IMPORTANCE OF STATUS CERTIFICATES
J. DOUGLAS SHANKS
Director, Canadian Condominium Institute,
Northwestern Ontario Chapter
I N D E X
Canadian Condominium Institute (“CCI”)
What is a Condominium?
Creation, Administration, Declaration, By-Laws and Rules
What if the Status Certificate is Wrong?
Ontario Real Estate Association (“OREA”) Condominium
Cases Dealing with Status Certificates
Additional Condominium Clause
Disclosure Statements are not Status Certificates
Any information contained herein is not legal advice and is strictly general information. In the event of specific legal concerns or questions, specific legal advice should be obtained.
The Canadian Condominium Institute, (CCI)
The Canadian Condominium Institute\institut canadien des condominiums, (“CCI”) is an independent, non-profit organization formed in 1982, with chapters throughout Canada. The Northwestern Ontario Chapter of CCI was established in Thunder Bay approximately six years ago. This local chapter has a board of directors, presently comprised of a real state agent, property managers, a lawyer, an accountant and an insurance representative. The board of directors meet regularly and the Chapter provides educational programs, news letters and is a resource base for condominiums in Northwestern Ontario.
The goal of CCI is to form partnerships with its members to create, encourage and promote a strong condominium community in the vibrant Canadian marketplace. It is the only national organization in Canada that deals exclusively with issues affecting all of the participants in the condominium community, including condominium homeowners, boards of directors, property managers, and other professionals. Chapters provide practical advice in respect of provincial condominium legislation, educational programs, newsletters, and lobby at all levels of government for condominium reform.
CCI does not represent any one profession or interest group. Rather, it represents all facets of the condominium community, encouraging all interest groups to work together to one common goal; healthy and happy condominium communities.
It is in the best interest of both successful and struggling condominiums as well as industry professionals and suppliers, to actively support CCI in its aim to improve condominiums throughout Canada.
WHAT IS A CONDOMINIUM
(a) The term “condominium” describes a method of owning land where individuals acquire dwellings, referred to as “units” that are located within a multiple unit housing development called a “condominium corporation”.
(b) All condominium corporations are divided into units and common elements (with the sole exception of Common Elements Condominium). When the individual acquires their unit they also obtain an interest in the common areas, called the common elements, which they own together with all of the other unit owners.
(c) The percentage of ownership in the common elements that attaches to each unit is set out in the declaration of the condominium corporation. The declaration is the document that is registered to create the condominium corporation as a legal entity.
The present law in Ontario governing condominiums is the Condominium Act, 1998, which came into force May 1, 2001.
CREATION, ADMINISTRATION, DECLARATION, BY-LAWS and RULES
(a) Condominiums are a “creature of statute” meaning their existence is made possible by reason of specific legislation, namely the Condominium Act 1998, (the "Act”).
(b) Condominiums are created once they are “registered” pursuant to the provisions of the Act.
(c) Condominiums are not governed by the Ontario Business Corporations Act.
(d) To create a condominium a developer, (known as the “declarant”) must, after fulfilling all other municipal requirements, have what is known as the declaration and description registered in the local Land Titles office.
(e) Upon registration of these documents the Land Titles office assigns the condominium its legal title, for example “Wentworth Condominium Corporation Plan No. 123".
(f) By-laws are subsequently registered to, among other things, determine how many directors there will be, their qualifications and how they govern the businesses and financial affairs of the condominium corporation.
(g) Once “registered” a condominium corporation has the same rights, generally, as any other business entity in that it can own or sell real property or other assets, sue or be sued and carry out any other “business” of the corporation subject to the limitations imposed on it under the Act.
(h) Anyone purchasing a condominium automatically becomes subject to the Act and the condominium corporation’s Declaration, By-laws and Rules, (whether they read them or not). This obligation cannot be avoided in any way.
(a) A condominium corporation is governed by an elected Board of Directors, typically, drawn from the unit owners.
(b) The directors are charged with the general responsibility of managing the property and assets of the corporation. They have many other duties which are set out in the Act and the corporation’s Declaration and By-laws, including, hiring staff, banking, investing corporate funds, collecting common expenses and enforcing the rules.
(c) The business decisions of the Board are not generally subject to owner approval unless the Act specifically requires the owner’s involvement, such as when the condominium wishes to borrow money or make a substantial alteration or improvement to the common elements.
(d) The owner’s power lies in the exercise of the vote that is assigned to their unit. It is the owners who elect the Board and they can, in extreme circumstances, remove Board members prior to the end of their term of office.
(e) Each unit is assigned one vote only regardless of how many owners it may have. All votes have equal weight. There are no votes for storage units or parking units.
(f) All voting, with some exceptions, is determined by simple majority of the votes cast, subject to obtaining a quorum, (25% of the units present in person or by proxy).
(g) The Act takes priority over all aspects of condominium administration. The declaration for a condominium takes priority over it’s by-laws and rules. The by-laws take priority over the rules and cannot conflict with the Act or the declaration. They must also be “reasonable”. Rules must not conflict with the Act, the declaration or the by-laws and must also be reasonable (note: provisions in a declaration do not have to be “reasonable”).
(h) The operation of a condominium is funded through the payment of common expenses. The Board of Directors strikes an annual budget which it then presents for review to the owners at the Annual General Meeting, (note: the owners do not vote on whether to accept the budget - they are simply given the opportunity to ask questions about its contents).Once the budget is struck each unit is allocated its share in accordance with the common element percentage assigned to the unit in the declaration. That figure is then divided into 12 equal monthly payments, (the “common expense” payments or “maintenance fees’).
(i) These payments provide the condominium with the cash necessary to maintain the common elements, fund the reserve accounts, pay for property management and generally operate the Corporation. Some condominiums require post-dated cheques or pre-authorized payment plans for common expense payments.
(j) The amount of common expenses can vary greatly depending on the size and type of condominium and the amenities, if any, that it contains. Generally speaking the old adage, “you get what you pay for” is very applicable to condominium common expenses.
(k) Common expense payments may increase from year to year to keep pace with increased costs incurred by the Corporation for its operation.
(l) Failure to make common expense payments when due, will result in the unit being liened and possibly sold by the Corporation to enforce collection. In a condominium complex liens are given priority, if they are properly issued, over any encumbrance registered against title to the unit in question, including existing mortgages.
(m) A Reserve Fund is a trust fund established by condominium corporations to anticipate extraordinary costs for major repairs to the capital components of the condominium’s common elements. Under the previous Act the statutory minimum contribution to the reserves was an amount equal to 10% of the operating budget. The new Act makes the minimum contribution the amount that the board of directors determines is appropriate based upon a Reserve Fund Study but until that decision is made the minimum amount contributed cannot be less than 10% of the operating budget. It is not unusual to see a 25% - 35% contribution to reserves.
(n) Contributions made by an owner to the Reserve Fund become the property of the condominium corporation. Owners do not receive a rebate of Reserve Fund contributions from the condominium in the event that they sell their unit. There is no credit for these contributions in the closing adjustments as, theoretically, the purchase price of the unit should reflect the “investment” that unit has made into the reserves.
(o) The new Act makes it mandatory for condominiums to obtain an independent Reserve Fund Study from a qualified engineering firm or other permitted provider, (see Reserve Fund Studies page 40). These studies analyze the state of repair of the different components that make up the common elements, their remaining lifespan and project, in today’s dollars, what the corporation will need to repair or replace each of the components over the next 30 years. These are extremely valuable tools for condominiums as they really cannot determine what an appropriate contribution to the reserve fund would be without one. Under the new Act all condominium corporations will be required to get a Reserve Fund Study by May 5th, 2004.
(p) A special assessment is a common expense that was not anticipated in the budget for the fiscal year in which it is levied. Despite stories to the contrary they are not common. They are made when a condominium corporation is faced with a large and, usually, unexpected expenditure of funds, for example, a major repair to a common element area the cost of which exceeds, (or would seriously deplete) the condominium’s reserve fund. Unit owners are obligated to pay their proportionate share of the special assessment as determined by the percentage of contribution to the common expenses allocated to the unit in the Declaration.
(q) The majority of condominiums in Ontario while governed by an elected Board of Directors, are also managed by a professional property management company. The Manager's role, among other things, is to oversee the day to day operation of the Corporation, see to the collection of common expenses, advise the Board of Directors, assist in the preparation of budgets, and attempt to enforce the Rules. The Property Manager usually issues status certificates on behalf of the condominium corporation.
(r) There are also a number of condominium corporations which are self-managed. Essentially, this means that the Board of Directors themselves with, sometimes, the assistance of volunteers from within the community assume the same tasks that a professional Property Manager would.
(a) The Declaration is the document that creates the condominium corporation in a similar manner as Articles of Incorporation give life to a business corporation. It will contain certain mandatory provisions as legislated by the Act such as: a specification of the boundaries of the units; the proportionate interest of each unit in the common elements; and the percentage used to calculate the monthly common expenses for each unit.
(b) The Declaration will also stipulate, if any, those areas of the common elements that are allocated to the “exclusive use” of a particular unit such as parking spaces, storage lockers, balconies or rear yards. Exclusive use areas remain part of the common elements and their use is governed by the condominium.
(c) The Declaration may also contain provisions regulating the use and occupation of the units and common element areas, including the normal requirement that, in residential condominium developments, owners may not operate businesses out of their units. It may also allocate the responsibility for the maintenance and repair of the common elements and units between the owners and the condominium corporation, (e.g. a unit’s internal H/AC system may be part of the “common elements” but the owner may be obligated to carry out routine maintenance on it).
(d) In some cases, the Declaration may impose other limits on the use of units such as that no pets are allowed or certain conditions must be met before an owner may lease his or her unit.
(e)Under the new Act a declaration can be amended by the Registrar Of Land Titles, if it contains an obvious typographical error, by a court order if it contains a less obvious error or ambiguity, (e.g. the declarant failed to make the unit balconies “exclusive use”), or by obtaining the written consent of owners who represent 90% or 80% of the units, depending upon what is to be changed.
(a) By-law's are passed by the Board of Directors and must then be approved by the owners representing at least 51% of the units within the condominium corporation. The approved by-law must then be registered on title to the Condominium before it becomes effective.
(b) By-law number 1, (unless it has been replaced) sets out the basic organizational and administrative functions of the condominium corporation, including the duties of it's Board of Directors and officers. The by-laws also make provision for calling owners' meetings and for the election and qualification of the Board of Directors.
(c) The method for collecting common expenses and how non-payment is dealt with is also set out in the by-laws.
(d) Other by-laws may be passed to deal with such things as, borrowing money, granting leases or easements over the common elements, changing the number of directors, defining what is a “standard unit” for insurance purposes, and creating “occupancy standards” for the units, (i.e. limiting the number of people who may reside in a unit) and other matters relating to the administration of the condominium.
(a) All condominium corporations have rules which form the standards of behaviour for the community. These govern the day-to-day use of the units and the common elements.
(b) Most condominium corporation's rules contain provisions that prohibit; excessive noise or other nuisances; alterations to common areas; storage of commercial vehicles, boats, trailers and similar equipment/vehicles; and require the removal of pets that become a danger or nuisance to the other owners. They can also deal with many other issues such as the use of swimming pools, spas and other recreational amenities, the use of elevators for moving, barbequing and even what colour of window covering may be used in a unit.
(c) Owners, (and the Board of Directors) have the right to insist that the rules be complied with by all other unit owners, tenants or other residents of the condominium complex.
(d) The Act allows condominium corporations to apply to a Judge for an order directing compliance with the provisions of the Act, and the corporation’s declaration, bylaws and rules, (see “Remedies” below). Legal costs incurred by the condominium corporation are generally ordered to be paid by the offending unit owner normally on a substantial liability basis. Under the new Act these costs as well as other monetary damages attach to the unit as an additional common expense and payment may be enforced by way of a condominium lien.
Reproduced with the consent of the Northwestern Ontario Chapter of the Canadian Condominium Institute and the Golden Horseshoe Chapter of the Canadian Condominium Institute, Level 100 Condominium Administration Course.
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