Navigating the Legal Minefield of Status Certificates
We have seen several disputes about status certificates in condominiums in recent months. It seems like a trend that is likely to continue with people being more deliberate in their purchasing decisions with recent market trends and some looking for a reason to get out of a deal. The situations described in the following paragraphs may seem unbelievable at times, but this post is based on real examples.
John finds a unit he wants to purchase in the condominium. The seller gives him a status certificate she requested two weeks before listing the unit to speed up the process. John reviews it with his lawyer, is apparently satisfied with it, and decides to purchase the unit. John purchases the unit ten weeks after reviewing the status certificate, which was three months after it was prepared by the condominium.
Six months after purchasing the unit, the condominium levies a special assessment of $40,000 per unit for a large repair project. John feels he should not be responsible for any portion of the special assessment because it was not disclosed in the status certificate. The condominium believes John should be responsible for his share because it has been almost a year since the status certificate was prepared and it was not aware of the need to levy a special assessment at the time.
Purpose of Status Certificates
The purpose of a status certificate is to ensure prospective purchasers have sufficient information to allow them to make informed decisions when purchasing a unit. It includes information on the decision makers, the finances of the condominium, ongoing legal proceedings, any proposed changes to the common elements, and a few other matters. The status certificate package may include other material at the discretion of the condominium, such as a new resident form, request form to book the elevator, or other documents that might be relevant shortly after a purchase of a unit.
While the status certificate is intended to help purchasers make an informed decision, the condominium can only provide information that it has available at the time the status certificate is prepared. For this reason, the Condominium Act, 1998, states the status certificate only binds the condominium as of the date it is prepared. There are a few unfortunate cases which seem to require condominiums to notify purchasers of changes in the circumstances after the status certificate is prepared. In our view, these cases are fact-specific and should not be taken as a general principle applicable in all cases. An error or omission in a status certificate could prevent a condominium from being able to collect a special assessment or monthly common expense from a purchaser for a period of time (i.e. typically the fiscal year in which the status certificate was prepared), but the purchaser cannot avoid paying their fair share indefinitely because of an error or omission in the status certificate. A status certificate that does not describe a special assessment is not a contractual guarantee that there will never be one!
Tips for Condominiums
Given an error or omission from the status certificate could have significant consequences to the condominium as well as the purchaser, it is vital that the person preparing it take time to properly complete it and not rush through it. We have a few suggestions:
- Second Reviewer – it doesn’t hurt to have two people review the status certificate before it is sent to the purchaser. Someone with knowledge of the records, like a manager or administrator, and someone with knowledge of board decisions and the property, like a current director, might be good choices. Directors must notify their managers of any situations around the property regularly so the manager can ensure the status certificate is accurate.
- Uncertainty – if you have knowledge of the potential for a special assessment but do not know yet if it will be required or the amount, put a note that explains the situation that could lead to a special assessment in the status certificate. If you don’t, a purchaser will say you were deliberately hiding it from them.
- Extra Info – it doesn’t hurt to add more than is required by the Act. An extra page or two directly after the status certificate that highlights key rules or requirements could alert a purchaser to a rule that makes the condominium unsuitable for them. Some condominiums will put a few paragraphs explaining rules that prohibit pets, smoking, or other lifestyle issues.
Tips for Purchasers
When purchasing a unit in a condominium, the purchaser should request a status certificate from the condominium to ensure they have sufficient information to make a wise decision. We have the following suggestions:
- Review it - This seems obvious, but many purchasers do not review it before purchasing their units. I appreciate it might be dull or hard to read, but there are parts that could tell you that the condominium is not suitable for you and it is much easier if you find this out before you purchase the unit. Are pets allowed? How about smoking? How many parking spaces does it come with? How big are the parking spaces and where is yours located?
- Have your lawyer review it – This one might seem obvious too, but many purchasers do not have their lawyers review it. The lawyer should be able to decipher parts that are full of legalese for you. It is often an added expense, but it could save you thousands of dollars and plenty of headaches later.
- Don’t rely on an old status certificate - Obtain a new one closer to closing so you are aware of issues that have arisen and can negotiate with the seller. I’ve never understood why people will not pay $100 to get a new status certificate before closing on a property worth hundreds of thousands of dollars with potential risks much greater than $100.
- Don’t ignore warnings in the status certificate - While most condominiums will be reluctant to answer questions about the status certificate, purchasers can request records. Section 55 of the Act allows a purchaser to request records from the condominium. If, for example, the status certificate indicates a large repair project is in the planning stages, but the financial implications are not yet known, ask for documents related to the repair project. This information will give you an idea if the condominium has sufficient funds in its reserve fund to pay for the repairs or if it will need to levy a special assessment or borrow the funds.
- Purchase title insurance - I’ve seen several instances where purchasers did not have to pay a special assessment that was levied shortly after they purchased their unit. Their title insurer paid for them. While there is a cost associated with title insurance, it will provide protection for a variety of costly issues in addition to special assessments.
If a special assessment is levied against your unit after closing and you feel you should not be responsible, seek legal advice immediately. Do not refuse to pay the special assessment without first speaking with your lawyer as the condominium will simply register a lien against your unit to secure payment.