Developer Board Entitled to Waive Developer’s Liability on behalf of Condo

The Court of Appeal released its decision yesterday in Toronto Standard Condominium Corporation No. 2095 v. West Harbour City (I) Residences Corp. This is the case where the first board of directors appointed by the declarant adopted a by-law requiring the condominium to enter into a warranty agreement with the declarant that limited the declarant’s warranties to those covered under the Tarion process.  The first judge dismissed the condominium’s application to have the by-law declared invalid. The condominium appealed that decision. 

The Court of Appeal found that the by-law was not ultra vires or unreasonable as argued by the condominium. The Court found that the by-law was authorized by the catch-all provision in section 56(1)(p) of the Condominium Act, 1998, which states that a condominium may adopt a by-law:

to govern the conduct generally of the affairs of the corporation

The Court also found that it was not contrary to the repair and maintenance obligations set out in the Act or the declaration. The Court found that the by-law was not unreasonable. The Condominium received consideration in that the purchase price reflects the value of the common elements that attach to the units. This part of the decision does not seem to recognize that many owners probably entered into their agreements of purchase and sale before the condominium was even constructed. It is hard to see how they could have factored in any warranties or defects when they were assessing the value, even if they knew (or ought to have known) that the warranties would be limited. Buyer beware!!

The Court made an interesting comment on the role of declarant-appointed directors at paragraph 31:

In implementing the structure determined by the declarant, the initial directors are not acting as fiduciaries for the purchasers of condominium units. Their role is not to try and obtain the best possible agreement for the condominium corporation or for the purchasers of units. As explained in Tedley Homes, at p. 264, their role is to “organize the affairs of the condominium in the manner anticipated by the declaration and agreed to by the purchasers of the individual units”, provided of course, that the directors are acting within the limits and constraints imposed by the Condominium Act. (emphasis added).

So declarant-appointed directors may put the interests of the declarant first as long as that they act within the Condominium Act, 1998? This appears contrary to previous decisions indicating that directors have a fiduciary duty to the condominium. Perhaps the Court meant there is no fiduciary duty to the owners themselves? Isn’t the condominium just the collection of owners? This raises so many questions!

What does this all mean? That the condominium is limited to the warranties provided under the ONWHPA and administered by Tarion. As you may know, common elements coverage under Tarion is limited to $50,000.00 per unit up to a maximum of $2.5 million. I am not involved in this case personally, but I doubt that will be sufficient coverage for such a large building.