Vendor/Respondent should pay the Arbitrator’s fees and disbursements, finding no just case to order otherwise. However, he denied the request that the Vendor pay the Purchaser’s reasonable legal expenses. He applied costs principles from the Rules of Civil Procedure and ordered that the Applicant pay the Respondent’s costs on a substantial indemnity basis.
....
Issue 2 - Was the Arbitrator’s Decision Reasonable?
[18] The Arbitrator’s costs decision decided two things – who paid the Arbitrator’s fees, and who paid the legal fees of which party and in what amount. His decisions conflict.
[19] This Court has no issue with the Arbitrator’s decision that the Respondent was required to pay the Arbitrator’s fees and disbursement. The decision is reasonable and there is a clear, logical path of reasoning explaining the result. However, the Arbitrator’s decision that the Applicant had to pay the Respondent’s legal fees and disbursements on a substantial indemnity basis is not reasonable. We say this for these reasons.
[20] First, the starting point is s. 15(c) of the Tarion Addendum to the APS, which imposed the following costs rule on the Arbitration:The Vendor shall pay the costs of the arbitration proceedings and the Purchaser’s reasonable legal expenses in connection with the proceedings unless the arbitrator for just cause orders otherwise. [Emphasis added.] [21] Subsection 15(c) changes the costs regime from the costs rules imposed by s. 131 of the Courts of Justice Act, and the Rules of Civil Procedure. That regime does not govern the question of who reimburses whom for fees and disbursements. The general rule of costs following the event under the Rules of Civil Proceedings does not govern. Instead, purchasers are presumed entitled to their costs regardless of the outcome of the Arbitration. Subsection 15(c) provides that the Arbitrator may only deviate from the presumption that Vendors pay the Arbitrator’s fees and disbursements and the reasonable fees and disbursements of the Purchaser “for just cause”. The phrase “for just cause” is not defined and the Arbitrator does not define it. It is notable that the words “in accordance with standard costs principles” or something similar were not used.
[22] The Arbitrator acknowledged that the ONHWPA is a remedial statute designed to offset the significant power imbalance between the Vendor and the Purchaser in disputes arising from a real estate transaction (see: paras. 39 - 40 of his interlocutory costs award quoted at p. 6 of the Costs Endorsement, and para. 68 to 70 of the latter).
[23] Notwithstanding this acknowledgement, in his explanation for awarding substantial costs to the Vendor/Respondent, the Arbitrator relies on traditional civil litigation costs rules and principles. The Arbitrator does not rationally connect those principles to the purpose of the ONHWPA or the markedly different costs regime that does apply.
[24] Further, the Arbitrator’s costs decision is internally inconsistent. It does not follow a coherent chain of analysis. Based on the same factual matrix and mandated costs regime, he finds that there is no just cause to depart from the presumption that the Vendor shall pay for the Arbitrator’s fees and disbursement, as set out in s. 15(c), but that there was just cause to depart from the presumption that the Vendor shall pay the Purchaser’s reasonable fees and disbursements. We cannot trace the Arbitrator’s reasoning without encountering the fatal flaws as discussed above.
[25] The above errors render the decision to require that the Applicant pay costs unreasonable: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at paras. 85, 103. . Shah v. 625 Sheppard Bayview Village GP Inc. [arbitration]
In Shah v. 625 Sheppard Bayview Village GP Inc. (Ont Divisional Ct, 2025) the Divisional Court granted a JR which sought "an order of certiorari quashing the costs award", here of an ONHWPA arbitrator.
The court distinguished 'arbitrator costs' and legal fees (which are addressed in "s.15(c) of the Tarion Form addended as part of the APS"):[2] The Applicant seeks an order that it recover from the Respondent his legal fees and disbursements under the specific regime that applies under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (the “ONHWPA”) and his arbitration agreement, including s. 15(c) of the Tarion Addendum to the parties’ Agreement and Purchase and Sale (the “APS”). The Tarion Addendum is statutorily required, as set out in s. 8(1)1 of O. Reg. 165/08 under the ONHWPA.
[3] There is no issue that the ONHWPA is consumer protection legislation aimed at protecting purchasers of new homes in Ontario: Tarion Warranty Corporation v. Kozy, 2011 ONCA 795, at para. 2.
....
[5] With respect to disputes that may arise, s. 17(4) of the ONHWPA states as follows:Every purchase agreement and construction contract between a vendor and prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration, subject to appeal to the Divisional Court, and the Arbitration Act, 1991 applies. [6] In accordance with the above, the Tarion Addendum to the APS included subsection 15(a), which provided that:The Vendor and Purchaser agree that disputes arising between them relating to termination of the Purchase Agreement under section 11 shall be submitted to arbitration in accordance with the Arbitration Act, 1991 (Ontario) and subsection 17(4) of the ONHWP Act. [7] Section 15(c) of the Tarion Addendum to the APS provided for a costs regime that is markedly different from the Rules of Civil Procedure:The Vendor shall pay the costs of the arbitration proceedings and the Purchaser’s reasonable legal expenses in connection with the proceedings unless the arbitrator for just cause orders otherwise. [8] The Applicant commenced an arbitration seeking an order for specific performance and/or an order for damages he alleged to have sustained due to the Respondent’s cancellation of the project.
[9] The parties agreed to appoint Arbitrator Huberman and executed an Agreement to Arbitrate and Terms of the Appointment (the “Arbitration Agreement”). The Arbitration Agreement provided that: “the Award is final, binding, and subject only to the appeal rights under the Arbitration Act, 1991”.
[10] The Arbitration Agreement did not deal with appeals. As a result, there could be an appeal on questions of law, with leave, is provided for under s. 46(1) of the Arbitration Act, 1991.
....
[13] The Applicant/Purchaser argued that the Respondent/Vendor should pay the Arbitrator’s fees and disbursements, and pay his legal fees, both pursuant to s. 15(c) of the Tarion Form addended as part of the APS. As noted above, s. 15(c) requires an order in favour of the Purchaser unless the arbitrator, for just cause, orders otherwise.
[14] The Respondent argued that the Applicant should pay both the Arbitrator’s fees and disbursements and pay the Respondent’s legal fees on a substantial indemnity basis.
[15] The Arbitrator released his decision on March 18, 2024. In it, he held that the Vendor/Respondent should pay the Arbitrator’s fees and disbursements, finding no just case to order otherwise. However, he denied the request that the Vendor pay the Purchaser’s reasonable legal expenses. He applied costs principles from the Rules of Civil Procedure and ordered that the Applicant pay the Respondent’s costs on a substantial indemnity basis.
....
Issue 2 - Was the Arbitrator’s Decision Reasonable?
[18] The Arbitrator’s costs decision decided two things – who paid the Arbitrator’s fees, and who paid the legal fees of which party and in what amount. His decisions conflict.
[19] This Court has no issue with the Arbitrator’s decision that the Respondent was required to pay the Arbitrator’s fees and disbursement. The decision is reasonable and there is a clear, logical path of reasoning explaining the result. However, the Arbitrator’s decision that the Applicant had to pay the Respondent’s legal fees and disbursements on a substantial indemnity basis is not reasonable. We say this for these reasons.
[20] First, the starting point is s. 15(c) of the Tarion Addendum to the APS, which imposed the following costs rule on the Arbitration:The Vendor shall pay the costs of the arbitration proceedings and the Purchaser’s reasonable legal expenses in connection with the proceedings unless the arbitrator for just cause orders otherwise. [Emphasis added.] [21] Subsection 15(c) changes the costs regime from the costs rules imposed by s. 131 of the Courts of Justice Act, and the Rules of Civil Procedure. That regime does not govern the question of who reimburses whom for fees and disbursements. The general rule of costs following the event under the Rules of Civil Proceedings does not govern. Instead, purchasers are presumed entitled to their costs regardless of the outcome of the Arbitration. Subsection 15(c) provides that the Arbitrator may only deviate from the presumption that Vendors pay the Arbitrator’s fees and disbursements and the reasonable fees and disbursements of the Purchaser “for just cause”. The phrase “for just cause” is not defined and the Arbitrator does not define it. It is notable that the words “in accordance with standard costs principles” or something similar were not used.
[22] The Arbitrator acknowledged that the ONHWPA is a remedial statute designed to offset the significant power imbalance between the Vendor and the Purchaser in disputes arising from a real estate transaction (see: paras. 39 - 40 of his interlocutory costs award quoted at p. 6 of the Costs Endorsement, and para. 68 to 70 of the latter).
[23] Notwithstanding this acknowledgement, in his explanation for awarding substantial costs to the Vendor/Respondent, the Arbitrator relies on traditional civil litigation costs rules and principles. The Arbitrator does not rationally connect those principles to the purpose of the ONHWPA or the markedly different costs regime that does apply.
[24] Further, the Arbitrator’s costs decision is internally inconsistent. It does not follow a coherent chain of analysis. Based on the same factual matrix and mandated costs regime, he finds that there is no just cause to depart from the presumption that the Vendor shall pay for the Arbitrator’s fees and disbursement, as set out in s. 15(c), but that there was just cause to depart from the presumption that the Vendor shall pay the Purchaser’s reasonable fees and disbursements. We cannot trace the Arbitrator’s reasoning without encountering the fatal flaws as discussed above.
[25] The above errors render the decision to require that the Applicant pay costs unreasonable: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at paras. 85, 103. . Allegra On Woodstream Inc. v. York Regional Standard Condominium Corporation No. 1284
In Allegra On Woodstream Inc. v. York Regional Standard Condominium Corporation No. 1284 (Div Ct, 2025) the Divisional Court dismissed an appeal, here from an LAT ruling that "requires Tarion Warranty Corporation (“Tarion”) to pay the respondent ... to remedy major structural defects the Tribunal found to exist in underground garage facilities constructed by Allegra", this under the Ontario New Home Warranties Plan Act.
Here the court noted it's jurisdiction and SOR for such an appeal:Jurisdiction
[10] This court has jurisdiction pursuant to s. 11(1) of the Licence Appeal Tribunal Act, 1999, S.O. 1999, c. 12. The appeal is not restricted to questions of law.
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