When buying a presale or newly built home it is very important to understand the warranty included and what coverage you have.
We also go through how long each element is covered for, along with frequently asked questions answered.
Read for everything you need to know about 2-5-10 home warranty coverage!
To increase consumer protection for new home buyers, the Homeowner Protection Act regulations for residential builder licensing and mandatory, third-party home warranty insurance were implemented on July 1, 1999. Home warranty insurance can only be provided by insurance companies that have been approved by the Financial Institutions Commission (FICOM) and meet the requirements of the Homeowner Protection Act. Standards of coverage, commencement dates, exclusions, and limits on coverage are now set by government to ensure clarity and a consistent base-level of consumer protection. The warranty in BC is referred to as the 2-5-10 warranty.
What are the minimum standards of coverage required? What does 2-5-10 warranty BC mean?
The home warranty insurance on new homes is broken down in to time frames, and includes:
2 years: on labour and materials (some limits apply)
5 years: on the building envelope, including water penetration
10 years: on structure
If you’re unsure about what is meant by the building envelope and the structure, it’s helpful to think of the building envelope as the “skin” of the building, and the structure as the “bones” of the building.
From there, the 2 year labour and materials coverage is broken down as follows:
Any defects in materials and labour:
12 months on detached homes and on non-common property in strata units (includes fee simple homes)
15 months on common property of strata buildings
Defects in materials and labour related to the delivery and distribution systems (electrical, plumbing, heating ventilation, air conditioning, etc.) is 24 months for all buildings.
When do these warranties come in to effect? When is the commencement date?
Commencements dates on home warranty insurance are split in to fee simple (primarily detached dwelling units aka single family homes) and strata homes (attached homes like condos and town homes).
For detached homes:
Custom homes: date of first occupancy or date of first occupancy permit, whichever transpires first.
Spec homes (homes built for the market): Date of first occupancy or date of transfer of legal title to first owner, whichever transpires first.
For strata homes:
Strata unit: earliest of date of first occupancy or date of transfer of legal title to first owner.
Common property: earliest of date of first unit occupancy in strata building or date of transfer of legal title to first owner in building.
What is considered a defect?
A defect would be a breach of contract, something that was included in your contract and is now defective or not working. Quality of workmanship is not considered to be a defect, and will not be covered in the warranty. The only time that workmanship can be questioned is during the deficiency walk through, before a buyer obtains possession. Insurers will also assess the cause of the defect, and if they can determine that it was caused by owner negligence or lack of care, then they may not cover the defect.
Are there any limits on coverage?
Coverage on claims for detached homes is the lesser of the first owner’s purchasing price or $200,000. For strata homes, it is broken in to strata units and common property. For strata units the limit is the lesser of the first owner’s purchase price or $100,000. For common property the limit is the lesser $100,000 times the number of dwelling units in the building or $2.5 million per building.
Are there any home warranty insurance exclusions to be aware of?
The Homeowner Protection Act regulations specify what the home warranty insurance companies can exclude from their policies.
General exclusions can include: landscaping; non residential detached structures; commercial use area; roads, curbs, and lanes; site grading and surface drainage; the operation of municipal services; septic tanks and fields; and water quality and quantity.
Defect related exclusions can include: normal wear and tear; normal shrinkage of materials from construction; use of new home for non-residential purposes; materials, labour and design supplied by the owner; damage caused by anyone other than the residential builder; damage caused by insects or rodents; failure of an owner to prevent or minimize damage and acts of nature.