Condo Act Reform – #1 Consumer Protection: Dealing with the Developer

This is the second of three parts describing the suggestions for reform in the Condominium Act, 1998, related to greater consumer protection. The first dealt with greater disclosure obligations and status certificates. This post will address the suggestions related to the condominium’s dealings with the developer, which include:

  1. A prohibition on a provision in the condominium’s documents requiring the condominium to purchase or lease assets from the developer that would normally form part of the common elements (i.e. hallways, stairwells, guest suites, recreation areas, or mechanical rooms). 
  2. An exception to item 1 above should be made for energy-efficient “green energy” equipment as long as it meets certain conditions and is properly disclosed to purchasers.
  3. A prohibition on developers deferring costs (to avoid a first-year budget deficit) for any “reasonably foreseeable operating cost or expense that would ordinarily arise in the first year of operation”.
  4. A requirement that certain units (i.e. live-work or commercial/retail) have utility meters so that the other units are not forced to subsidize these units.
  5. If there are shared facilities with another condominium or entity, an agreement must exist that defines the distribution of costs between the parties
  6. The contribution toward the reserve fund should be the greater of the amount set out in the reserve fund study or an amount based on a formula to be determined.

The first suggestion is likely aimed at preventing the increasing practice of developers to unitize various portions of the common elements to sell or lease them back to the condominium for a price. The purpose of such a practice is to provide the developer an extra revenue source for the project after the units are sold and transferred to the purchasers. Although I fully support a greater emphasis on consumer protection, I am interested in the rationale for this suggestion. These types of agreements are already disclosed to purchasers in the disclosure packages. The purchaser can decide not to purchase a unit in a condominium with lease or purchase requirements from the developer. There are plenty of developers that do not require the condominium to lease or purchase units from them. Adequately disclosing these types of agreements appears to strike a perfect balance – purchasers have the necessary information to make informed decisions while the developers have a later revenue stream for the project.

The rest of the suggestions are aimed at other common grievances, such as “hidden costs” in the operating expenses that result in significant increases (i.e. 20-30%) in fees in the second and third years after creation of the condominium. This is a serious issue in many areas of the province as developers want to market the units with very low monthly fees while incurring ordinary expenses for services such as landscaping, concierge/security, and professional services. In addition, a requirement for the developer to create a shared facilities agreement is important given recent case law suggesting it is not oppressive for a developer not to create a shared facilities agreement where shared facilities exist. In the absence of a shared facilities agreement the duties and powers of the parties are unclear.

Up next week – #1 Consumer Protection: Noise