Common Elements Deficiency Claims – A Recent Case Decision

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NYCTOIn a recent court decision, the court determined that it was legal for a developer to limit its liability with respect to common elements deficiency claims so that the developer would not be responsible for any claims in excess of the amounts provided by the Tarion Warranty Program.

In this case, the agreements of purchase and sale with the individual owners contained such a limitation in respect of the units. As there is no agreement of purchase and sale between the developer and the condominium corporation, in order to limit its liability in the same fashion, the developer entered into an agreement with the condominium corporation which specifically contained this limitation of liability. This agreement was authorized by by-law of the condominium corporation and both the agreement and the by-law were registered on title. As the agreement was entered into and the by-law passed prior to the turnover of the corporation to the owners, the board members at that time were all nominees of the developer.

The condominium corporation brought a court application to have the by-law and the agreement set aside by the court on the basis that (i) the agreement was not in the best interests of the condominium corporation; (ii) no reasonable board of directors would have agreed to such an agreement; (iii) the agreement was ultra vires (beyond the powers) of the board; and (iv) the by-law and the agreement were contrary to the Condominium Act.

Unfortunately for the condominium corporation, the judge determined that there is nothing illegitimate about a developer seeking to limit its risks, as long as it doesn’t attempt to contract out of the warranty provisions under the Tarion legislation.

Even though the by-law and the agreement were registered on title, most purchasers would not fully understand the ramifications of these documents and the financial impact that this would have on the owners, i.e. that the developer would not have any responsibility to fix any construction deficiencies in respect of the common elements in excess of the Tarion warranty amounts and that the condominium corporation would need to use money collected from the owners to pay to remedy these excess deficiencies. In a recent article in the Toronto Star, Bob Aaron advises readers about the ramifications of this case for condominium purchasers.

As the Ontario Government is in the midst of conducting a full-scale review of the Condominium Act, with one of the major areas of consideration being consumer protection, it will be interesting to see if the Government does anything in the new legislation to prevent developers from imposing this kind of limitation on its liability for construction deficiencies.  There is nothing  of this nature in the Condominium Act Review Stage Two Solutions Report recommendations, but this case decision was released after the Stage Two Report  had been released.

Topics:  Board of Directors, Canada, Condominiums, Construction Disputes, Real Estate Market, Tarion

Published In: Business Organization Updates, General Business Updates, Construction Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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