Choosing a Condo Plan That is Right for You – Part 4: Common Elements Condominiums
Post by: Roy Gentles
In our previous blog post we discussed phased standard condominiums. In this post we will offer part one of our discussion on common elements condominiums.
Common Elements Condominium Plans
A common elements condominium plan (“CECP”) refers to a condominium plan where the condominium property consists only of common elements. As such, there are no condominium units in CECPs. Instead of owning a unit in the condominium plan, as one would see in other types of condominiums, each owner in a CECP owns an undivided interest in the common elements of the CECP. Ownership of an undivided interest in the common elements of the CECP occurs when the owner of a piece of freehold land outside of the proposed CECP consents to having his or her land “tied” to the CECP. This consent is obtained at the time the CECP is being established. The owner’s freehold piece of land so tied to the CECP is referred to as a Parcel of Tied Land (“POTL”).
The POTLs tied to a CECP take the place of units for most purposes in the legal structure of a common elements condominium. However, the POTLs are not part of the CECP; the POTLs have and retain freehold tenure.
An example can help clarify how a CECP can be used. For this example, a developer wants to build a residential development with single family dwellings on half acre freehold lots and does not want to bring those lots into a condominium plan. The developer also wants to allow the owners of the freehold lots the use of a shared recreational facility, such as tennis courts.
The developer has decided for marketing or other reasons it would be beneficial to sell the homes as freehold estates instead of selling the homes as condominium units.
However, the developer, or the municipality which has to approve the development, is worried that the recreational facility will not be properly taken care of over the long run and, instead of adding value to the development, will detract value from it if the recreational facility is not under the jurisdiction of a condominium. The main concerns facing the developer or municipality are usually: 1) how is this recreational facility to be governed; and 2) how will the recreation facility be properly funded over the long term. Including the recreational facility in the CECP resolves these concerns.
In this example the recreational facility could be registered as the common elements of a CECP. The lots containing the single family dwellings would become the POTLs to the CECP. The owners of each single-family freehold home (the POTL) would own a freehold estate in his or her home and an undivided interest in the common elements condominium, which consists of the recreational facility.
The common elements condominium corporation, which is automatically created upon registration of the CECP, would :
- manage the recreational facility;
- be responsible for the maintenance and repair of recreational facility; and
- collect the monies necessary to operate the recreational facility and to properly fund the recreational facility reserve fund from the owners of the POTLs.
The owners of the POTLs are obligated, on the same basis as if such owners were the owners of condominium units, to pay common expenses on account of costs of operating the CECP and to fund the reserve fund of the CECP as needed. As the POTLs are not part of the CECP, no costs related to the POTLs become part of the condominium budget.
CECPs are often useful in providing parking or in providing an access roadway to freehold parcels of land that do not otherwise have adequate legal or physical access to a public street. In this circumstance, only the parking lot or the roadway that leads to the freehold parcels of land would be in the CECP.
Take Home: Pros and Cons of Common Elements Condominium Plans
The greatest advantage of a CECP is allowing a developer to provide a shared feature or facility to a group of freehold parcels of land and have that shared feature or facility governed by the provisions of the Condominium Act. This ensures the governance of the shared feature or facility is regulated by the provisions of the Condominium Act and also ensures there are sufficient funds available to maintain, operate, repair and replace the shared feature or facility.
If the owner of a POTL fails to pay the common expenses attributable to his or her freehold parcel of land, the common elements condominium corporation has the right to register a common expense lien against the POTL. A common expense lien is a first charge against the POTL, ranking ahead of any mortgages on the property if properly processed.
The shared features or facilities in a CECP can include anything a developer seeks to have shared by the owners of the parcels of land. The most usual shared features and facilities are items such as access roads, parking facilities, recreational facilities, other amenities, retaining walls and/or noise walls.
Common expenses for common elements condominiums are usually much less than in other types of condominiums because the common expenses are only on account of costs relating to the shared facility, not the POTLs. As discussed in our blog on phased condominiums, currently only standard condominiums can be phased, therefore a developer is forced to register the entire CECP at one time. It is usually not practically possible to add POTLs to a CECP once the CECP is registered. It is also important to note that POTLs cannot be subdivided without an amendment to the condominium declaration. It is however possible, in some circumstances, to register a new condominium on top of a POTL.
In part two of our discussion on CECPs, we will look at how CECPs are treated under the Ontario New Home Warranties Plan Act and discuss some other aspects of such plans.