Guide to 2-5-10 Warranties

Guide to 2-5-10 WarrantiesLESPERANCE MENDESSuite 410, 900 Howe Street,Vancouver BC Canada V6Z 2M4t 604-685-3567f 604-685-7505www.lmlaw.ca© LESPERANCE MENDES

Guide to 2-5-10 WarrantiesThe Homeowner Protection Act came into effect on July 1, 1999. The benefits of the “2-5-10” home warranty established by this statute are not automatic. Strata corporationsand owners must take steps to preserve and enforce their rights. These steps are setout in their warranty certificates, the Homeowner Protection Act and the HomeownerProtection Act Regulation (the “HPA Regulation”). Failure to comply with theserequirements may result in a loss of coverage.2-5-10 warranties are issued to strata corporations, strata lot owners and the owners ofresidential buildings and detached homes. Our Guide focuses on 2-5-10 commonproperty warranties issued to strata corporations.This Guide sets out steps that may be followed to reduce the risk that a 2-5-10 warranty claim will be denied (it does not address Building EnvelopeRenovation Warranties). While these guidelines are necessarily general, thesuccess of each warranty claim will depend on its particular circumstances.Compliance with this Guide is therefore not a substitute for legal advice, anddoes not guarantee that a particular warranty claim will be approved.AN OUNCE OF PREVENTION Be informed.Section 20 of the Strata Property Actrequires developers to deliver copies ofthe following documents at the firstAGM:• all original and amended plans filedwith the municipality,• all documents indicating the locationof pipes, wires, cables, chutes, ductsand other facilities, if there is reasonto believe that their location is not asshown on the plans,• a list of the names and addresses of allconsultants, project managers,contractors, subcontractors andpersons who supplied labour ormaterials for the major componentsof the condominium,• warranties, manuals, drawings,operating instructions, service guides,manufacturers’ documentation andother similar documents respectingthe construction, installation,operation, maintenance, repair andservicing of any common property orassets,• all contracts entered into by or onbehalf of the strata corporation, and• the disclosure statement and attachedcontract of purchase and sale withoriginal purchasers, which may set outadditional warranties.Guide to 2-5-10 Warranty Reporting 2

These documents provide criticalinformation for the proper maintenanceof the building and the enforcement ofthe strata corporation’s legal rights. Ifcopies are not already in the strata’spossession, they should be requested atan early opportunity. Implement a reasonable maintenanceprogram.2-5-10 warranties exclude damage causedby inadequate or improper maintenance.Any maintenance manual provided by thebuilder or warranty provider shouldtherefore be reviewed carefully. If thereis no maintenance manual or the manualis unclear or incomplete, the stratacorporation should seek advice from aqualified consultant or maintenancecontractor on the adequacy of theirmaintenance program. Perform emergency repairs.Owners must take all reasonable steps toprevent damage when a defect requires“immediate attention”: HPA Regulation,section 17(3). If time permits, thewarranty provider and builder should benotified before beginning repairs.Consideration should also be given tomaking a claim under the stratacorporation’s property insurance. Perform non-emergency repairs only ifcoverage is denied.Owners who perform work without firstnotifying their warranty provider andbuilder and giving them a reasonableopportunity to investigate and repair thedefects may waive their warranty rights.Non-emergency repairs should only beperformed after the warranty claim isreported and the warranty provider hasdenied the claim. Retain an independent consultant toprepare an end-of-warranty report.Strata corporations sometimes fail toreport defects by a warranty deadlinebecause they do not recognize signs oftrouble. Having a consultant performend-of-warranty inspections reduces therisk that a warranty deadline will bemissed. It is best to have warrantyinspections performed by someone withno connection to the project and noongoing relationship with the builder orwarranty provider.Ideally, warranty inspections should becompleted and reports prepared prior toeach warranty deadline. Mould testing isalso recommended for buildings showingsigns of water ingress, as this may alertowners to a hazard within their building. Maintain a warranty file.Keeping all warranty-related documentsin one location makes it easy to keep newCouncil members and property managersinformed. It also facilitates thepreparation of notices of claim and is ahandy reference for any consultants orlawyers who may be retained.The warranty file may be organized asfollows:• 2-5-10 Warranty Certificate: includethe warranty and schedule of expirydates.• Contractor Warranties: include allwarranties provided by contractorsand suppliers.• List of Parties: include the list ofconsultants, contractors and suppliersobtained from the developer.• Warranty Correspondence: include indate order all correspondence withthe warranty provider, builder or itscontractors and suppliers regardingGuide to 2-5-10 Warranty Reporting 3

defects, other than those giving noticeof a warranty claim.• Notices of Claim: include in date ordercomplete copies of all notices of claimunder 2-5-10 and other warranties,including schedules and proofs ofdelivery.• Correspondence with the StrataCorporation’s Consultants andContractors: include allcorrespondence with these parties, indate order.• Reports: include all reports fromconsultants and maintenancecontractors.• Maintenance Manuals: these may beincluded if they are not boundseparately.• Resolutions: include in date order anyresolutions related to themaintenance or repair of the building.• Disclosure Statements: include eachdisclosure statement and all schedulesand amendments, in date order.Consider scanning all of these documentsinto an electronic file that may be easilycopied and distributed.________________________________________________________________________________REPORT EARLY AND OFTEN Notify both the warranty provider andbuilder, in writing.Section 16(1) of the HPA Regulationrequires that both the warranty providerand builder be notified in writing of awarranty claim. A common mistake is tonotify the builder but not the warrantyprovider. This sometimes occurs if thebuilder was initially responsive to claims.When the builder stops returning callsthe strata corporation will turn to thewarranty provider. At that point, it maydiscover that the warranty provider willnot respond to the claim, on the groundsthat it was not notified prior to thewarranty deadline. Notify early.Many owners believe they can wait untilthe relevant warranty deadline to reporttheir claim. But section 16(1) of the HPARegulation requires that notice be given“within a reasonable time after the discoveryof a defect and before the expiry of theapplicable home warranty coverage.” Anotice of claim should therefore be sentas soon as the strata corporation hasreason to believe that a defect may exist. Notify before the warranty deadlines.Notices of claim must be received byboth the warranty provider and builderbefore expiry of the relevant warrantydeadline. Whenever possible, deliver thenotice at least one week prior to thedeadline, and confirm that it has beenreceived before the deadline passes.Strata council members and propertymanagers should create periodicreminders in their calendars to ensurethat notices of claim are delivered in atimely manner. Consider whether the claim should bereported under both common propertyand strata lot warranties.Some common property defects mayresult in damage to strata lots. Forexample, roof leaks may damage theGuide to 2-5-10 Warranty Reporting 4

ceilings of the unit below them. Thewarranty provider or builder might alsoargue that because the legal boundarybetween a strata lot and the commonproperty building exterior is in the middleof the exterior walls and roofs (section68(1) of the Strata Property Act), somecommon property defects and damageextend into strata lots and must bereported under both common propertyand strata lot warranties.There are no cases on whether commonproperty defects must be reported underboth common property and strata lotwarranties. If time permits, confirmwhich warranty applies with the warrantyprovider and builder. If left in doubt,consider reporting the defect under boththe common property and strata lotwarranties. Be thorough.Section 16(1) of the HPA Regulationrequires claimants to give “written noticein reasonable detail that providesparticulars of any specific defects coveredby the home warranty insurance.” Thenotice of claim should therefore include acover letter that sets out:• the strata plan number and civicaddress of the condominium,• the warranty certificate number(s),and• a thorough description of any knownor suspected defects and damage,especially if these are not clearly setout in any consultants’ reportsenclosed with the notice.The following should be enclosed withthis letter:• a copy of any warranty inspectionreports and all other consultant’sreports,• a copy of all prior correspondencewith the warranty provider andbuilder related to the defects in theclaim, and• a copy of any other documentation inthe strata corporation’s possessionthat provides details of the defects ordamage.If the warranty provider or builder has astandard form notice of claim, it shouldbe completed and included with thenotice package. Check the address.Warranty certificates sometimes give anaddress for the warranty provider orbuilder that is out-of-date, or give noaddress at all. If time permits, have thewarranty provider and builder confirm(preferably in writing) that they willaccept the warranty notice at their lastknown address.Where this is not possible, the address ofthe warranty provider or builder may beobtained by conducting a search of thecorporate registry in Victoria. Thequickest way to obtain a search isthrough a registry agent (such as Dye &Durham 1-250-953-1706). If there ismore than one possible address, it ispreferable to err on the side of cautionand deliver the notice to all knownaddresses. Obtain proof of delivery.Because the notice of claim is soimportant, owners should ensure thatthey will be able prove its timely receipt.This means the notice should never besent by regular mail, especially if there is alooming warranty deadline. The safestcourse is to have a process server deliverthe notice and provide an affidavitconfirming its receipt by the warrantyprovider and builder. If other means ofdelivery are used, obtain writtenGuide to 2-5-10 Warranty Reporting 5

confirmation prior to the warrantydeadline from the warranty provider andbuilder that the notice of claim has beenreceived. Keep a complete copy of thewarranty claim and all enclosures toensure there is no confusion about whatwas reported. Be cooperative.The warranty provider or builder canrequest further information afterreceiving the notice of claim. They arealso entitled to reasonable access toinspect or repair the property. Failure toprovide such information or access mayresult in coverage being limited or denied. Get a second opinion.Warranty providers and builders arelegally required to repair defects coveredby the 2-5-10 warranty. Because theybear the cost of these repairs, however,there is a risk that corners will be cut.An independent consultant can advise ifproposed warranty repairs will beeffective. Any concerns expressed by theconsultant should be communicated tothe warranty provider and builderpromptly. Seek legal advice promptly if awarranty deadline may have beenmissed.While the warranty provider and builderwill likely deny a claim reported after thewarranty deadline, all may not be lost.Some warranty certificates do not set outthe correct warranty commencement andexpiry dates as defined at section 5 of theHPA Regulation. In other cases, thewarranty provider and builder may havebeen provided with effective notice of thedefect in earlier correspondence andreports. Courts may also order “relieffrom forfeiture” if it would be inequitableto deny coverage because of imperfectcompliance with warranty terms.________________________________________________________________________________PROTECT YOUR RIGHTS Mediate disputes.Schedule 2 of the HPA Regulation allowsowners to refer warranty disputes tomediation. Mediation is a cost-effectiveprocess with a proven track record ofsettling construction disputes. Enforce warranty rights in a timelymanner.All lawsuits must be commenced within adeadline known as a limitation period.There is considerable uncertainty overthe limitation period for suing 2-5-10warranty providers. Depending on whenthe claim arose, the limitation period maybe one, two, or six years, and start to runon a date that is difficult to pinpoint.The Insurance Act was amended on July 1,2012 to require actions concerning 2-5-10 warranties to be commenced “notlater than two years after the date thecause of action against the insurer arose.”This deadline applies to claims for lossand damage occurring after June 30, 2012.Before this amendment, the old InsuranceAct required actions to enforce certaininsurance contracts to “be commencedwithin one year after the furnishing ofreasonably sufficient proof of a loss orclaim under the contract.” The oldGuide to 2-5-10 Warranty Reporting 6

Insurance Act did not address whether thisone year limitation period applied to 2-5-10 warranty claims. If the one yeardeadline did not apply, 2-5-10 warrantyclaims were likely subject to a six yearlimitation period in the old Limitation Act(reviewed below), that applied to mostconstruction defect claims.Because the limitation period applicableto 2-5-10 warranties is so uncertain,owners should seek early legal advice toprotect their warranty rights. Consider other legal remedies.2-5-10 warranties do not providecomprehensive coverage for all defects.A gap in coverage may arise if the claimfalls under an exclusion, if a warrantydeadline has been missed, or if theestimated cost of repairs exceeds thewarranty’s monetary limits. For commonproperty warranties the limits perbuilding are $100,000 times the numberof strata lots or $2.5 million, whichever isless (HPA Regulation, section 12).Owners should consider their other legalremedies to guard against the risk of agap in warranty coverage. Theseremedies include:• Negligence claims: All parties involvedin the construction of a condominium(i.e. developers, consultants,contractors, suppliers andmanufacturers) may be sued innegligence in the appropriatecircumstances. Municipalities mayalso be sued for negligence ininspecting and approving thecondominium.• Contractor warranty claims: Manycontractors, suppliers andmanufacturers provide warranties ontheir work or products. Roofs,windows, doors, waterproofmembranes, electrical and mechanicalcomponents are often covered bysuch “contractor warranties”. Thesewarranties may provide a costeffectiveremedy if enforced diligently.• Misrepresentation claims: Developersand others involved in the marketingand sale of real estate may be suedfor misrepresentation under thecommon law. In addition, the RealEstate Development Marketing Actrequires developers to deliver adisclosure statement to all purchasersthat accurately sets out all “materialfacts” regarding a condominium. Ifthe disclosure statement contains amisrepresentation, the developer, itsdirectors and others may be liable tothe purchaser.• Claims against the strata corporation’sconsultants or contractors: In someinstances, defects can be made worseby repairs or maintenancerecommended or performed by anowner’s consultants or contractors.A claim for breach of contract ornegligence may be feasible, dependingon the circumstances.• Claims against property insurers: Manyproperty insurance policies excludethe cost of repairing constructiondefects, but cover the cost ofrepairing damage resulting from suchdefects to any building contents, andarguably to the building itself.We will refer to these claims collectivelyas “additional remedies”.Like 2-5-10 warranties, all additionalremedies are subject to limitation periodsthat impose time limits for suing. Someremedies also require owners to givewritten notice of their claim, usuallywithin short time limits that we reviewbelow.Guide to 2-5-10 Warranty Reporting 7

Failure to comply with a limitation periodor notice deadline may result in dismissalof an owner’s claim. We thereforerecommend that strata corporations considerwhether to pursue their additional remediesat an early opportunity.The application of a limitation period ornotice deadline to a specific claim is acomplex issue that depends on thecircumstances of each case. We wouldbe pleased to prepare a legal opinion onhow these requirements impact yourclaim. In most instances, however, thepractical course is to give promptconsideration to the available additionalremedies, and to take immediate legalaction if a decision is made to pursue anyof these claims.1. Limitation PeriodsUntil June 1, 2013, most additionalremedies were subject to the LimitationAct, RSBC 1996 (the “old Limitation Act”).This Act was replaced on June 1, 2013 bythe Limitation Act, SBC 2012 (the “newLimitation Act”). Remedies created undersome statutes, such as the Real EstateDevelopment Marketing Act, are subject tospecific limitation periods imposed underthose enactments.Whether a claim is governed by the newor old Limitation Act depends on the“transition” rules in the new legislation.These rules generally state that the newLimitation Act applies if the claim wasdiscovered after May 31, 2013.The old Limitation Act prescribed twolimitation periods for claims arising out ofconstruction defects:• Claims to recover the cost ofrepairing the defects were governedby a six year limitation period.• Claims for damage to property otherthan the condominium (i.e. vehicles orfurniture), for mould-related illness orfor bodily injury were subject to a twoyear limitation period.These limitation periods did not begin torun until a reasonable owner in the stratacorporation’s position would concludethat the strata had a claim with areasonable prospect of success that wasin the strata’s interest to pursue. Somecases found this milestone to be reachedwhen the strata corporation received areport from a consultant or contractorindicating there were significant defects inthe condominium.The new Limitation Act subjects mostclaims arising out of construction defects,including claims to recover repair costs,to a single two year limitation period thatbegins when a person discovered orought to have discovered a claim.A two year limitation period is alsoprescribed by the Real Estate DevelopmentMarketing Act for any legal action basedon misrepresentations in a disclosurestatement issued after January 4, 2005.The limitation period commences whenthe misrepresentation first came to theattention of the purchaser.The new Limitation Act further providesthat no legal action may be commencedmore than 15 years after the day onwhich the act or omission on which theclaim is based took place. This “ultimate”limitation period prevents owners fromsuing 15 years after events giving rise to adefect occurred, even if the owner isunaware of the defect.We therefore recommend that qualifiedconsultants be retained to inspect majorbuilding components and systems (i.e.building envelope, plumbing, drainage,HVAC, electrical and structural) ataround the 12th year anniversary of thecondominium. If any defects are revealedby this investigation, the strataGuide to 2-5-10 Warranty Reporting 8

corporation should seek timely legaladvice on whether to sue.Limitation periods may be shortened byagreement. Contractor warranties arenotorious for imposing short limitationperiods (i.e. “immediately”, “within 30days”). We therefore recommend thatthe fine print in the strata corporation’scontractor warranties be given earlyattention.2. Notice RequirementsSome additional remedies require ownersto give prompt written notice of theirclaims:• Claims against municipalities: Section286 of the Local Government Actrequires that written notice of certainclaims be given to municipalitieswithin “two months from the date onwhich the damage was sustained,”unless the claimant has a reasonableexcuse and the municipality has notbeen prejudiced by the delay. Section294(2) of the Vancouver Charterprescribes a similar deadline forclaims against the City of Vancouver.• Contractor warranty claims: Contractorwarranties should be reviewedpromptly as they often contain shortdeadlines (i.e. “immediately”, “within30 days”) for giving written notice ofa claim.• Claims against property insurers:Property insurance policies prescribedeadlines for giving written notice of aclaim, delivering a proof of loss, andsuing the insurer for breach of thepolicy. These deadlines usuallyrequire prompt action by an insured. Consider a claim on the one yearwarranty on repairs.All repairs and replacements must bewarranted against defects until the firstanniversary of the completion of thework or the expiry of the applicablewarranty coverage, whichever is later,under Schedule 3, Section 8 of the HPARegulation. While this section does notspecifically require that a formal notice ofclaim be given, it is prudent to notify thewarranty provider and builder of anyconcerns with warranty work prior tothe earlier of these two deadlines. Know your rights.It is often said that a home is our mostimportant investment. 2-5-10 warrantiesare an important protection for thisinvestment. If a warranty claim is notsatisfactorily resolved in a timely way,owners should give early consideration toseeking legal advice on their warrantyrights and other legal remedies.LESPERANCE MENDES is a Vancouver law firm representing strata corporations andowners with construction liability claims.Guide to 2-5-10 Warranty Reporting 9