Tarion and HCRA Deposit Protection for Ontario Pre-Construction Condos

Signing an agreement of purchase and sale for a pre-construction condo means handing over significant deposit money — sometimes 15–20% of the purchase price — to a builder who will not complete the building for two, three, or more years. What happens if the builder becomes insolvent, abandons the project, or simply cannot close?

In Ontario, deposit protection through Tarion and the Home Construction Regulatory Authority (HCRA) provides a safety net for buyers of new freehold and condo homes. This article explains how that protection works for new condo buyers, what the current limits are (which you must verify), and what to do if you need to make a claim.

The regulatory framework: HCRA and Tarion

Ontario split its new-home regulatory functions in 2021. Understanding which body does what matters for buyers:

• HCRA (Home Construction Regulatory Authority) licenses and regulates new-home builders and vendors. If you want to verify your builder is licensed, or file a complaint about conduct, HCRA is the body to contact.
• Tarion Warranty Corporation administers the statutory warranty program for new homes and condos, including deposit protection and construction defect warranties.

Both operate under the Ontario New Home Warranties Plan Act (the governing statute). As of writing, check the HCRA and Tarion websites for current information on registration requirements, since the regulatory structure continues to evolve.

How deposit protection works

Builders must hold deposits in trust

Under Ontario law, a builder/vendor who takes deposits for a new condo unit must hold those deposits in a trust account, separate from the builder's own operating funds, until certain conditions are met. This is not optional — commingling deposit funds with business funds is a breach of the statute.

The trust requirement means that in a straightforward builder insolvency, the deposit money should be identifiable and recoverable. However, trust rules are only as good as the builder's compliance, which is why the Tarion backstop exists.

Tarion deposit coverage: the limits

Tarion provides deposit insurance coverage for buyers of new condos up to a statutory limit. As of writing, verify the current deposit protection limit with Tarion directly, as it has changed over time and the limit applicable to your purchase depends on the date of your agreement.

There is an important distinction:

• The statutory deposit protection covers deposits up to the Tarion limit.
• Deposits above the limit are not covered by Tarion — they must be secured by another form of deposit protection specified in the agreement (such as a letter of credit, insurance bond, or additional Tarion coverage if available).

Check your agreement to confirm: (a) what deposit protection is in place for amounts above the statutory limit, and (b) what form that protection takes.

What events trigger a Tarion deposit claim

Tarion will cover your deposit if the builder:

• Fails to complete the home and cannot refund the deposit
• Becomes insolvent before closing
• Has their registration revoked by the HCRA before closing
• Breaches the agreement in a way that entitles the buyer to cancel

A straightforward "I changed my mind" does not trigger Tarion coverage — the deposit claim right arises from builder default or insolvency, not buyer-side cancellation.

How to make a Tarion deposit claim

If you believe your builder has defaulted or become insolvent:

1. Contact Tarion directly — file a claim through their online portal or by contacting their customer service. As of writing, verify the current claims process on the Tarion website.
2. Gather documentation — your agreement of purchase and sale, all deposit receipts, any correspondence with the builder about delays or problems, and your lawyer's contact information.
3. Get legal advice — deposit claims can be complex, especially if there are competing creditors, a bankruptcy trustee involved, or disputes about whether the builder properly defaulted. A real estate lawyer can guide the claims process.
4. Watch limitation periods — there are deadlines for filing Tarion claims. Do not delay if your builder appears to be in financial distress.

Deposits above the protection limit

Pre-construction condo prices have risen significantly over the past decade, and deposit requirements often now exceed the Tarion statutory limit. Builders address this in several ways:

• Letter of credit from a financial institution — the builder posts a letter of credit in the buyer's favour
• Insurance bond — a third-party bonding company guarantees the deposit
• Phased deposits — structuring deposits so that less is at risk at any one time

Your agreement of purchase and sale must specify what protection applies to deposit amounts above the Tarion limit. If it does not, ask your lawyer immediately — you may be exposed. Review this during the 10-day cooling-off period.

Warranty coverage beyond deposits

Deposit protection is just one part of the Tarion/HCRA warranty scheme. New condos also come with statutory construction defect warranties, covering:

• Deposit loss (described above)
• Defects in work and materials (year 1 and year 2 coverage)
• Structural defects (longer coverage period)
• Common element coverage for the condo corporation

The specific coverage periods and limits are set by the Ontario New Home Warranties Plan Act. As of writing, verify the current terms with Tarion. When you receive your PDI (pre-delivery inspection) form at the start of interim occupancy, note every deficiency — this is the foundation of any warranty claim.

Frequently asked questions