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Nov 2023

Deposit Protection Under Tarion - What are the Differences in How Deposit Funds are Treated for Freehold Homes vs New Condos?

By Slonee Malhotra and Ashley Hizo

Deposit Protection is available to purchasers of new homes under Ontario’s new home warranty and protection plan, administered by Tarion.

If a purchaser signs an agreement to purchase a new freehold home or new condominium unit and gives the builder a deposit, Tarion protects those funds up to a certain limit in the event that the sale is not completed for reasons such as:

  • the builder going bankrupt;
  • the builder fundamentally breaching the purchase agreement; or
  • if the buyer has a statutory right to treat the purchase agreement as terminated.

Is the Purchaser’s Deposit Insured Under Tarion?

For new freehold homes, if a buyer signed the purchase agreement before January 1, 2018, their deposit is protected by Tarion up to a maximum of $40,000. If the agreement of purchase and sale is signed on or after January 1, 2018, a buyer’s deposit coverage depends on the purchase price of the new home. For freehold homes with a sale price of $600,000 or less, Tarion will cover up to a maximum of $60,000. For freehold homes with a sale price over $600,000, Tarion will cover 10% of the purchase price to a maximum of $100,000.

For new condominium units, Tarion insures the first $20,000 of the purchaser’s deposit. Deposits must be placed in a trust pursuant to s.81(1) the Condominium Act and monitored by the project’s escrow agent (usually the builder’s lawyer). All deposits for new condominium units (including deposits toward upgrades) are statutorily protected and are put into a legal trust so that the funds cannot be spend at will by the developer. The builder is required to arrange for “excess condo deposit insurance” (ECDI Coverage) if the builder wishes to release funds over and above $20,000 into the project. Any funds which are released into the project are approved by a cost consultant and the ECDI provider (known as the surety).

What Happens to the Deposit if the Builder Terminates the Agreement?

For new freehold homes, if a purchase agreement is terminated by the builder, while the purchaser is entitled to recover their deposit funds, it may be challenging for the purchaser to recover same if the funds are not held by the builder’s lawyer in a trust account.

For new condominium units, if a purchase agreement is terminated by the builder, the purchaser’s deposit must be returned in full within 10 days of the notice confirming the termination. As the funds are required to be held in a trust account, the purchaser can rest easy in knowing that their funds would be returned.

An Example

With the rising costs of labour and interest rates, several new condominium housing development projects in the region have stalled. For instance, Elevate Condos in Kitchener has recently been placed into receivership in recent weeks after failing to make over $64 million in payments. It is unclear whether purchasers of these condo units have received notices terminating their agreements of purchase and sale. If so, the builder would be obligated to return all deposit funds within 10 days of sending the notice.

How to Make a Claim to Tarion for the Return of the Purchaser’s Deposit?

In order to make a deposit protection claim, purchasers must contact Tarion directly to request a “Deposit Refund Claim Form.” It is important to note that if a purchaser pays to reserve a new free-hold home or condominium unit before signing a purchase agreement, this payment would not be protected by Tarion.

We always recommend consulting with a lawyer before entering into an agreement to purchase a new home. For any questions related to this article or legal assistance regarding a real estate matter, please reach out to one of our experienced real estate lawyers at SorbaraLAW.