Do you need a section 98 agreement?

changesIn the last two weeks, I’ve had two people suggest that I write about section 98 of the Condominium Act, 1998, so that’s what I’m going to do today. (Thanks for the suggestions!).

Section 98 of the Condominium Act, 1998, addresses situations where owners want to make an “addition, alteration or improvement” to the common elements. The courts have defined “addition” as joining or connecting something to a structure; “alteration” as changing the structure; and “improvement” as the betterment of the property or enhancement of it. 

There are a number of prerequisites that the owner must satisfy before making a change to the common elements:

  1. The board has approved the change;
  2. The owner and the corporation have entered into an agreement (sometimes called a “section 98”, “indemnity”, or “alteration” agreement);
  3. Notice has been given to all of the owners (if applicable); and
  4. The corporation has included a copy of the agreement (if required to send the notice described in paragraph 3).

If the change is to the exclusive use common elements the owner may ignore the third and fourth requirements in the list above, but only if the board is satisfied that the proposed change:

  1. will not have an adverse effect on units owned by others;
  2. will not give rise to any expense to the corporation;
  3. will not detract from the appearance of buildings on the property;
  4. will not affect the structural integrity of buildings according to an engineer; and
  5. will not contravene the declaration.

Section 98 has not been complied with until the applicable conditions set out above have been met and the agreement is registered on title. If the owner fails to comply with the agreement the corporation can add any costs or charges incurred by the corporation because of the owner’s failure to the common expenses for the unit.

Practical Perspective

One of the most common mistakes that I see when it comes to section 98 is in its application. It may seem easy to understand when section 98 applies to a change made by an owner, but there are many situations that are often missed or ignored. For instance, where an owner installs new venting or exhaust systems within his unit the majority of the components may be within the unit, but if the venting requires changes to the exterior components of the unit (i.e. brick, siding) and those components form part of the common elements, the requirements of section 98 must be met. On the other hand, if the change is made only to unit components section 98 does not apply. The owner may still require board approval to make changes to his unit if the declaration requires it, but section 98 does not apply.  Whether or not section 98 will apply to a particular situation will depend upon the type of change and the unit boundaries in the corporation.

Another mistake is not providing proper notice of the proposed change to the owners. The Act requires that notice be sent to all owners in accordance with section 97 of the Act if that section would have applied if the corporation made the change. For example, section 97 requires the corporation to give notice to the owners before making a change to the common elements if the estimated cost in a month is more than the greater of $1,000.00 and 1% of the budgeted common expenses for the corporation. Fortunately, most changes made by the owners are relatively minor so notice is not usually required.

Amendment Alert

The amendments to the Act will repeal section 98 as set out above. Section 98 will permit owners to make a “modification” in the same circumstances as above: the board approves it, they enter into an agreement with the corporation, and a notice is sent to the owners along with a copy of the agreement (if applicable). The term “modification” is defined as an addition, alteration or improvement to the common elements or the assets that is not contrary to the Act, declaration, by-laws or rules.

One of the biggest changes to section 98 applies to changes to the exclusive use common elements. An owner may make a modification to the exclusive use common elements without complying with the notice requirement if, in addition to satisfying the existing conditions set out above, the board is satisfied that the other owners, on an objective basis, would not regard the modification as causing a material reduction or elimination of their use or enjoyment of their units or the common elements. As such, even if a change is relatively minor in terms of cost the Act may require notice to be sent to all owners if the change may interfere with the use of the property by other owners.

Another change makes it clear that future owners are bound by the agreement and must satisfy promises to do something (i.e. pay money) or not to do something (i.e. put up a fence) within the agreement. Currently, there is case law in Ontario that says future owners of property are only bound by promises made by previous owners not to do something (called restrictive covenant). Future owners can only be bound by promises to do something (called positive covenants) if they agree to be bound by the promises; registration is often not sufficient to bind future owners.