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Court pits two consumer protection features against each other

Although several features of the Condominium Act, 1998 are designed specifically to protect consumers, a recent ruling that considered the interplay of two of these sections may have applied them in a way that produced a negative result for condo owners, Toronto condominium lawyer John De Vellis writes in Lawyers Weekly.

As De Vellis, a partner with Shibley Righton LLP, explains, s. 112 of the act allows a condominium corporation — within one year of the date purchasers assume control of the board — to terminate certain agreements entered into on the corporation’s behalf by the developer-controlled board.

Meanwhile, s. 97 of the act provides that the board of a corporation must give notice to owners, or in some circumstances, receive prior approval of owners, before implementing an addition, alteration or improvement to the common elements or services provided by the corporation.

In HSCC 627 v. Grandview Living Inc., the Ontario Superior Court of Justice considered the interplay between these two consumer protection features of the act for the first time, explains De Vellis. Specifically, he adds, the court considered whether a renewable energy agreement with a 50-year term assumed by the developer-controlled board had been properly terminated.

“In Grandview, the turnover board terminated the agreement to supply geothermal heating and cooling equipment and services pursuant to s. 112 of the act. The developer asserted that terminating the agreement constituted a substantial change in assets of or services provided by the corporation, to which s. 97 applied,” explains De Vellis.

Under s. 97, De Vellis says, if a condominium corporation intends to make a change to the common elements or services that is “substantial,” then it must first be approved by 66 per cent of all unit owners.

The developer asserted that, by not adhering to the notice and approval requirements of s. 97, the termination of the agreement was invalid.

The court ruled that s. 112 could not be read in a vacuum, and compliance with s. 97 was required in order to terminate agreements under s. 112.

In practice, however, De Vellis notes that these two sections may be very much in conflict.

“The level of consent required to ratify a change deemed substantial is 66 per cent of all owners in the building, not just those owners who choose to attend the meeting at which the issue is decided. That threshold exceeds the level required to approve a bylaw. It is unusual for a condominium owner meeting to even have that high a percentage of owners present (in person or by proxy). Achieving 66 per cent approval may be impossible, especially within the short (one year from turnover) termination window allowed by s. 112.

“In addition, a developer that hopes to lock in an unfair contract would only have to ensure that 34 per cent of the units do not close until a year after turnover. That possibility was in the Grandview case but the court dismissed it as there was ‘no evidence that the respondents are holding on to these units simply for voting purposes only,’” he writes.

In the end, the court did allow the corporation to hold a vote to try and ratify the decision to terminate, and imposed strict conditions, De Vellis explains.

These included a requirement that the corporation provide owners with a description of the proposed change, including cost and proposed funding plan, the specific reasons for the change, presentation of alternative arrangements, engineering reports and a review of the court decision, the application records and facta of both sides to the litigation.

The ratification vote subsequently failed, he writes.

“Unfortunately, if it turns out that terminating the agreement really would have saved the corporation money in the long run, then the court effectively applied two supposedly positive features of the act — the notice provisions and termination provisions — in a way that produced a negative result for owners,” De Vellis concludes.

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