One of the most common questions asked of condominium lawyers is whether a certain item should be included in a status certificate and, if so, how should it be phrased. These issues often arise on an urgent basis, when there are only a few days left in which to issue the status certificate. Often, the question pertains to just how much must be disclosed in order to comply with the Condominium Act and protect the corporation's legal interests, without unduly impacting the marketability of units by delivering an overly ominous picture of the corporation. This results in a delicate balancing act for the person preparing the status certificate.
Section 76(1) of the Act requires a condominium corporation to issue a status certificate to any person who requests it and pays the fee prescribed under the Act (currently $100 inclusive of tax). Section 76(3) of the Act requires the status certificate to be given within 10 days of receipt of the request and required payment. It is important to note that if a status certificate is not given within that time, or is incomplete, under sections 76(4) and (5) of the Act, it will be deemed to contain certain information under the Act, which may not be true but which will bind the corporation in any event.
The information required to be contained in a status certificate is set out at section 76(1) of the Act. The standard form of status certificate is available on the Government of Ontario website. It is important to note that section 33 of the status certificate requires that a number of documents be attached to the status certificate and form part of it; these too must not be forgotten.
The purpose of a status certificate goes far beyond providing information to a potential purchaser or mortgagee. Section 76(6) of the Act provides that the status certificate binds the corporation as of the date it is given with respect to the information it contains or is deemed to contain. As will be seen in the examples below, this means that management preparing a status certificate must pay careful attention to the information provided, so that it does not adversely impact the corporation at some point in the future.
Issue 1 - Ongoing proceedings before a court, arbitrator or administrative tribunal
No corporation wants to look like it is embroiled in extensive, and potentially expensive, litigation, especially when the litigation might be without merit in the first place. However, it is imperative that a sufficient description of litigation be provided at sections 18 and 19 of a status certificate. If it is not, a purchaser might be within his/her rights to refuse to contribute to any future common expense increase or special assessment required to fund the litigation resulting from it. It may, depending on the circumstances, be prudent to reference litigation proceedings in section 12 of a status certificate.
Adequate disclosure need not be explicitly detailed. In fact, in order to protect solicitor-client privilege, it should not be. The statement should provide the parties to the litigation (a "unit owner", a contractor, etc.), its nature (breach of contract, personal injury, etc.), the forum (Superior Court of Justice, Ontario Human Rights Tribunal, arbitrator, etc.), and the amount of damages or other relief sought. With that information in hand, it is then up to the purchaser to make any further inquiries. If the litigation is being defended by the corporation's insurer, this should also be noted.
Issue 2 – Changes to the common elements by a unit owner
Prior to issuing a status certificate, management, working with the board, must turn its mind to the specifics of the unit in question. If the current unit owner has made changes to the common elements which the corporation knew or ought to have known about, through its board or management, this must be included at sections 8, 12 and 23 of the status certificate. If it is not, the corporation may not be permitted to pursue a purchaser for the costs to remedy these changes.
In Durham Condominium Corporation No. 63 v. On-Cite Solutions Ltd., the court found that the president of the condominium corporation knew about alterations to a common element wall in a unit for which a "clean" status certificate was issued. As such, the condominium corporation was forbidden from pursuing a purchaser to restore the wall to its original condition and from charging the costs back against the unit.
Issue 3 – Contemplated projects / reserve fund expenditures
Similar to Issue 2, when issuing a status certificate, a corporation must give careful thought to any contemplated projects, such as building-wide window replacements, which, while not yet in progress, have been discussed extensively by the board, and perhaps even presented to the unit owners at an information meeting.
Failure to mention such a project at certain sections of the status certificate (especially section 12) could result in a purchaser refusing to contribute to an increase in common expenses or a special assessment levied to pay for such a project, on the basis that this looming project should have been disclosed in the status certificate issued to him or her prior to purchase.
Issue 4 – Status certificates issued close to the fiscal year-end
Suppose a corporation's fiscal year-end were June 30, 2014 and a new budget was set to come into effect on July 1, 2014. This presents an issue where a request for status certificate is received on June 18, 2014, requiring the status certificate to be given by June 28, 2014. Technically, it would be issued during the previous fiscal year ending June 30, 2014. However, treating it as such could result in confusing information being provided at sections 6, 8, 10, 11 and 12 of the status certificate, to name a few.
The solution to this problem is to explain the situation explicitly in the status certificate. There is no requirement that statements given on a status certificate must be short or cryptic. It is perfectly acceptable to provide an explanation that, while the budget ending June 30, 2014 is still in effect, a new budget will come into effect on July 1, 2014 which will affect the unit, and to attach a copy of the budget as previously circulated to the owners.
It can be difficult to know how much to put in a status certificate and what wording to use to describe it. No corporation wants to threaten the ability of its unit owners to sell their units. However, every corporation has an obligation to protect all of its unit owners by issuing accurate status certificates which will not result in the other unit owners being made to pay unfairly for an amount that is not collectable from a purchaser because it was not properly disclosed.
When in doubt, status certificate questions can usually be resolved with a quick call or email to counsel, which can prevent an unfortunate issue from arising down the road.
Newletter Tip #1: Good governance
Management companies should not be registering liens for condominium corporations. There is no way the boards will know if the work has been done in a timely manner or properly. From a governance perspective an independent third party should be responsible for registering the corporation's liens.
Newletter Tip #2: Insurance Tips
Make sure all owners are aware that (i) they must insure their units; (ii) they would be wise to insure with the corporation's insurer; and (iii) the policy should include both deductible coverage and cost of living out of the unit if forced to be out of the unit as a result of an insured loss.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.