Real Estate

Shared facilities agreements part 1: the problems

By AdvocateDaily.com Staff

In part one of two-part series on shared facilities agreements, Toronto condominium lawyer Warren Kleiner outlines the most common issues that arise.

Shared facilities agreements (SFAs) are a frequent cause of concern for condo corporations, Toronto condominium lawyer Warren Kleiner tells AdvocateDaily.com.

Kleiner, a partner with Shibley Righton LLP's Toronto office, explains that the agreements are most often associated with recreation facilities such as pools, yards and activity rooms in developments that are home to multiple condo corporations and in relation to facilities such as shared roadways, gatehouses, parking garages and utility feeds, spelling out who is responsible for associated expenses.

“Any time a condo is not stand-alone, you should have an SFA, whether it’s between more than one condo corporation, or a few condos and a freehold entity,” Kleiner says. “And the costs can be pretty high. I have seen some condos where half of the common expenses are going towards shared facilities."

Many of the problems associated with SFAs arise from the fact that they are drafted by developers, often years before the subject condos become a reality, he says.

“They’re done in a conceptual sort of framework when nobody knows how things will work in reality, once everything is in existence on the ground,” Kleiner says. “The practicalities at the end of the day are not necessarily the same as what was envisioned when the SFA was written.”

Under the Condominium Act, condo corporations do have a route to challenge SFAs in Superior Court, but Kleiner says the legislation’s strict requirements heavily limit its use.

A condo can only make an application to the court for an order amending or terminating an SFA within 12 months of turnover in cases where the disclosure statement failed to adequately disclose the provisions of the agreement. However, corporations must also prove that the agreement “or any of its provisions produce a result that is oppressive or unconscionably prejudicial to the corporation or any of the owners.”

“If the developer disclosed an oppressive agreement, then there is likely no remedy,” Kleiner explains.

By the time patterns of use are set concerning shared facilities, the 12-month deadline has often passed, but that doesn’t stop corporations from raising objections to the agreements that govern their costs, he says.

“I see SFAs that don’t cover everything or cover things they shouldn’t. Given how use works out in practice, one party may feel the allocation of costs is unfair, but interestingly, the Act does not require that SFAs be fair or equitable,” Kleiner adds.

For example, he recently acted for a condo corporation that raised concerns about a condo's responsibility to replace the pavement in a portion of a parking lot that was part of the common elements, even though it was used as a commercial paid parking lot.

For example, he recently acted for a condo corporation that raised concerns about a condo's pavement and parking lot considered part of the common elements, even though they were used almost exclusively used by patrons of the commercial units.

“The residents felt like they were unfairly subsidizing the commercial entity because they were contributing to the maintenance and repair of the pavement that was used to generate revenue for the commercial entity,” Kleiner says.

In addition, he says the wording of SFAs often do not help the situation.

“Some won’t clearly set out how decisions are supposed to be made. Even if they establish a committee authorized to make decisions, they often don’t say whether decisions should be by a simple majority of the committee members, by the members that represent a majority of the parties to the agreement or whether they should be unanimous,” Kleiner says.

Stay tuned for part two, where Kleiner will explore some solutions to the problems presented by SFAs.

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