If you are building a home in the province of B.C. for either resale once complete or if you are building a custom home for someone else, you must be a Licensed Residential Builder (LRB) registered with the Homeowner Protection Office (HPO).
Prior to you applying for your license with HPO, you must be approved by a 3rd party warranty provider prior to obtaining your license from the HPO. For a list of current warranty providers, please visit: www.hpo.bc.ca
After speaking to each of the warranty providers and answering a few pre-qualification questions and an indication of what the related costs with each of these companies will be, you should have an idea as to which provider to proceed with. These providers usually base their security (the largest part of your investment to become a LRB which starts at a minimum of $10,000) and warranty fees based on 3 things:
- Business Plan – how many homes / units you will be building, the location of build(s) and estimated construction costs. Additional technical details may also be required based on construction costs and the complexity of the build.
- The more the units you plan to build, the higher the perceived risk and therefore the higher the pressure on higher security but perhaps a lower fee.
- Financial Capacity – this is essentially the strength of your personal guarantee as the application. In nearly all cases, the warranty provider is usually looking for a very minimum of $200,000 of positive net-worth which is in real estate (i.e. your principle residence is valued at $550,000 – a mortgage of $350,000). Supporting documentation such as property assessments and mortgage statements are required.
- The higher the net-worth, the lower the perceived risk and the lower the pressure on security and perhaps even the fee.
- Construction Experience – a summary / outline of your construction experience which should include your involvement in construction from start to finish. Other experience and designations in the industry would certainly help.
- The more the experience, the lower the pressure on both fees and security.
The warranty providers will have a period of time for which you as the builder are responsible for any defects under the terms of coverage referred to as the Builder Obligation Period. Security is held to keep a builder’s interest to ensure that they do tend to claims as per their obligations as a builder. The builder always has the first opportunity to deal with a claim and if they do not, the warranty provider must in their role under the Act and usually hire a 3rd party contractor to perform the required repairs (which is more costly than for the builder to remedy the repairs) and will look to the builder for reimbursement.
The 2-5-10 Warranty coverage includes:
- 12 month coverage for defects in materials and labor for your home or unit in a strata.
15 month coverage for defects in material and labor for the common property in a condominium strata only.
- 24 month coverage for defects in material and labor for major systems.
- 5 year coverage on the building envelope, including coverage on unintended water penetration.
- 10 year coverage on major structural items.