Trouble with the declarant?

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I am regularly consulted by our condominium clients about issues with the declarant. Sometimes the declarant is in arrears of common expenses for units it still owns. Other times the declarant has not paid the first year budget deficit owing to the condominium. Sometimes the declarant made promises to purchasers that they didn’t follow through on. On occasion there are construction defects. What’s a condominium to do? Unfortunately, the answer depends on the situation and there is no one best way to deal with the declarant.

Arrears of common expenses

The easiest problem on the list – arrears of common expenses – is also one of the most common. Where the declarant has fails (or refuses) to contribute toward the common expenses payable for any units that it still owns the condominium may be able to register a lien against the unit to collect the amounts owing just like it would with any other unit owner. The declarant usually intends to sell the units quickly after registration so it is important to pursue liens against declarants in a timely manner. If not, the declarant could transfer the unit and a dispute could arise about their responsibility for arrears owing prior to the transfer.

It is important to note that the condominium can only register the lien against the units in arrears and not all of the units owned by the declarant. It is also important to review the declaration to see if the declarant is obligated to pay for the units while it still owns them as on occasion there is an exemption for the declarant while it owns units (see this case).

First year budget deficit

Another common issue is collecting the first year budget deficit owing from the declarant to the condominium. We previously posted about the declarant’s obligation to reimburse the condominium for the first year budget deficit (see here).

The Condominium Act, 1998, states that the declarant is accountable for the budget statement for one year following registration of the declaration and description (or the registration creating any phases). Section 75 of the Act states that the developer is responsible for the difference between the budget statement and the actual numbers, which are described in the audited financial statements. The condominium must notify the declarant of the deficit within 30 days of receiving the audited financial statements. The declarant then has 30 days to pay the condominium.

If the declarant refuses to pay the condominium, or they have a dispute about the deficit, the condominium and declarant must mediate the dispute pursuant to subsection 132(3) of the Act:

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If the condominium and declarant cannot reach a settlement at mediation the next step is binding arbitration, which is very costly.  Fortunately, in my experience, most declarants pay before arbitration is required.

Like with arrears of common expenses, it is very important that the condominium act quickly when faced with a first year budget deficit issue. The Act has very tight timelines (i.e. 30 days after receiving the audited financial statements) that must be complied with or the declarant may be able to avoid the obligation. Also, as the units are sold the declarant may transfer assets, which may leave very little funds left to satisfy the first year budget deficit.

Inadequate Disclosure or Misrepresentation

Some owners feel like the declarant misrepresented some aspect of the development to them. For instance, I have two different sets of condominiums who feel aggrieved because their declarants marketed the condominiums as phased condominiums only to register them as separate condominiums. This may not seem like a big deal, but the costs are significantly higher to operate the condominiums as two separate entities than it would have been as one. In one case, the condominiums are considering legal action to recover their damages. In the other the declarant agreed to contribute toward the costs of amalgamation.

If the purchaser becomes aware of the issue prior to closing on the unit, such as after receiving a material change notice from the declarant, they may be able to rescind the agreement and walk away. Unfortunately, once the units are transferred from the declarant to the purchasers the process is more complicated as rescission of the agreement is no longer an option and the owners must sue for damages. For this reason, it is vital to have the disclosure documents (and any notices about changes to the disclosure documents) promptly reviewed by a lawyer. The lawyer needs time to review the documents and prepare a notice to the declarant within ten days of receiving the documents if rescission is sought by the purchaser. Time is of the essence!

Construction defects

Some unfortunate condominiums find construction defects in the common elements or units. The engineer often finds them during the performance audit or subsequent reserve fund studies, but sometimes they can be discovered years later when destructive testing is completed for an upcoming repair project. Depending on a number of factors (i.e. the time of the discovery, type of condominium, and the type of defect), the condominium could have a warranty claim to Tarion. If not, the condominium may still have a cause of action that could be pursued at court, such as breach of contract, breach of warranty, breach of statutory duty, or negligence.

If a condominium suspects there are construction defects it needs to hire an engineer to investigate as soon as possible. It should also have a preliminary discussion with a lawyer to determine any possible limitations to a claim against the declarant. Apart from traditional limitations, such as the statue of limitations or expiration of warranty periods, some declarants are not including documents in their disclosure packages that require the condominium to release legal rights to pursue the declarant for construction defects, except for those that cannot be released (i.e. major structural defect warranty claims to Tarion).  My recommendation would be to consult with engineers and lawyers familiar with construction defect litigation. The condominium’s general counsel may not have the knowledge and expertise that you need when it comes to construction defects.

 

Condo can’t revive lost lien right using section 134

The Court of Appeal released another condominium case this month: Toronto Standard Condominium Corporation No. 1908 v. Stefco Plumbing & Mechanical Contracting Inc. As a refresher, this is the case where the declarant refused to release control of the condominium to the owners. The owners called the turn-over meeting and elected a new board. The declarant refused to acknowledge them. An application was brought to validate the meeting; the owners were successful. The declarant failed to comply with a court order that it produce records and an accounting of all payments made. The condominium recreated the accounting records and determined that one owner owed close to $50,000.00. A lien was registered against the owner’s units, but the lien could only cover the previous 3 months as set out in the Act. Prior to this, the owner defaulted under his mortgage. The mortgagee sold his units. Unfortunately, there was not enough money from the sale of the units to pay the mortgagee and the condominium so an issue arose as to which took priority – the condominium’s claim for arrears (outside of the lien) or the mortgagee’s claim under the mortgage.

The condominium argued that section 134 of the Condominium Act, 1998 gave the court the authority to make an order that the arrears took priority over the mortgage. The application judge characterized it as an “attempt to revise lien rights previously lost.”  The judge ordered the owner to pay common expense arrears, but only those under the lien took priority. The rest of the arrears were to be paid after the mortgagee. The condominium appealed.  Continue reading

Status certificate error costs condominium

What happens when a condominium fails to set out the monthly fees associated with a parking unit in a status certificate? That is was what apparently happened in 1716243 Ontario Inc. v. Muskoka Standard Condominium Corporation No. 54. The unit owner brought an application against the condominium seeking: a declaration that it was not obliged to pay monthly common element fees for two parking spaces that it owned, an order that a lien registered against its units be discharged, and costs. The condominium brought its own application against the unit owner seeking an order that the unit owner was obliged to pay monthly common elements fees according to the Act and the condominium’s declaration and by-laws.  Continue reading

Challenges by owners to the chair, proxies, and voting

Davis v. Peel Condominium Corporation No. 22 [2013] O.J. No. 2594 is a recent decision of the Superior Court of Justice about owners’ meetings, especially voting rights and the role of the chair. It was an application by an owner alleging the chair of the meeting improperly allowed 12 proxies to be used to remove the board of directors. Without the 12 votes, the requisition to remove the directors would have failed.

The Court dismissed the application. Continue reading

Improper notice invalidates a lien

In York Condominium Corporation No. 82 v. Bujold, the Ontario Court of Appeal heard a case about a condominium lien. The facts are important to understanding the case. Briefly, the condominium served a notice of lien on the owner on June 22, 2007. However, the lien was not registered on title to the owner’s unit until September 25, 2007 (more than three months later). The judge held the lien had expired. The condominium appealed to the Court of Appeal. Continue reading