Condominium Owners' Right to Sue Developer for Common Element Deficiencies

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Section 23(1) of the Condominium Act  (the “Act”) empowers a condominium corporation to sue on its own behalf and on behalf of all unit owners in respect of damage to the common elements. In the case of 1420041 Ontario Inc. v. 1 King West Inc., the Ontario Court of Appeal considered whether that section bars individual unit owners from bringing a lawsuit relating to the condominium’s common elements.

Gavel and Papers.jpgDuring construction of the condominium, the unit owner purchased a number of units from the developer. Four of the units were to be used as the unit owner’s head office, and were built with unique exterior doors, windows, and walls (the “Custom Finishes”). The Custom Finishes formed part of the common elements. After the building was constructed, the unit owner claimed that the Custom Finishes, along with the building’s HVAC system (which also formed part of the condominium’s common elements), were inadequate for the unit owner’s proposed use as a head office. The unit owner sued the developer for specific performance of its agreement with respect to the Custom Finishes.

Meanwhile, other problems had arisen with the condominium’s other common elements and the condominium corporation commenced an action on behalf of itself and all the individual unit owners for common element and construction deficiencies. While unit owners were given the option of opting out of the lawsuit commenced by the condo corporation if they wished to pursue their own action for damages to their units, the owner of the four units did not do so.

The developer took the position that the unit owner’s lawsuit duplicated the condominium’s lawsuit and brought a motion to have the unit owner’s action stayed.

Section 23(1) of the Act provides:

Subject to subsection (2), in addition to any other remedies that a corporation may have, a corporation may, on its own behalf and on behalf of an owner,

(a) commence, maintain or settle an action for damages and costs in respect of any damage to common elements, the assets of the corporation or individual units; and

(b) commence, maintain or settle an action with respect to a contract involving the common elements or a unit, even though the corporation was not a party to the contract in respect of which the action is brought.

The court considered whether “may” in this context was mandatory (granting a condominium corporation the exclusive authority to pursue an action in relation to the common elements of that condominium) or simply permissive (granting the corporation non-exclusive standing to bring such an action).

After reviewing the history of the Act, the Court found that the section had been implemented to overcome problems under previous versions of the Act with unit owners’ attempts to bring representative actions against developers.

The court went on to find that simply because the legislature intended to provide condominium corporations with a far-reaching right to sue, it did not follow that the legislature intended at the same time to deprive unit owners of a right of action they already had. The two types of actions were different, and could co-exist.

The court said that Section 23 empowers a condominium corporation to bring an action “where there is a common condominium issue to be addressed” and where “the real injury is to the owners as a group rather than to any individual”. Individual unit owners are still entitled to pursue claims relating to the common elements that are unique to the owner’s unit.

Even though this case gives individual unit owners the right to commence lawsuits relating to common elements, we do not expect to see a deluge of lawsuits of this nature from individual owners, as the cost of litigation can be prohibitive and in many cases unit owners will not have common element issues unique to the owner’s unit.

 

Published In: Administrative Agency Updates, Business Organization Updates, Civil Remedies Updates, Commercial Real Estate 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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