A recent court decision provides a valuable lesson to boards, property managers and their lawyers in what rights a condominium may have against a developer and how failing to act in a timely manner can result in the loss of those rights.
In Toronto Standard Condominium Corp. No. 2130 v York Bremner Developments Ltd., 2016 ONSC 5393, there were two major claims on which the condominium sought remedies.
The first was for relief under a shared facilities agreement to which the condominium and the developer/declarant were parties. The developer had retained ownership of the commercial premises in the complex (known as Maple Leaf Square). The existence of the agreement was disclosed to purchasers and entered into by the developer prior to the turnover meeting, when the declarant still controlled the condominium. It dealt with the use of facilities shared between the owners of the various components comprising the complex. It appointed the developer, York Bremner Developments Ltd., as the manager to oversee the operation of the shared facilities. The developer in turn appointed a corporation under its control to carry out its role as shared facilities manager.
The claim was brought on the grounds that the performance of the agreement by the developer/declarant was oppressive to the condominium. The condominium sought relief under sections 113 and 135 of the Condominium Act.
Section 113 of the Act is a specific remedy. It provides a right to terminate a mutual use agreement within 12 months of the turnover meeting. It is only available if the condominium establishes that an undisclosed provision in a shared facility agreement produces an unfair or inequitable result.
In contrast, section 135 of the Act is a more readily accessible remedy. A party only needs to establish that the conduct of the declarant is, or threatens to be, oppressive or unfairly prejudicial. Generally, this requires the conduct to be burdensome, harsh or abusive conduct, or behavior that unfairly disregards a party's right or interest. Section 135 does not limit the liability of a declarant to the time before the turnover meeting and does not impose a 12 month limitation in which to commence a proceeding.
The Court found that section 135 of the Act afforded the condominium equal or better assistance than section 113. Because the developer had always intended to maintain ownership of the commercial components of the Maple Leaf Square complex, the Court found that the developer remained the "declarant" as defined in the Act. Section 135 could therefore still apply to it, despite the fact that the turnover meeting had taken place and the new board of directors was elected. Its role as the declarant had not yet been "spent" for the purpose of the oppression remedy according to the Court.
Upon reviewing the evidence, the Court held that the declarant's conduct, in its capacity as a party to a shared facilities agreement, was oppressive. It also found that the developer had failed to make a clear and adequate disclosure of the terms of the shared facilities agreement in the disclosure statement given to prospective purchasers. In addition, the developer had not been neutral nor a fiduciary to the corporation. Instead of ensuring a fair and reasonable allocation of shared costs, it had used the unbalanced terms in the shared facilities agreement, coupled with incomplete disclosure and heavy-handed self-dealing, to favour itself. Sections 113 and 135 of the Act were satisfied.
Although the shared facilities agreement had been the cause of great frustration, the condominium did not wish to have it terminated. Rather, it wanted to remain a party to the agreement albeit on different terms. At the condominium's request, the shared facilities agreement was amended to include a provision enabling the condominium to remove the developer from acting as the manager and to appoint a third-party manager.
This is an exciting victory for the condominium community as it may result in a condominium's ability to use section 135 to secure relief from a very one-sided shared facilities agreement.
Unfortunately, the condominium was not as successful with its second claim. This claim was commenced to secure financial compensation for numerous alleged deficiencies in the design and construction of the Maple Leaf Square complex. This included relief for the design of the four-storey underground parking garage. According to the condominium, on game nights at the ACC, exiting the parking garage could take hours due to the constant stream of pedestrians entering and exiting and delays were worsened by the fact that the residential parking was located several floors below the commercial parking.
The condominium sued to enforce implied contractual warranties that were allegedly provided by the developer. The condominium, however, faced roadblocks due to the terms of the standard-form agreement used in the sale of the units. In particular, these agreements stated that warranties given by the developer were limited to those under the Ontario New Home Warranties Plan Act and subject to the limitation periods prescribed within it. This meant that a lawsuit to enforce a warranty had to be commenced within two years of the discovery of a warranted deficiency that arose within one or two years of the registration of the condominium corporation.
Without considering these claims on the merits, the Court held that the time to sue for most deficiencies, such as the parking garage delay issue, had expired. Judgment was granted in favour of the condominium for the cost of remedying a faulty life safety system, replacing of a lint trap system and other miscellaneous deficiencies, because these claims were brought within the limitation period. The condominium recovered a little over $65,000.00.
Financially, the condominium was far from successful on its second claim. It paid dearly for its failure to commence the claim within the statutory time limit.
The decision has been appealed by York Bremner Developments Ltd. We will keep you posted on the progress of the appeal.
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.
