Cost-sharing agreements between adjacent buildings - a legal primer
By Dave Gordon, AdvocateDaily.com Contributor
Shared facility disputes are a frequent source of litigation which is why cost-sharing agreements are worthwhile to iron out ahead of time, Toronto real estate lawyer Megan Mackey tells AdvocateDaily.com.
There’s no shortage of examples when two buildings adjacent to each other share such things as a parking garage, repairs, recreational facilities, roads, maintenance and operating costs, says Mackey, partner with Shibley Righton and an experienced real estate lawyer who works on behalf of condominium corporations, boards and unit owners to efficiently resolve legal matters.
She says signing contracts to determine who pays for what, and to what degree, can save each party time, money and legal tangles.
“There are also cases where reserve funds are required for unexpected expenses and long-term maintenance,” Mackey says.
If, for instance, the lighting system in a shared garage needs upgrades to reduce electricity costs, that kind of agreement and the price tag can be “split in accordance with the parties’ interests,” she says, adding that both should contribute fairly to the reserve fund.
Mackey also learned of one case where townhouses and two towers shared a massive water main, typically needing to be replaced every 70 years. “But when it comes up, the cost is very high. Sometimes there are those sorts of rare one-off events that really need to be added to the cost-sharing agreement,” she says.
Mackey, who also practises condominium law, and provides strategic advice and assistance to clients involved with condo and commercial disputes.
“It’s easiest to control these when the interests are split into percentages and on a schedule, as well as who will take responsibility to manage issues when they arise,” she says.
“One side may feel they are overpaying for a certain item, but if it’s something that gets addressed annually, it will hopefully avoid some of the frequent and pettier disputes that can come up in shared facilities.”
If it’s something unique to one condominium, it should be excluded from the cost-sharing agreement, Mackey says.
“We often see problems arise in multiphase developments, where the townhouses use all the roads, and there are two towers that don’t. Those roads that are used exclusively by townhouse residents should be excluded from cost-sharing. It’s not fair for the people in the towers to pay for roads they never use,” she says.
“We see the same thing between commercial and residential condominiums. Many times, there will be a loading bay. The residential side — since it has so many more units — ends up paying for the loading bay, although it’s only used for commercial. Those are the kinds of things that we wish weren’t in the cost-sharing agreements, but they come up all the time.”
Mackey often suggests that both sides jointly retain the same experienced engineer for items like ventilation and wiring to avoid multiple opinions arguing it out in court.
“The good thing with this kind of cost-sharing is that often — with an engineer’s help — they calculate the division through a precise percentage. The engineers are great at this,” says Mackey, who has authored a number of articles for leading condominium publications, and has been invited to speak to industry groups such as the Association of Condominium Managers of Ontario, the Canadian Condominium Institute, and the real estate section of the Ontario Bar Association.