Status Certificate Error Costs Condo, Lawyer, and Others

The Court of Appeal has released its decision in Orr v. Metropolitan Toronto Condominium Corporation No. 1056.  I encourage a full reading of the case, but here is a summary of the important facts and findings. The condominium was developed in the late 80s and registered in 1993. One of the principals of the developer purchased a unit and built a third floor in the common element attic space above his unit. The third floor held a large family room, bedroom, ensuite, storage area and small furnace room. The condominium documents showed the unit as a two-storey unit. The principal was the president of the condo until 1997 when he sold the unit. The purchaser obtained two estoppel certificates (now called status certificates). Neither certificate mentioned the third floor issue. The purchaser bought the unit. During renovations of the unit the new owner discovered construction defects. She had her lawyer write to the condominium and property manager, who responded by demanding that she stop immediately. The condominium's engineer investigated the defects and noticed the third floor. The condominium brought an application against the owner for the third floor changes. The owner commenced an action against the former owner of her unit (who was also the former president of the condominium and principal of the developer), the City of Toronto, and the real estate agents. The owner started another action against her former law firm, the condominium, the property manager, and a number of individuals. At trial, the judge found the condominium, lawyers, and seller/director liable for damages.  The owner was ordered to close up the third floor and pay the condominium rent for her use of the third floor. The owner appealed. The seller/director, lawyer, and condominium all cross-appealed The Court of Appeal made the following findings and comments: 1) Owner's Claim against the Condo The Court of Appeal determined that the condominium was liable for negligent misstatement in regard to the certificate that indicated that there were no breaches of the Act, declaration, by-laws or rules. In doing so, the Court made the following findings:

• The condominium owed the purchaser a duty of care in the preparation of the status certificate. The condominium could not escape its duty by contracting out or delegating the completion of the certificates to the property manager.
• The condominium and property manager should have been more vigilant and diligent in preparing the certificate when they knew the records transferred from the previous manager were "in dribs and drabs".
• The failure of the property manager to make any inquiries into the issue with the third floor prior to completing the certificate was "not reasonable or prudent in the circumstances."

As a result, the condominium was not entitled to demand the owner close up the third floor and restore the unit to a two-storey configuration at her own expense. 2) Owner's Claim against the Property Management Company The property manager was not liable as it was acting as agent for the condominium in preparing the certificates. The property manager did not owe the purchaser an independent duty of care. 3) Owner's Claim against her Real Estate Lawyer The Court of Appeal upheld the finding that the law firm was negligent in failing to show all of the plans of the unit to the owner prior to her purchase. The lawyer was not entitled to rely upon the estoppel certificate that indicated there was no breach of the Act, declaration, by-laws or rules; the certificate was "never intended to provide evidence of proper title to a property." 4) Condo's Claim against Manager/ Manager's Claim against Condo The condominium and property management company claim against each other. The property manager relied upon its management agreement, which included an exception for liability arising from facts that were known by the board and not disclosed to the manager. The Court of Appeal said that it would not impute the knowledge of one director (the seller/president) to the board as a whole since it would "have the potential to vastly increase the liability of condominium corporations and would certainly make risk management on their part all but impossible."  As a result, the property management company was ordered to indemnify the condominium for the damages it owed the owner as a result of her reliance on the certificate. 5) Condominium's Award of Punitive Damages from Seller/Director The trial judge ordered the seller/director to pay $50,000.00 in punitive damages to the condominium. The condominium appealed, asking for $140,000.00. The Court of Appeal upheld the award of $50,000.00. 6) Damages The owner was awarded:

• from the condominium - $41,681.00 for repairs to the common elements she made;
• from the real estate law firm - $28,379.02 for the amount she paid them;
• from the condominium and law firm (jointly and severally) - the difference between the value of the townhouse as a renovated three-storey unit and a two-storey unit.

The condominium was awarded:

• from the seller/director - $50,000.00 for punitive damages;
• from the management company - the amount it owes to the owner for negligent misrepresentation (in the certificate).

The issue of costs (which exceed $1,000,000.00 between the parties) will be determined next year.