Quorum oh Quorum

Post by: Meghan MacDonald

We have noticed lately that it is becoming difficult to obtain the required quorum of unit owners at condominium turnover meetings.  The purpose of the turnover meeting is for the Declarant of the condominium to hand over control of the condominium to the unit owners and in particular, elect a new board of directors to replace the directors appointed by the Declarant.  This meeting must take place once the Declarant ceases to own a majority of the units in the condominium pursuant to Section 43 of the Condominium Act, 1998.

This lack of attendance at turnover meetings by unit owners may be due to the fact that more and more condominium units are being purchased by investors who are not as concerned about the day to day operations of the condominium as the owners who live in the condominium.

In order to have a valid meeting, there must be a quorum at the meeting.  Quorum simply means the number of owners that must be present in person or represented by proxy at the meeting.  For meetings of owners, this is usually 25%.  In some cases this threshold is varied by by-law so you should be sure to confirm this with legal counsel but for the purposes of this blog, we will assume quorum is 25%. If quorum is not achieved, the meeting is not valid and any actions taken at the meeting are of no force or effect.

Once you have obtained quorum, you may think that your problems are over.  Sadly, this is not the case.  The Condominium Act has another requirement that can cause significant headaches.  This is the requirement that all questions proposed for consideration of the owners at a meeting of owners must be determined by a majority of the votes cast by owners present at the meeting in person or by proxy.

What does this mean?  We think that the wording of the Act means, with respect to the election of the new board, that every director must be elected by a majority of the votes cast at the meeting.

For example, if we have 40 units in a condominium we need 10 unit owners represented in person or by proxies to achieve quorum.

Applying the requirement for a majority vote and assuming just 10 owners are present in person or by proxy, for a director to be elected in this example, he or she needs to obtain 6 votes.  That means at least 6 owners must be present in person or 6 proxies allow their proxy to vote for that person or there is some combination thereof.  If the proxies each name different candidates it may be difficult to get a majority of those present in person or by proxy to vote in favour of the same candidates.

As one can see, there are some fairly significant hurdles to getting the new board elected.  We think that simply putting directors in place by acclamation where the number of candidates equals the number of vacant positions may not be supported by the Act.  James Davidson has a good article on that point.

If a new board is not elected at the turnover meeting of a phased condominium this could affect the Declarant’s ability to register a subsequent phase of the condominium.

What is apparent is that all efforts must be made to encourage owners to attend meetings of owners.  Further, proxies must be solicited from those owners who will not attend and that there is consensus on the directors to be elected in order to achieve the majority vote.  Legal counsel can assist with this process.

We hope that in the proposed amendments to the Condominium Act the requirements for quorum at turnover meetings is relaxed and some of the issues with respect to voting are clarified so that lack of quorum and issues of majority voting even if there are only enough candidates to fill the vacant positions can be avoided because it’s important for the condominium board to be turned over to the unit owners as soon as possible.  The unit owners and not the Declarant should be managing the affairs of the condominium once a majority of the units are sold.

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Development Charges Season

Post by: Craig Robson

Many municipalities in Ontario are currently undergoing a review of their development charges bylaws for 2014 implementation.

Anyone who is involved in real estate development should be paying careful attention to these reviews.

It is not unusual for a developer to determine that provisions in a development charges bylaw are not as favourable to that developer as they could or ought to have been.  For example, a few missing words in a definition within the bylaw can defeat a right to claim certain exemptions or credits.

Now is the time to be reviewing any definitions in a proposed development charges bylaw which may affect your development and to try to have those definitions “tweaked” as necessary to accommodate the developments you may be undertaking during the life of the bylaw (usually five years).

If nothing else, you should be keeping an eye on the proposed amounts of the development charges so that if the charges are increasing you can attempt to take out any requisite building permits to fix the amount of the charges at the old rates prior to the implementation of the new rates.

In addition, if there are any capital works which your proposed development may need in order to proceed, such as for example, a road or trunk sewer, a careful review of the background study relevant to the proposed bylaw should be undertaken.

You should attempt to ensure that all necessary capital works, to the extent any of them could be considered to be “growth related”, are:

  • shown as included in the capital works to be completed within the background study relating to the new bylaw; and,
  • that such capital works are scheduled to be completed within a timeframe which will accommodate your proposed development.

Otherwise, you could be faced with the prospect of having to either delay your development or, if the municipality will allow you to do so, pay the cost of the capital works without any guarantee of reimbursement.  Even if the municipality is inclined to reimburse you for the cost of any capital works that you undertake on its behalf, there may be difficulty in completing such arrangements if the proposed capital works are not contemplated by the background study that gives rise to the final development charge amounts in the bylaw.

Schedule G Part 3: Schedule G – Municipality

Post by: Craig Robson

With respect to phased condominiums, a “Schedule G- Municipality” is required for each phase with the exception of the final phase. The legislation does not specifically exempt the last phase from having a Schedule G – Municipality but the Registry Office has accepted that because this Schedule G is speaking about future phases it makes no sense to require the Schedule on the last phase of a phased condominium.

The Initial Registration of a phased condominium is not considered a “phase” and does not require a “Schedule G- Municipality”.  There is no explanation for this omission other than it was an oversight.

The drafters of the legislation seem to have had some lapses in this part of the Act.

Regardless of the legislation’s failure to require Schedule G – Municipality for the Initial Registration of a phased condominium, it is important to be aware that knowledgeable approval authorities require engineer certification for the Initial Registration as a condition of the registration (where the issue is perhaps most likely to arise) to address the same issues noted in a Schedule G – Municipality.

The purpose of the Schedule G – Municipality is to ensure that each phase being registered is “self-sufficient” with respect to services and street access if the balance of the phases in the project do not proceed.   The legislation wants to ensure the registered phases are not cut off from required street access and services if future phases do not proceed.

The following excerpt from O. Reg. 48/01, s. 52 addresses this need for a “Schedule G- Municipality”:

 (5) The material to be added to Schedule G to the declaration is,

(a) the certificates, with respect to the land included in the phase, that subsections 5 (8) and (9) and section 6 require; and

(b) a statement from any of the municipalities in which the land included in the phase is situated, or from the Minister of Municipal Affairs and Housing if the land is not situated in a municipality, that,

(i) all facilities and services have been installed or provided as the person making the statement determines are necessary to ensure the independent operation of the corporation if no subsequent phases are created, or

(ii) a bond or other security has been posted that is sufficient to ensure the independent operation of the corporation if no subsequent phases are created. O. Reg. 48/01, s. 52 (5).

(6) The statement described in clause (5) (b) shall be signed by a person authorized to bind the municipality or the Minister making the statement. O. Reg. 48/01, s. 52 (6).

(7) For the purposes of clause 146 (11) (a) of the Act, the facilities and services covered by the bond or the security mentioned in that clause have been installed or provided when there are no facilities and services remaining to be installed or provided that the person making the statement described in clause (5) (b) determines are necessary to ensure the independent operation of the corporation if no subsequent phases are created. O. Reg. 48/01, s. 52 (7).

In our opinion, the required facilities and services in 52(5)(b)(i) above should include the obvious pipes, wires etc. for electricity, telecommunications, sanitary and storm sewers, gas (if available) and water as well as access to a municipal street/road either directly through the common elements or by way of good and sufficient easements in favour of the condominium corporation.

The Schedule G – Municipality does not have a prescribed form.

A major issue with Schedule G – Municipality is that the Condominium Act does not obligate any municipality to sign the schedule which is a consistent issue and problem with the legislation in general.  Therefore a developer of a phased condominium could be stymied in its ability to complete the phases of a phased condominium if the municipality will not cooperate.  There would appear to be nothing the developer could do about this in the absence of a prior written commitment from the municipality to provide the Schedule G at the appropriate time.   This is a serious issue.

We have found most municipalities to be cooperative in providing the schedules when needed.   However, a usual and legitimate request that is made by municipalities before they will sign Schedule G – Municipality is to have the project engineer certify:

  • that the requisite services and facilities are in place; or,
  • the costs to install the same in support of a request to permit registration to proceed on the basis of a bond or letter of credit for incomplete services and facilities.

While the legislation does not specifically address this, it is not unreasonable for the municipality to require the project lawyer to provide his or her written opinion (based on and subject to the information received from the project engineer as to location and extent of services and facilities), that following the registration of the phase in question:

  • the required services and facilities needed by the phase (including access to a municipal street/road) will either be part of or through the common elements of the condominium plan; or,
  • by way of good and sufficient easements in favour of the condominium corporation.

Hopefully, the forthcoming amendments to the Condominium Act will obligate municipalities to provide required schedules such as Schedule G – Municipality provided proper certifications and opinions are provided to the municipality or provide for certifications from the project engineers and lawyer in lieu of the municipality signing the required schedule.

Schedule G Continued – Elaboration on Electrical Installations

Post by: Craig Robson

In our first Schedule G blog we included the following comments on electrical installations:

5. Paragraph 9 of Form 2 says all installations with respect to the provision of electricity are in place.

  • Does this mean only lateral lines to and including the electric meters, or do the unit service panels also have to be installed or is live electricity at the wall sockets required?

We think the lateral lines need to be to the electrical panels of the units and those panels have to be in place.  However, we do not think the lines have to run beyond that.

We have had some issues with respect to this provision of Schedule G since our last blog.  We think that it may be prudent to at least have the electricity lines in place that are needed to operate the unit furnace, ventilating equipment and if there is air conditioning, the unit air conditioner, subject to the comments below.

In passing, it is noted that the Schedule G provisions with respect to heating and ventilation state:

All installations with respect to the provision of heat and ventilation are in place and heat and ventilation can be provided

The Schedule G provisions with respect to air conditioning do not have the bolded provision set out above in relation to heating and ventilation.  The provisions with respect to air conditioning merely state:

All installations with respect to the provision of air conditioning are in place.

Does the omission of the statement “… and air conditioning can be provided” in this section of Schedule G mean that while heat and ventilation systems must be operable, the air conditioning equipment is not required to be operable at the time of the Schedule G signing?   We think that a good argument can be made that this omission allows for Schedule G to be signed even if the air conditioning is not then hooked up to the electrical system as long as the unit air conditioning (if there is to be any) is in place.

The more conservative approach is to have the electricity hooked up to the air conditioners at the time of the Schedule G inspection unless there is a reason this cannot be easily done at the time of the Schedule G inspection.

“Heads Up” to Architects, Engineers, Condominium Developers and Municipalities re: Schedule G in Ontario Condominium Declarations and Amendments

Post by: Greg Carpenter

The regulations to the Condominium Act of Ontario (the “Act”) prescribe two forms of Schedule G Certificates of an Architect or Engineer that are required in condominium declarations:

  1. Certificate of Architect or Engineer (Schedule G to Declaration for a Standard or Leasehold Condominium Corporation) (Under Clauses 5(8)(a) and (b) of O.Reg. 48/01 or clause 8(1)(e) or (h) of the Act) (formerly Form 2 and referred to in this blog as “Form 2”); and
  2. Certificate of Architect or Engineer (Schedule G to Declaration for a Common Elements or Vacant Land Condominium Corporation) (Under Subsections 40 (11) and 56 (7) of Ontario Regulation 48/01 and under Clauses 8 (1) (e) and (h) or Clauses 157 (1) (c) and (e) of the Act) (formerly Form 17 and referred to in this blog as “Form 17”).

Form 2 is required for standard condominium declarations and leasehold condominium declarations.  Form 2 is also required in all amendments to a declaration adding phases to a standard phased condominium.  Form 17 is required in the declaration of a common elements condominium or vacant land condominium.

There is also a Schedule G Statement of a municipality which is required for amendments to the declaration of a phased standard condominium.  This municipality Schedule G does not have a prescribed form.  Despite the fact the Act does not exempt the amendment for a final phase from including this municipality Schedule G, it is not required for such final phase.

We will not be examining the Form 17 Schedule G (common elements and vacant land condominiums) in detail in this blog post.  We intend to address that Form in a future post.

These Schedule G forms are “prescribed” by the Regulations under the Act and cannot be changed without Ministry approval.  In our experience, Ministry approval is not granted readily.  However, we have had success in obtaining approval for wording changes in cases where a situation was clearly not anticipated when the Regulations were drafted.

Some Registry/Land Titles Office examiners have rejected the Form 2 submitted with a declaration or amendment for technical review if the alternate choice in Paragraphs 4, 5, 8 or 10 has been deleted and not left in the Form without the box ticked off.  Other examiners accept the form with the alternate choices deleted.  This gives rise to a whole other discussion of the complete lack of uniform interpretation of legislation by the Land Registry offices.  Each office appears to operate in isolation of the others and one never knows if what is acceptable to Registry Office A will be accepted by Registry Office B.

There are a number of situations where completion of the Form 2 Schedule G is not straight forward:

1. Paragraph 1 of Form 2 says the exterior building envelope is weather resistant if required by the construction documents and has been completed in general conformity with the construction documents.

How does one certify in special situations such as:

  • on a conversion when there are no original construction documents available;
  • if the building was built using draftsman’s drawings without any inspection by an architect.  To what extent will an architect or engineer  need to open walls and make other intrusive investigations, etc. to verify conformity with construction documents?

2. Paragraph 2 of Form 2 says that except as otherwise specified in the Regulations, floor assemblies are constructed to the sub-floor.

  • What happens in the case of a non-residential condominium where floors are not required to be in place until after registration of the condominium?  In our view the architect or engineer can still sign Schedule G in such circumstances even though there is no floor in place as the Regulations to the Act provide the lowermost floor does not have to be in place with respect to non-residential condominiums.

 3. Paragraph 6 of Form 2 says all installations with respect to the provision of water and sewage services are in place.

  • Does this mean, in the case of sewage services, installed just to the unit boundary?  Or does it mean hooked up so that toilets can flush?
  • In the case of water services, does this mean only laterals from the street to and including the municipal water meter for the unit?  Or does it mean hooked up so the taps will work?

 In our view the services need to be at least installed to the unit boundary or meter, as the case may be.  The Regulations to the Act do not require units to be finished to the point where all the internal plumbing is completed.

 4. Paragraph 8 of Form 2 says all installations with respect to the provision of air conditioning are in place or, alternately, there are no installations with respect to the provision of air conditioning.

If there is an obligation to have air conditioning for each unit or if the project specifications indicate air conditioning is a “standard feature”, there is little doubt the architect or engineer must confirm each unit is served by an operational air conditioning unit.

 However, it is not unusual for air conditioning to be an optional extra.  Therefore, at the time of condominium registration it is quite possible some of the units may not have air conditioning, either because the buyers of those units did not choose the air conditioning option or because the units are not sold.

 In our view, the architect or engineer needs a clear, unequivocal written statement from the builder as to which of the units are required to have air conditioning, either because air conditioning is a standard feature, is required by the municipality (in case of noisy sites) or because the air conditioning “option” has been chosen.  The architect or engineer then needs to inspect each of the units that is to have air conditioning and ensure the air conditioning equipment is in place and operational.

 5. Paragraph 9 of Form 2 says all installations with respect to the provision of electricity are in place.

  • Does this mean only lateral lines to and including the electric meters, or do the unit service panels also have to be installed or is live electricity at the wall sockets required?

We think the lateral lines need to be to the electrical panels of the units and those panels have to be in place.  However, we do not think the lines have to run beyond that.

 6. Paragraph 11 of Form 2 says except as otherwise specified in the Regulations, the boundaries of the units are completed to the drywall (not including taping and sanding), plaster or other final covering, and perimeter doors are in place.

  • What does this mean where unit boundaries are not in whole or in part dry walled or have other final coverings?  Many unit boundaries have nothing to do with walls or other features that might be dry walled.  In addition, some condominium units’ walls are not dry walled but are covered with plaster or brick or other substance.  Based on our discussions with the Ministry it’s clear the drafter of this paragraph simply screwed up and made a bunch of erroneous assumptions  (welcome to the Condominium Act).  This paragraph can be interpreted to say that whatever features are monumenting unit boundaries must be in place.  This has been confirmed during discussions with Ministry staff.

There is nothing on Schedule G that indicates what property the Schedule is intended to cover.  This is a significant concern.  How does the signatory know which property the Schedule he or she signs is going to be used for?  It would be very possible (although completely inappropriate) for a builder to keep extra copies of signed Schedule G from Project A and use them for Project B.

We suggest the signatory add a short description of the property in the vicinity of her or his signature.  We have not had any issues in being able to register declarations with Schedule G’s that have been altered to add a description of the property to which it is intended to apply.  This description can either be a short legal description, an address or a combination thereof.

Watch for our upcoming blogs addressing additional issues and points about Forms 2, 17 and other Schedule G issues matters on our website www.rcllp.ca.

Board Members Behaving Badly Results in Personal Liability

Part 2 of 2: Professionals’ Opinions Make the Difference Between Payment and Protection

Post by: Khiam Nong

In a recent post, we outlined the cases of two condominium boards of directors who were chastised quite thoroughly by judges of the Superior Court for failing to fulfill their obligations to carry out their duties in a good faith manner.  In the case of Middlesex Condominium Corporation No. 232 (“MCC”), the Board brought two court proceedings in an attempt to forestall the unit owners’ rights to replace the Board.  In Boily v. Carleton Condominium Corporation (“CCC”), the Board ignored not only the will of the unit owners, but also a court order to construct the condominium’s courtyard to reflect its original design.  The members of the two Boards were adjudged personally liable for their actions and ordered to pay legal costs in MCC and construction costs in CCC.

Pursuant to subsection 37(1) of the Condominium Act, 1998 (the “Act”) directors and officers of corporations have a statutory obligation to carry out their duties (i) honestly and in good faith; and (ii) with the care, diligence and skill that a reasonably prudent person would in the circumstances.

While subsection 38(1) of the Act provides that directors and officers of corporations may from time to time be indemnified and saved harmless from liability incurred in the course of carrying out their duties, that protection is not afforded to those who do not act in good faith.

However, directors and officers should be aware that subsection 37(3) of the Act provides a mechanism by which directors and officers can maximize their chances of ensuring the protection built into the Act.  Subsection 37(3) provides:

Liability of directors

(3)  A director shall not be found liable for a breach of a duty mentioned in subsection (1) if the breach arises as a result of the director’s relying in good faith upon,

(a) financial statements of the corporation that the auditor in a written report, an officer of the corporation or a manager under an agreement for the management of the property represents to the director as presenting fairly the financial position of the corporation in accordance with generally accepted accounting principles; or

(b) a report or opinion of a lawyer, public accountant, engineer, appraiser or other person whose profession lends credibility to the report or opinion.

It may not always be financially feasible, necessary or reasonable for Boards to seek the advice of professionals in every situation.  However, in light of subsection 37(3), it is clear that clear professional advice should always be sought out whenever a Board proposes to take a controversial course of action or one that may have significant financial implications.

If directors and officers can demonstrate to a court that they relied in good faith on the opinions of the appropriate professionals, it may mean the difference between a court imposing personal cost consequences and a court granting the protection built into the Act.  In our opinion it would be an unexpected result for a court to find directors personally liable for costs if the directors have honestly and in good faith relied upon clear professional advice.  To do otherwise would frustrate the intention of this part of the legislation, which is to encourage the seeking out of professional advice before acting.

In the case of MCC, both judges noted the former Board’s failure to file evidence that the members of the former Board relied in good faith upon the opinion of a lawyer.  Mr. Justice Carey stated the following:

I have no evidence that the Board relied on legal advice in their actions.  I can only conclude that their legal counsel were instructed to take the steps they did.

His further statement below is somewhat of a concern and may provide some doubt on the protection offered by subsection 37(3).  He stated further:

The Board ultimately is responsible for their own decisions and cannot on these facts hide behind either their counsel or the Enerplan report.

This comment is with respect to an engineer’s report (not the legal advice provided to the Board).  It appears the Board may have been interpreting the report to reach conclusions not supported by the engineer’s report.  This highlights the need for professional advice to be clear in order to trigger the subsection 37(3) protection.

Mr. Justice Bryant stated:

Counsel for the members of the old Board did not file any evidence that the members of the old Board relied in good faith upon a report or opinion of a lawyer.

The statements of both judges suggest that the unfortunate outcome suffered by the directors and officers of MCC may have been avoided had they presented evidence to show that they relied on clear legal advice.

The best way for directors and officers to demonstrate that they took such a course is to present reliable evidence that they sought out and relied upon clear and unequivocal professional advice.  Boards must ensure that such advice is obtained in the form of written opinions and reports.  In court, documentary evidence will always serve as stronger evidence than oral evidence.

If the professional advice is not clear or is equivocal, the provider of the advice should be requested to clarify their opinions and recommend an unequivocal course of action.

If it is not possible to get clear and unequivocal professional advice on a proposed course of action, the Board must either decide to abandon the proposed course of action or accept that if the Board does proceed, the individual Board members may not be afforded the protection of subsection 37 (3).

Directors and officers must also be careful not to “shop” for the opinion that they want nor should they appear as though they are “shopping” for the opinion that best suits them.  It may be reasonable to obtain a second opinion on an issue, but if the second opinion supports the first opinion, seeking a third opinion will likely be viewed negatively by the courts if the third opinion contradicts the first two opinions and is relied upon by the Board in support of subsection 37 (3) protection.

Board Members Behaving Badly Results in Personal Liability

Part 1 of 2

Post by: Khiam Nong

Recent decisions of the Ontario Superior Court of Justice demonstrate that members of Boards of Directors of condominium corporations who do not carry out their duties in a good faith manner risk personal liability as they will not be afforded the protection of the indemnification provisions of the Condominium Act, 1998 (the “Act”).  The Boards of two condominium corporations have learned this lesson the hard way after being ordered to pay thousands of dollars out of their own pockets.  The former members of one Board were ordered to pay legal fees after unnecessarily bringing court proceedings against unit owners.  The members of another Board were ordered to pay for the costs of construction necessary to comply with a court order.

Middlesex Condominium Corporation No. 232 v. Middlesex Condominium Corporation No. 232 (Owners and Mortgagees of)

Middlesex Condominium Corporation No. 232 (“MCC”) required extensive repairs to the building envelope.  In 2011, the then Board obtained a quote from one contractor only, who eventually determined that repairs could be made for $755,000.  At the time, MCC’s reserve fund had only $143,000.  The Board prepared a “borrowing” bylaw whereby it proposed to borrow the balance of the funds required for the repairs.  The Board planned on putting the bylaw to a vote at the annual general meeting (“AGM”).

Prior to the AGM, a group of unit owners requested copies of documents relevant to the repairs, requested that the Board suspend negotiations with the contractor to allow them time to review the documentation and requested that they be allowed to post a notice regarding the plans.

The Board advised, through its lawyer, that it would allow supervised access to some documents but not all, that it would not suspend negotiations with the contractor and that it would not engage in a consultation process.

Thereafter, the unit owners requisitioned an owners’ meeting pursuant to s. 46 of the Act, to be held concurrently with the AGM.  They moved to defer the vote on the bylaw and to replace the existing Board with a new Board.

At the AGM, the proposed bylaw was defeated.  Before the election and unit owners’ requisition to remove the Board could be heard, the Board ended the meeting.

The Board then brought an application in the Superior Court pursuant to s. 131 of the Act requesting that an administrator be appointed and a subsequent motion for an injunction to prevent the unit owners’ requisition from being heard prior to the appointment of an administrator.

The injunction motion was heard first by Mr. Justice Bryant, who outright rejected the Board’s submissions that the unit owners were frustrating the work of the Board, and that allowing the requisition meeting would create instability and jeopardize the safety of the building occupants.  He found that the sole purpose of the Board’s application was to prevent the unit owners from exercising their statutory right to have the Board removed, which motive is clearly inappropriate and inconsistent with the Act.

After the injunction hearing, the unit owners held a meeting and a new Board was elected.  The former Board refused to accept the validity of the meeting and instructed its lawyers to proceed with the application to appoint an administrator.

That application was heard by Mr. Justice Carey.  While the Board materials characterized MCC as “ungovernable” and “stumbling into the ‘abyss’ in ‘chaos,’” Justice Carey stated that the language used in the Board’s materials was “exaggerated” and “alarmist.”  He confirmed that the unit owners’ actions in the circumstances were reasonable, considering the behaviour of the Board.

Justice Carey held that the election of the new Board was valid and that there was no reason why an administrator should be appointed.  He stated that s. 131 was designed as a last resort and that it was “not intended to be used to allow a board which has lost the confidence of the majority of owners to get their way regardless of the democratic will of the owners.”

Both judges released their decisions on the costs of both hearings in February of this year.  Both rulings demonstrated the courts’ displeasure at the board members’ abuse of power and refusal to carry out the will of the majority of unit owners.

Mr. Justice Carey described the former Board’s behaviour as “deliberate, egregious and requir[ing] sanction.”  He ordered the former Board members to pay $21,300 in costs.

Mr. Justice Bryant held that the injunction application was unnecessary, tenuous, without merit and improper as it was an attempt to deprive the unit holders of their statutory right to remove a board with which it was dissatisfied.  All of this behaviour was found to be in contravention of the Board’s duty to act in good faith.  In the result, the five members of the former Board were ordered to pay $15,000 in costs.

As noted by Mr. Justice Bryant, had costs been awarded against the former Board instead of against the individual directors, it would have produced a “perverse result” as a condominium board acts on behalf of the Corporation.  Awarding costs against the Corporation would have unfairly prejudiced individual unit owners as the structure of condominium corporations requires that unit owners bear a corporation’s costs.

Boily v. Carleton Condominium Corporation 145

In a similar, and maybe more baffling saga, the Board of Carleton Condominium Corporation No. 145 (“CCC”) decided not only to disregard the will of the unit owners, but also the will of the Court.  In so doing, the Board members were chastised quite severely by the Court for their behaviour.

In this case, the condominium complex required extensive repairs to the garage, which repairs affected the courtyard landscaping of CCC.  The Board advised the owners that it intended to put in place a landscape design that differed from that in place prior to the garage repairs.  Some owners were of the view that such modification required approval of 66 2/3% of the ownership.  The Board was of the view that the modification was maintenance, which did not require a vote.

A group of owners requisitioned a special owners’ meeting so that a vote could be held.  The Board refused to provide a list of registered owners which was required to organize the meeting.  The Board then called its own special owners’ meeting to submit its proposed landscape configuration and put it to a simple majority vote.  The Board also advised that it would commence demolition the following day regardless of the outcome of the vote.

The owners brought an urgent motion for an injunction to stop the Board from holding its meeting and to stop any modifications to the courtyard landscape until further order, which motion was granted.  The issue of whether the modification was a substantial change that required 66 2/3% approval was adjourned to a later date.

Thereafter, the parties reached a settlement whereby the owners’ meeting was permitted to proceed.  The Board’s proposed modification would be put to a vote requiring 66 2/3% approval.  The settlement was reflected in executed Minutes of Settlement.

The vote took place and the proposed modification failed to achieve the requisite level of owner approval.

The Board then took the position that there was no settlement agreement and sought to continue with the application in court.  The owners responded by bringing a motion to enforce the Minutes of Settlement.

Mr. Justice Beaudoin found that there was indeed an agreement in place and that it should be enforced.  He ordered that the courtyard landscaping be reinstated to its former design and advised the parties that they should seek further direction from him should they require it.

In spite of the Court’s clear direction, the Board went ahead and reinstated the landscaping in accordance with its own design, in complete disregard of the will of the other unit owners.  The unit owners brought a contempt motion.  They asked that the Court: (i) find the Board members in contempt of court; (ii) order the Board members to comply with court’s order; (iii) order the Board members to reinstate the courtyard landscaping to its original configuration; (iv) order that costs of additional work be borne by the Board members personally; and (v) order that costs of the motion be borne by the Board members personally.

Mr. Justice Beaudoin found that in substituting their own landscaping design, the Board members clearly and unequivocally breached his previous order, and that such breach was intentional.  He stated the they “acted neither honestly and in good faith, nor as a reasonably prudent person.”

In considering the issue of costs, he stated that it was necessary to hold the Board members accountable for their actions, as a failure to do so would result in all other unit owners paying for the restoration of the courtyard landscaping through common elements fees, which would be unfair in the circumstances.

The individual Board members were ordered to personally bear the additional costs, including labour and material, of reinstating the original landscape configuration.  While the issue was not addressed in the decision, it is likely that the restoration work will amount to a significant personal cost for each Board member – a high price to pay for a preferred landscape design.

Final Comments

Board members must always remember that they have been elected to serve the will of the unit owners.  Board members should not take such a task lightly and must ensure that they understand the remedies available to dissatisfied unit owners and the willingness of courts to enforce those remedies against Boards that do not carry out their duties in good faith.

 

HST REBATES ON NEW HOUSING (INCLUDING REBATES FOR RENTALS)

Post by: Khiam Nong

Builders who sell new or substantially renovated housing need to be aware of the HST New Housing Rebate (“NHR”).  The NHR can be assigned to a builder from home purchasers (“Purchasers”) on the unit/home sale closing.

Builders and Purchasers of new homes also need to be aware of the fact there is a rebate of HST available to the landlord of a new property (including a single home or residential condominium unit) if the first occupant of the property is a tenant.  This rebate is referred to as the New Residential Rental Property Rebate (“NRRP Rebate”).

Purchasers who rent out a new home so that the first occupant of the new home is a tenant are entitled to the NRRP Rebate but cannot obtain the NRRP Rebate from the builder.  Such Purchasers must apply for the NRRP Rebate directly after closing.  To find out how and where to file the NRRP Rebate application, see page 31 of the Canada Revenue Agency (“CRA”) publication found here.

In markets with the potential for Purchasers to acquire property for investment purposes, builders should be aware of the existence of the NRRP Rebate so they can advise their Purchasers of the existence of the rebate.  The obligation for a Purchaser to pay the full 13% HST without being aware of the NRRP Rebate can discourage a Purchaser from completing the purchase.

Further, awareness of the NRRP Rebate may also deter misrepresentation by Purchasers to the CRA.

Of late, we have noticed that, in order to avoid being responsible to their builder for lost NHR, some Purchasers have been dishonest about their intentions to rent out a property and misrepresented that they intend to occupy the property as their primary place of residence.

If Purchasers are made aware that they can obtain the NRRP Rebate on new homes that they lease out to tenants, we suspect some of this dishonesty will be dissuaded.

New Housing Rebate

The NHR allows Purchasers to recover some of the federal portion of the HST, which is 5% in Ontario.  For homes with a base price (exclusive of any HST or rebates) up to $350,000, Purchasers may recover a rebate of 36% of the 5% federal portion.  The allowable rebate declines on a sliding scale when the purchase price is between $350,000 to $450,000.  If the base price is or exceeds $450,000, the federal portion of the NHR is not available.

Regarding the remaining 8% of the HST, which is the provincial portion, Purchasers may recover 75% of the 8% provincial portion up to a maximum of $24,000.  Unlike the federal portion, the amount of the provincial portion of the NHR does not slowly decline once the purchase price reaches $350,000.00.  The provincial portion of the NHR simply does not apply to any purchase price in excess of $400,00.00, thereby limiting the amount of the provincial portion of the NHR to $24,000.00.

For the purposes of the NHR, the term “builder” generally includes a person in the business of constructing or substantially renovating houses for sale, but may also include:

(i)                 a manufacturer or vendor of a new mobile home or floating home;

(ii)               a person who buys a previously unoccupied new house for resale;

(iii)             a person who acquires an interest in a house while the house is under construction or substantial renovation and completes or engages another person to complete the construction or substantial renovation; or

(iv)              a person who has converted a non-residential property into a house without substantially renovating the property. [1]

A “builder” for the purposes of the rebate acquires, builds or substantially renovates housing (or hires someone else to do so) as its trade.

An individual who buys, builds or renovates a house to use as his or her primary residence does not fit the definition of builder, however, such an individual is still entitled to the NHR if he or she meets all of the usual criteria.

Purchasers may assign the NHR to their builder.  The builder may apply for the rebate on the Purchasers’ behalf.

A builder may pay the total amount of Purchasers’ NHR directly to them or credit that amount on the purchase price of the house.  It is highly unusual to pay the NHR directly to Purchasers.

A builder who chooses to credit Purchasers with the amount of the NHR must send in a fully completed Form GST190 and all applicable provincial rebate schedules.

The following is a list of additional conditions Purchasers must meet to qualify for the NHR:

(a)               the Purchasers bought a new or substantially renovated house from a builder and HST is due on closing;

(b)               the builder sold the Purchasers the house and related land on which the house is located under the same written agreement of purchase and sale;

(c)                when the Purchasers signed the agreement of purchase and sale, it was intended to be the primary place of residence for the Purchasers or their relations;

(d)               ownership of the house is transferred to the Purchasers after construction or substantial renovation is completed;

(e)               no one occupied the house before possession being given to the Purchasers; and

(f)                 the Purchasers or their relations are actually the first occupants of the house after construction or substantial renovation.

One of the main criterion for eligibility for the NHR is that Purchasers, or their relations (meaning immediate family members related by blood, marriage, common-law partnership or adoption within the meaning of the Income Tax Act), must use the house/unit as their primary place of residence.  The factors the CRA considers when determining whether a house is an individual’s primary place of residence include:

○                    whether the individual considers the house as their main residence;

○                    the time the individual has lived in the house; and

○                    the designation of that address on personal and public records.[2]

Purchasers who fail to meet all eligibility requirements should not be entitled to the NHR and if the NHR is obtained, can be required to repay the rebate.

New Residential Rental Property Rebate

The NRRP Rebate is obtained by Purchasers making an application as noted above.  The NRRP Rebate cannot be credited to the Purchasers on closing by the builder.

The application for the NRRP Rebate must be filed within two (2) years after the house purchase closes.

The amount of NHR is calculated on the same basis as the NRRP Rebate.  Generally the rules for eligibility are the same as those considered in respect of the NHR.

It is important to note that Purchasers will have to repay the NRRP Rebate if they should sell their home within one (1) year after it is first occupied as a primary place of residence after construction, unless the home is sold or leased to an individual who will occupy the home as their primary place of residence.

The foregoing is a summary of the HST rebates available when selling or buying a new or substantially renovated home/unit.  For more detailed information on the NHR and the NRRP Rebate, see the following CRA publications or talk to your tax advisor.

http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-12e.pdf

http://www.cra-arc.gc.ca/E/pub/gp/rc4231/rc4231-12e.pdf



[1] RC4028 GST/HST New Housing Rebate, page 6, www.cra.gc.ca, February 26, 2013.

[2] Ibid.

Don’t Wait Too Long – Tarion, Bulletin 19R and New Condominiums

Post by: Craig Robson

We received a call recently from a prospective client who was interested in developing a condominium project.  The conversation went something like this:

Caller: – “We are looking at doing a 6 storey apartment condominium.”

Lawyer – “What stage are you at?”

Caller – “4th floor is being worked on now.”

Lawyer –“Are you looking to sell the units or rent them?”

Caller  “Rent.”

Lawyer – “Good.”

Our response was based on the fact that if the caller was intending to sell new residential units out of the project, the project would be subject to the Ontario New Home Warranties Plan Act (“ONHWPA”) jurisdiction.  The entity responsible for administering the ONHWPA is the Tarion Warranty Corporation (“Tarion”).

If the caller was planning on selling new residential units, the project would then likely be subject to Bulletin19R “Condominium Projects: Design and Field Review Reporting” (“19R”).  19R came into effect on July 1, 2010 (replacing a similar long standing bulletin).

19R applies to vendors and builders of proposed condominiums that have both Part 9 and Part 3 Ontario Building Code (“OBC”) construction requirements and proposed condominiums that have only Part 3 OBC construction requirements.

For most of us who are not schooled in interpreting the OBC it is not always clear when 19R will apply.  Its applicability can sometimes be a surprise.  The basic assumption by some is that it only applies to “high rises”.  The true test of applicability is what part or parts of the OBC apply.

The question of what part(s) of the OBC apply to a proposed residential project should be put to the project engineer or architect at the outset of any such project if there is any thought of selling units.  This question should be posed well before any construction gets underway if there is any chance of the project being subject to ONHWPA.  Tarion asks the question in its application form but we have seen those applications prepared from time to time without careful consideration (called guessing) of what part of the OBC applies.

For the caller referred to above, she would have had a major issue if her intention was to sell residential units out of the project.

Her first issue would be that she should have enrolled the project in ONHWPA before construction started.  That in itself is an exercise of some length.

The bigger problem is with respect to 19R.  19R requires a lot of paperwork, submissions and professional reviews starting before and during all aspects of construction.  The caller in the above example may have simply been unable to comply with 19R because her project was too far along in the construction process to be able to comply with 19R’s preconstruction and submission requirements that are required before and in the early stages of construction.

19R adds a lot of red tape and cost to a project but cannot be ignored with respect to projects to which it applies.  Not being able to comply with 19R requirements may preclude a project from being brought into ONHWPA registration/enrolment.  If a project does not have this registration/enrolment, the builder is not allowed to sell the new previously unoccupied residential units in the project.

The Take Away

  1.  If there is any chance that there will be sales of new residential units in a new project, contact Tarion immediately and at the very least find out what the process is to comply with their requirements.
  2. If sales of new residential units are intended:
    • get the process underway with Tarion well in advance of construction commencement.  It can take a while; and
    • determine with certainty whether 19R applies well before any construction starts.  If 19R applies, make sure all relevant members of your project team know what is required of them – and then make sure they do it.  A qualified member of your project team should be charged with coordinating all of the 19R requirements.

Beware the Single Pipe

Post by: Meghan MacDonald

Developers and builders need to be aware of section 7.1.5.4. of the Building Code if they’re considering building multiple buildings on one property and only one servicing pipe services the property.  This becomes especially crucial if the property is severed into two or more parcels or if there is any consideration given to having separate condominium plans on the property.

Section 7.1.5.4. provides:

 7.1.5.4. Separate Services

(1) Except as provided in Sentences (2) and (3), piping in any building shall be connected to the public services separately from piping of any other building.

(2) An ancillary building on the same property as the main building may be served by the same service.

(3) Water service pipes or building sewers serving buildings located on the same property may connect into a private water supply or a private sewer conforming to Article 7.1.5.5.

(4) No plumbing serving a dwelling unit shall be installed in or under another unit of the building unless the piping is located in a tunnel, pipe corridor, common basement or parking garage, so that the piping is accessible for servicing and maintenance throughout its length without encroachment on any private living space, but this Sentence does not prevent plumbing serving a unit located above another unit from being installed in or under the lower unit. (underline added)

 At first glance it doesn’t seem like there is an issue for developers/builders constructing multiple buildings on one property because according to subsection 7.1.5.4.(2), ancillary buildings on the same property can share one servicing pipe.

However, consider the following scenario:

  • a developer decides to build two separate apartment buildings on one parcel of land;
  • both buildings will be serviced by a single servicing pipe;
  • halfway through construction of the second building the developer decides it wants to convey title to one of the buildings to a related company.  The developer severs one of the buildings from the property in order to have the apartment buildings on two separate parcels of land.

The developer now has a problem.  Section 7.1.5.4. only allows multiple buildings to share a single servicing pipe if they are located on the same property.

It doesn’t matter that it was acceptable for both buildings to share the single servicing pipe prior to severance.  Once the parcel of land is severed, a violation of the Building Code exists and a municipality could require the installation of another servicing pipe before it will grant any approvals or permits that may be necessary for completion of the properties.

The same issue arises if for any reason two or more condominium plans are proposed for the property.

Installation of a servicing pipe after site servicing is otherwise completed can be a significant expense.

There is one way the developer can avoid having to install a second servicing pipe.  The solution is found in Appendix A to the Compendium to the Building Code:

A-7.1.5.4.(1) Separate Services

Building sewers and water service piping serving buildings that are not located within the same property may be interconnected if the owners of the properties and the municipality enter into an agreement that is registered against the title to which it applies.

There are two issues with this solution:

1. The municipality is not required to enter into this type of agreement because Appendix A is explanatory only and not part of the Building Code requirements; and

2. If the municipality does agree to enter into this type of agreement it will take time and cost money to create an agreement that the municipality will agree to sign.

Bottom Line: be aware of this single servicing pipe issue when planning construction of multiple buildings on one parcel of land because it could add complications and additional costs to a project down the road if the property is ever severed or if separate condominium plans are proposed for the property.