Condominium Advice
By:
Andrew D. Ain
CONDOMINIUMS – BASIC CONCEPTS
Types of Condominiums
- Standard – traditional form of condo
- Common Elements - no units only common elements. Common elements tied to POTL
- Vacant Land – bare land no need for structures (often very similar to a plan of subdivision)
- Phased – Standard condominium implemented in phases rather than all at once.
- Leasehold – a condominium on leased land (40 to 99 years)
Parts of a Condominium
- Units – part of the condominium that is available for individual ownership and transfer
- Common Elements (and exclusive use common element) are those parts of a condominium that do not form part of the units.
A unit owner owns his unit absolutely and shares an undivided percentage ownership in the common elements.
Creation of Condominium
- Registration of Declaration – it is essentially the constitution of the condominium. It sets out the basic principles of the condominium and the respective responsibilities of the condominium corporation and the unit owners.
- Registration of Plan of Condominium (Description)
Key Documents
- Condominium Act, 1998
- Declaration
- Description (Plan of Condominium)
- By-laws – The purpose of the by-laws is to govern the affairs of the condominium corporation and to establish procedures and policies that affect all unit owners and the condominium generally.
- Rules
Governance
Board of Directors – control. The role of the condominium corporation is to manage the property and assets of the condominium on behalf of the owners. The condominium corporation is run by a board of directors. The board is elected by the unit owners (with some exception at the start of a new condominium corporation). Although usually volunteers, directors have the same kind and degree of fiduciary obligations with respect to the condominium and unit owners as the directors of a business corporation have toward the corporation and its shareholders.
CONDOMINIUM RESALE KEY CONSIDERATIONS
Agreement of Purchase and Sale
If the solicitor has an opportunity to review the agreement of purchase and sale before it is presented to the vendor, changes should be made to the standard resale form to protect your client’s interest. For your consideration and use we have attached a schedule to append to the agreement of purchase and sale (with modifications as necessary).
Use most current version of OREA form of Agreement of Purchase and Sale for resale of condominium units
- Legal description: Confirm proper legal description. Suite number may not correspond accurately to unit and level no. Include all additional units. Parking spots or lockers may be separate units which should be specifically included and referred to. You can likely find the correct legal description from the current Transfer or Transfer/Deed of Land (the Vendor should have a copy). You can also check with the condominium manager.
- No automatic 10-day rescission period
Unlike the first purchase from the developer, there is no automatic 10 day “cooling off” or rescission period.
- Additional Conditions
- Review of Status Certificate and Condominium Documents.
Since there is no rescission period for a resale condominium, the most important protection a resale agent can offer his or her client is to make the offer conditional upon the purchaser (or the purchaser’s solicitor) receiving a completed status certificate and having at minimum 72 hours to review and approve it.
The clause should also include who is paying for the certificate (this will depend on who you are acting for).
- Improvements or alterations.
You should include a warranty in the agreement of purchase and sale as to any alterations or improvements being in compliance with the condominium documents and the Act and a further covenant that consent was obtained from the corporation if and when required.
If you are purchasing an older unit and you are aware of substantial alterations you should make sure to add a condition to the agreement of purchase and sale requiring a clearance letter from the board of directors certifying the work was approved.
- Special Assessments and increases in common expenses.
You may consider including a condition requiring the seller to disclose any increases that may be contemplated by the board of directors but not yet passed and if not disclosed for the seller to make up the difference by way of set off at closing. In advising a seller, one would obviously never allow them to agree to such a condition and have the purchaser rely on the status certificate and not the seller’s knowledge.
- Arrears Owing to Condominium
Include a warranty of the vendor that there are not and at closing will not be any arrears of any monies (common expenses or otherwise) owing to the corporation on account of the unit.
- Inspection.
Include standard conditional on inspection provision
- Financing.
Include standard conditional on financing provision
Status Certificates
- Who obtains it?
The Condominium Act requires a condominium corporation to issue a status certificate when so requested. This document is intended to ensure that prospective purchasers are immediately given sufficient information to make an informed decision. Unlike its predecessor legislation, the Condominium Act, 1998, provides that anyone can request the certificate upon paying a fee (not to exceed $100.00 plus GST) and a purchaser may rely upon it regardless of who requests it, however, it should always be directed in the name of the Purchaser to protect the Purchaser’s rights against the condominium corporation. The certificate must be delivered by the condominium corporation within 10 days of the request.
- Key areas to review:
Arrears (Section 5): This is a statement of whether or not the unit owner is in default of common expenses. Any arrears are not personal and attach to the unit. These arrears must be paid out on closing. It is important to ensure the status certificate includes a reference to all of the units the purchaser intends to acquire, whether a dwelling unit, parking unit, locker unit or boat slip as common expenses/arrears may be attributable to each individually.
Common Expenses (Section 6): This provision establishes the amount of common expenses, the date of next payment after the certificate is issued. Your client should be made aware this amount may be higher on closing. The status certificate only provides a snapshot of the status of the corporation at the time of the request. If the expenses are increased subsequent to the date of the certificate it is the purchaser’s obligation to accept the increase and there is no obligation on the seller to advise them of the increase.
Budget (Section 9): A review of this section of the Status Certificate is important for an understanding of the financial condition of the condominium. This section identifies the anticipated financial status of the corporation at the end of the current budget and requires a statement as to whether there will be a surplus or a deficit. The significance of this information is directly related to the time of year this information is obtained in relation to the year end of the corporation. If the corporation’s fiscal year end is December and the Certificate is obtained in March, the statement will likely have little value as it would be too early in the year to determine if there will be a surplus or deficit.
Increase in Common Expenses and Special Assessments (Sections 10 & 11): The status certificate must only identify increases or assessments that have been “levied”. Therefore any increase that occurs after the date of the certificate is at the risk of the purchaser.
Knowledge of Potential Increase (Section 12): This statement requires the corporation to give particulars of any potential increase it knows about, including particulars of any expenses which are forthcoming even if no common expenses or special assessment has been approved by the board.
Reserve Fund (Sections 13-17): This fund is maintained for major repairs and replacements of the common elements and assets of the condominium. These provisions provide the exact dollar amount of the reserve fund as of the month end 90 days prior to the date the certificate is issued. They require information as to which studies have been carried out and with what frequency. It should be noted that the standard agreement of purchase and sale specifically provides that there is no adjustment on closing for monies held in the reserve fund. It is best that reserve funds not be adjusted for but their increased value to the unit (if any) be built into the selling price of the unit.
Litigation (Sections 18 & 19): It is important to note if there are any serious claims filed against the corporation as this may result in additional future costs to the purchaser (vis a vis any special assessments). If there is such a claim you may consider adding an additional condition to the agreement requiring either i) an abatement in the purchase price or ii) a holdback for the proportionate share of the amount claimed plus interest or iii) an indemnity from the vendor from and against any special assessments or increases in common expenses arising from the litigation.
Section 98 Agreements (substantial changes to common elements by unit owner) (Section 23): The agreement sets out the owners’ responsibility for the alterations, and places the obligations with respect to the maintenance and repair of the alteration onto the owner. This form of disclosure was not available under the prior legislation. If there is a Section 98 Agreement, this would be the time to utilize the condition requiring a clearance letter from the board of directors.
Leasing (Section 24): This section will provide the number of non-owner occupied units. This type of disclosure may affect the value of a unit if the purchaser views owner-occupied units as preferable.
Substantial Change to Common Elements (Section 25): Similar to the provisions discussed above re special assessments.
OTHER CONSIDERATIONS
Key Areas to review condominium documents: restrictions (e.g. pets, parking, satellite dishes, bbqs, etc.), utilities (separately metered or bulk), standard unit by-law.
The Declaration
- Pets: In enacting the Condominium Act, 1998, the government chose not to expressly permit pets in condominium corporations as it had for rental buildings. Reasonableness is not an issue where the prohibition is in the declaration. A purchaser of a unit who understood he or she was buying into a “no pet” building is entitled to have that understanding protected. Generally the courts will enforce restrictions in the declaration against the keeping of pets by unit owners.
- Unequal contributions in common expenses (maintenance fees): It is essential to review with the purchaser his unit’s percentage allocation of common expenses described in Schedule “D” to the Declaration. Each owner is required to contribute to the common expenses (also known by some as maintenance fees) in the proportion specified in the Declaration, usually on a monthly basis. In essence the total budget for the corporation is determined by the board on an annual basis and each unit must pay their share according to the proportions set out in the Declaration.
An area of concern raised by my individual clients and my condominium corporations is the disproportionate allocation of common expenses to a unit. There is no requirement for a developer to allocate common expenses proportional to the size or square footage of a unit. Often it is completely arbitrary and made equal for all units so it is easier for the developer to calculate. A buyer should review and analyze the percentage of common expenses they are paying to ensure it is line with a proportionate allocation. If it is greater, they may want to negotiate a reduction in the purchase price to compensate for the differential.
Proportional allocation does not always mean a fair allocation. This problem often arises when you are purchasing in a mixed condominium development that involves a mix of units such as townhouses and tower units. It is common that the tower units absorb a substantially greater amount of the budget for their maintenance needs than the townhouse units (elevators, security etc.). Therefore a proportional allocation (which in most cases for townhouses they are paying a larger portion because there units are larger) can also be unfair. Accordingly, the purchaser should take a good look at the percentage allocated to the unit and make a determination if it is appropriate given that particular units circumstances.
Additional Clauses for Resale Condominium
Agreement of Purchase and Sale
The Seller herein agrees to provide to the Buyer within ten (10) days of the acceptance of this Offer a Status Certificate for the subject property. Upon receipt of same, the Buyer shall have 72 hours (excluding Saturdays, Sundays and Statutory Holidays) to review the contents thereof and find same to his or her satisfaction, failing which this offer shall become null and void and the deposit herein shall be returned to the Buyer in full without interest, deduction or delay. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein.
[In the case of an extended closing you may want to add the following: If there are any material amendments to an updated status certificate from what was received in the original certificate, the Seller shall be responsible for the increased costs resulting therefrom or the Buyer shall have the right to terminate the transaction.]
The Seller hereby covenants and warrants with the Buyer that any and all renovations and alterations made to the Unit comply and conform with the requirements of the Condominium Corporation, The Condominium Act, the Corporation’s Declarations, By-laws and Rules and Regulations.
The Seller covenants that no improvements, additions or repairs in the said Unit or upon its Exclusive Use Common Elements which require the consent of the Condominium Corporation, have been carried out without such consent.
[If you are aware of substantial improvements or renovations that have been made to a unit or a Section 98 Agreement, you should insert a condition that the Buyer receive, on or before closing, a clearance letter from the board of directors stating that any work done by the Seller (i.e., any additions, removals or improvements to the unit) has had municipal approval, the board approval if necessary, or has met the requirements of the board of directors and the corporation’s documents.]
This Offer is conditional upon the inspection of the Unit and Exclusive Use Common Elements by a qualified Home Inspector at the Buyer’s own expense and the obtaining of a report satisfactory to the Buyer or a report revealing deficiencies in the Unit which the Seller is willing and able to remedy. Unless the Buyer gives notice in writing to the Seller within two (2) business days (excluding Saturdays, Sundays and Statutory Holidays) that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without interest, deduction or delay. The Seller agrees to co-operate in providing access to the Unit for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein.
If known to the Seller and undisclosed to the Buyer at the time of the Buyer’s Offer, the Seller agrees and undertakes to pay from the sale proceeds on closing any Special Assessments or increases in Common Expenses for the current fiscal year up to the date of closing, as disclosed in the Status Certificate, or contemplated prior to closing by the condominium board of directors or by the condominium management.
The Seller warrants that there are not now and there will not be at closing any arrears of any monies (common expenses or otherwise) owing to the Simcoe Condominium Corporation No. on account of the unit.
Common Element Condominium Corporation
The Basics
New Form of Development
Common Element Condominium Corporation (CECC) will be springing up more and more in the Barrie area. They will be seen predominantly in new freehold town home projects where the CECC will be registered for the road system.
What is a CECC?
A CECC consists of only common elements. There are no “units” but instead they are comprised solely of a specific common element (typically a shared infrastructure such as a roadway, parking facility or sewage treatment plant) together with parcels of freehold land that are said to be tied to the shared common element; they are called “parcels of tied land” (“POTL”).
Why create a CECC?
CECCs are attractive to developers because they circumvent the need to satisfy municipal road standards which would be required in a traditional subdivision. Accordingly, you can squeeze more units into a smaller land area and have reduced construction costs for the roads. This type of condominium corporation has been created to allow the owners of POTLs to share the ownership of facilities and ensure that the positive covenants that are required to ensure their maintenance and/or operation are enforceable. The owners of the POTLs share the ownership, use and enjoyment of the facilities within the CECC and also share in the cost in maintaining and operating these facilities. What you will see from a practical point of view is the developer creating and selling separate POTLs (in most cases freehold townhomes), which are not part of the CECC to each purchaser. Then the developer will create a CECC, which includes all the facilities, roads, services, etc. the costs for which will be paid by the purchasers of the POTLs.
Permanent Connection between CECC and POTL
The CECC is permanently tied to its corresponding POTL so that a POTL cannot be sold separate and apart from its interest in a CECC and vice versa. The common interest relationship cannot be severed as the benefits and the burdens run with the land unless the condominium is terminated under the Condominium Act.
Common Expenses
The owners of the POTL (the purchasers) are responsible for their share of the common expenses relating to the CECC in accordance with Schedule “D” to the Declaration, which is no different than the treatment of common expenses in a standard condominium corporation. Liens for unpaid common expenses are also treated identically as a standard condominium. Liens for unpaid common expenses will rank in priority to any encumbrances registered against the POTL, including first mortgages.
Maintenance/Repair/Management
The CECC has an obligation to maintain and repair the common elements and generally manage the affairs of the common elements including the collection of common expenses, the passage of by-laws and rules affecting the condominium and the enforcement of the declaration, by-laws and rules as against non-complying owners, residents and visitors of the POTLs. The management and operation of a CECC is no different than a standard condominium, the CECC will elect a board of directors that is responsible for the management of the CECC.
Purchase of POTLs and interest in CECC
A standard agreement of purchase and sale for freehold properties will be used for the purchase of a POTL as the POTL is not a unit in a condominium. The condominium rules relating to deposit, interest and interim occupancy will not apply. The typical agreement of purchase and sale will include schedules (or sometimes a separate agreement) addressing the purchase of the interest in the CECC while in all other respects the standard OREA agreement of purchase and sale will appear unchanged.
WHAT TO WHATCH FOR IN PHASED CONDOMINIUMS
Recent case law has provided that is possible and acceptable to have disproportionate cost allocation formulas. The formulas may provide that the earlier phases of the development will pay the lion’s share of the development and maintenance costs of the facilities. Future phases (if developed) will then pay a portion of the costs which may be disproportionate to their “fair share”. Accordingly, purchasers in the earlier phases may wind up paying a larger proportion of the costs even if the later phases are developed. The courts have ruled that this is an acceptable practice as long as proper disclosure has been provided to the purchasers of the breakdown in common expenses.
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The above is not intended to constitute
legal advice. Please contact a lawyer to clarify your
legal rights.
