De-enrolling Homes from Home Warranty Insurance and the Homeowner Protection Act
REGULATORY BULLETIN No. 10
02/12
De-enrolling Homes from Home Warranty
Insurance and the Homeowner Protection Act
Who should read this bulletin?
Licensed Residential Builders (including developers and general contractors), property owners working
with builders to construct a custom home, real estate licensees, legal professionals and home buyers.
Overview
Continued enrollment of a new home with home warranty insurance is essential throughout its
construction and sale. If a new home is de-enrolled from home warranty insurance for any reason,
construction cannot continue. Furthermore, the new home cannot be offered for sale or sold
without being re-enrolled with home warranty insurance. Continued de-enrollment of a new home
may contravene the Homeowner Protection Act (the “Act”) and can result in penalties for the
builder, developer or owner.
Legal requirements under the Act
Under section 22 of the Homeowner Protection Act, a person must not build, sell, or offer to sell
a new home unless it is first registered for coverage by home warranty insurance provided by a
warranty provider. See Regulatory Bulletin No. 8: Registering and Enrolling New Homes for
Home Warranty Insurance Coverage for more information about registering and enrolling new
homes.
What is a de-enrollment?
A de-enrollment occurs when the commitment for home warranty insurance on a home or multi-
unit project is cancelled. BC Housing does not initiate de-enrollments. De-enrollments occur at
either the builder’s or developer’s request to the warranty provider or on the warranty provider’s
initiative. Some common reasons for de-enrollment include:
•
Cancellation of the project
•
Cancellation of contract between general contractor and developer
•
Cancellation of a contract between builder and custom home owner
•
Failure of builder to meet terms and conditions of warranty provider
•
Sale of the project during construction
•
Foreclosure on project during construction
No. 10
|
MAY 2012
Regulatory Bulletins are a
series of publications
developed by BC Housing
to provide information on
the Homeowner Protection Act.
All Regulatory Bulletins can be
viewed at www.bchousing.org.
This bulletin and the website
are for convenience only, they
do not constitute legal advice.
For complete details consult
the Act and its regulations.
For more information contact:
Licensing and Consumer Services
Branch of BC Housing
Phone: 604-646-7050
Toll-free: 1-800-407-7757
Fax: 604-646-7051
www.bchousing.org
@RegistrarBCH
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REGULATORY BULLETIN No. 10
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What happens when de-enrollment occurs?
The consequences of de-enrollment and options to remedy are different depending on the reason
for the de-enrollment and at what stage of construction it takes place. In each case, de-enrollment
puts the owner and builder in the position of no longer satisfying the requirements of section 22
of the Act. This situation must be remedied before continuing with construction, offering for sale,
and/or selling of the new home.
1. Cancellation of project
In general, de-enrollments that occur earlier in the construction process are easier to manage.
When a project is cancelled and de-enrollment occurs before construction begins (e.g. excavation
stage) the owner builder or developer is in the same position than if enrollment never occurred.
If the project is revived, the current owner, developer or builder must ensure a new enrollment is in
place before obtaining a building permit and starting construction.
2. Cancellation of contract between general contractor and developer
• If a licensed developer originally enrolled the project, the enrollment can continue even
if the general contractor changes at any stage of construction. It is the developer who
accepts liability for construction by enrolling the project. A general contractor needs to
be a Licensed Residential Builder.
• If the licensed general contractor enrolled the project and is no longer on the job, a licensed
developer may enroll the project at any stage of construction in order to continue.
• If the general contractor changes prior to the new home or project being substantially complete,
(definition below) the developer may wish to have the new general contractor enroll the
project. However, the warranty provider must agree to this arrangement prior to re-enrollment.
In most cases, the warranty provider will prefer the developer to enroll the project. Note: The
general contractor who enrolls the home assumes responsibility under a policy of home warranty
insurance for the work arranged by the previous builder as well as their own work required to
complete the project.
• If the general contractor changes after the new home or project is substantially complete, the
developer may enroll the project themselves. Note: A general contractor cannot enroll a residential
construction project under a policy of home warranty insurance if they did not substantially
complete the construction of the residential project.
3. Cancellation of a contract between builder and custom home owner
In custom home contracts, the options available when an owner and Licensed Residential Builder
part ways depend on the stage of construction:
If the home is not yet substantially complete, the owner has two options:
i. Hire a new general contractor who must register the new home and ensure it is enrolled in
home warranty insurance; or
ii. Successfully apply for Owner Builder Authorization from Licensing and Consumer Services
branch of BC Housing and complete the home, acting as his or her own general contractor.
In each case, the individual who takes over the project assumes all liability for the home from the
beginning of construction to its completion, without exemptions or exclusions. A general contractor
who enrolls the new home assumes responsibility under a policy of home warranty insurance for
all work arranged by the previous builder, as well as all work required to complete the home.
Similarly, an owner builder takes on full statutory warranty liability for all previous work plus all
work required to complete the home.
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If the home is substantially complete when the contract ceases:
• General contractors are still legally obligated to stand behind
their work as a residential builder. If they de-enroll the home at
this stage, they would be contravening section 22 of the Act and
would then be required to re-enroll the home.
• Builders should be aware that, in addition to facing possible
penalties imposed by BC Housing, re-enrolling a home bears
additional costs imposed by the warranty provider in terms of
re-inspections, administrative fees and possible higher
enrollment fees.
Exclusions: Builders and owners in this situation should note that the
policy of home warranty insurance may exclude any design, labour or materials provided by the
owner. When the owner completes the home themselves (or by hiring another builder or sub-
trades) after the builder leaves the substantially complete project, the builder will not be liable
under the policy for the work completed by the owner or the owner’s trades. It’s important that
both the builder and owner communicate with the applicable warranty provider to establish what
items were done before and after the contract terminated.
4. Failure of builder to meet terms and conditions of warranty provider
When Licensed Residential Builders enroll a new home in home warranty insurance, they contract
and sign terms and conditions with their warranty provider. If the builder breaches those terms
and conditions, including being unable or unwilling to correct construction deficiencies
during construction, warranty providers may de-enroll the project in order to manage their risk.
The consequences for the general contractor, developer and/or owner is the same as for any other
cause of de-enrollment. Continued construction, offer to sell, or sale of the new home cannot
take place without replacement documentation in place. In the rare case that a warranty provider
de-enrolls a custom home that is substantially complete or final inspection has occurred,
BC Housing enforces re-enrollment. Builders and owners are advised to work cooperatively with
their warranty provider to avoid mistakes that may lead to de-enrollment and costly re-enrollment.
What does “substantially complete” mean?
A builder’s responsibility for a substantially complete new home derives from the definition of
residential builder in section 1 of the Act:
“ residential builder” means a person who engages in, arranges for or manages all or
substantially all of the construction of a new home or agrees to do any of those things, and
includes a developer and a general contractor;
Please note that the term ‘lock-up’ does not equate to substantial completion. In most cases,
a substantially complete home is one for which a policy of home warranty insurance could be
issued for all of the structural and building envelope components of the home at a minimum.
The test is one of reasonableness – whether a reasonable person would consider that the builder
had managed all or substantially all of the construction of a new home. For example, a home
could also be substantially complete if a few items were incomplete from the building envelope
component but a significant amount of interior finishing was complete in lieu. The Licensing
and Consumer Services branch can be contacted for guidance on what reasonably constitutes
a substantially complete home for the purposes of the Act.
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REGULATORY BULLETIN No. 10
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5. Sale of project during construction
A new home or multi-unit project may be sold during construction, provided that coverage for
home warranty insurance remains in place (for example, if the general contractor stayed on the
job or substantially completed construction but the owner or developer wants to sell the property).
If the project is de-enrolled during construction and the owner wishes to sell, the project must
either be re-enrolled by a Licensed Residential Builder prior to offering the property for sale, or
special permission must be sought from the Registrar of BC Housing under section 22 of the Act.
6. Foreclosure on project during construction
In most cases, depending on the details of the court order, the entity having conduct of sale for
the property as a result of foreclosure becomes the party responsible for ensuring home warranty
insurance is in place prior to sale. In this situation, the Act still requires home warranty insurance
coverage to be in place prior to offering for sale and/or sale; there are no special exemptions or
provisions for mortgage-holders or receivers under these circumstances.
If home warranty insurance remains in place and the new home or project is offered for sale or
sold, the warranty provider may want to renegotiate the provision of security from the mortgage-
holder since the original developer or builder is very unlikely to be able to meet their financial
obligations under the original terms and conditions. If the project is de-enrolled, the mortgage-holder
or receiver will have to arrange for re-enrollment prior to offering for sale, regardless of whether the
original builder is available to assist with either the security or remedying defects that may arise.
7. De-enrollment after home warranty insurance policy has commenced
Note: Insurance Act Regulations do not permit a policy of home warranty insurance to be waived.
Therefore, once a policy of home warranty insurance has commenced it may not be cancelled, including
by de-enrollment.
New Homes Registry
The New Homes Registry, available on BC Housing’s website, is an important tool for prospective
home buyers, real estate licensees and legal professionals to assist with ma
king purchasing decisions
and completing real estate transactions related to new homes. All new homes registered with
Licensing and Consumer Services on or after November 19, 2007 are included in the registry as well
as details of any de-enrollments associated with those homes. The Licensing and Consumer Services
branch at [email protected] can provide further details about the new home and the
de-enrollment as well as information about all new homes registered prior to November 19, 2007.
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