Financing The Purchase Of A New Home From A BuilderNovember 1, 2008
New Client Identification RulesDecember 21, 2008
Warranty and After Sales Service
When you consider selecting your new home builder, you should enquire about the warranty that they provide and what is included in the warranty work.
Most reputable builders provide a one year warranty and after sales service on workmanship and materials in your new home. Sometimes this promise is backed up by a third-party warranty. In some Provinces, notably B.C., Ontario and Quebec, this form of new home warranty is mandatory. In Alberta, it is optional.
There are several different third-party warranty programs available in Alberta. The most common programs are the Alberta New Home Warranty Program (www.anhwp.com) and the National Home Warranty Program (www.nationalhomewarranty.com). You can check their websites to learn more about the type of coverage that they offer. The websites also allow you the opportunity to search to see which builders or contractors are registered with their respective programs.
While varying from Province to Province, most warranty programs generally include coverage and provisions for:
– one-year warranty on workmanship and materials
– major structural defects, in some cases up to 10 years
– deposit insurance up to a certain maximum amount
– dispute mediation between the builder and the owner.
To get a third-party warranty on your new home, the builder must be enrolled as a member of a recognized home warranty program and has or will register your home as part of the program. Some financial institutions are now requiring that the selected builder be a member of a recognized warranty program as a condition of giving a mortgage loan. Whether or not your builder is a member of a warranty program may be an important consideration in choosing a builder, but in itself does not necessarily guarantee the builder possesses the experience and skill to build a quality product. There are many reputable builders or contractors who have gained a reputation through years of experience in building a superior home who are not enrolled in a third-party warranty program.
Builders’ Lien Act
A Builders’ Lien is a mechanism created by legislation in Alberta (Builders’ Lien Act) to help material suppliers and subcontractors to ensure that they are paid for the services they provide or the products and materials they deliver to the new home. The Act provides that a contractor or person who does work or supplies materials in relation to an improvement on land has the right to file or register a Lien against a property at the Land Titles Office in order to secure payment for the work done or the material supplied before having to prove their claim in Court.
The right to register a Builders’ Lien comes into existence immediately upon the delivery of materials to the building site or upon the provision of work or labour, and continues for a period of 45 days from the date of the provision of materials, in the case of a material supplier, or from the date that the last work was done by a contractor or subcontractor. Once registered, the Builders’ Lien claim takes priority over all other claimants and ultimately gives the Builders’ Lien claimant the right to sell the property and use the proceeds of the sale to pay the amount owing on the Lien!
The Builders’ Lien Act provides that as an owner or prospective owner you are entitled to hold back 10% of the value of the work done or materials supplied to the builder. This amount is known as a Lien Fund. The owner must hold the Lien Fund for 45 days following substantial completion of the building contract. If a Lien is registered during the Lien period, the owner is not liable for any amount that is greater than the amount that is in the Lien Fund. If the owner has not maintained a Lien Fund, there is no limit to the potential liability of the owner; his property could be sold and the amount of money that should have been set aside could be deducted from the sale proceeds and paid over to the unpaid material supplier or contractor who has filed the Lien.
If you have entered into a building contract with a builder which requires progress payments at various stages of construction, you should discuss with your lawyer the establishment of a Builders’ Lien Fund at the outset, in order to ensure that your interests are protected. Even if you are purchasing a completed or spec home from a builder under a Real Estate Purchase Contract, you should discuss with your lawyer as to whether you are nonetheless an owner by definition under the Builders’ Lien Act and whether, in the circumstances, there should be a 10% hold back of the purchase price pending the expiration of the 45 day Lien period.
The warranty provided by your builder and the matter of the Builders’ Lien Act and its implications are important legal matters that should be considered as you embark on the process of buying a new home from a contractor.