When can condos enter bulk telecom contracts?

Recent case clarifies authority of corporations to ink TV and internet agreements
Wednesday, November 29, 2017
By Cheryll Wood and David Lu

Many condominium corporations enter into bulk contracts for telecommunication, and other services. Under these agreements, the condo corporation will purchase a service in bulk (for all owners and the common elements) from a supplier and will then add the cost to each owner’s common expenses (in accordance with each owner’s proportionate share).

Using television services as an example, if the corporation enters into a bulk agreement, each unit owner will pay more in common expenses each month for the bulk service; however, he or she will not need to arrange for his or her own television service, and could save money as the expense may be lower than if the unit owner acquired the services independently, due to economies of scale.

What authorizes the condo to enter into these bulk agreements? Is notice of the change required? A recent court decision reviewed these issues.

In Zordel v. MTCC No. 949, the court reviewed the authority on which a condo corporation may rely in entering into a bulk services contract with a telecommunications provider. The court also reviewed the applicable notice requirements imposed on the condo corporation in relation to such a contract.

Metro-Toronto Condominium Corporation No. 949 (MTCC 949) was constructed in the 1990s and has, since the beginning, contracted for television services through a bulk services agreement. The charges for these services were passed on to the unit owners as a common expense and each owner paid his or her proportionate share.

In June 2016, MTCC 949 entered into a new bulk services agreement that expanded the scope of the services to be provided to occupants to include both television and internet. Since the cost of the television and internet services was considered a common expense, unit owners were not able to opt out of paying their proportionate share of these expenses.

The applicant owners in this matter argued that MTCC 949 did not have the jurisdiction to enter into the bulk services agreement and pass the charges on to the owners through the common expenses without giving the unit owners the option of opting out. The applicants also argued that MTCC 949 was required to provide notice to the unit owners and/or involve owners in the decision, prior to entering into the 2016 agreement, because it constituted a change in services.

If certain conditions are met, condo corporations can enter into bulk purchase agreements

The basis of a corporation’s ability to enter into bulk purchase agreements originates from the 1998 version of the Condominium Act. Under section 2 of the act, “common expenses” are defined as expenses related to the performance of the responsibilities of a corporation and expenses that are specified as common expenses in either the act or in the declaration. If a condo corporation’s declaration confirms that the costs of a particular service constitute a common expense, the corporation can enter into a bulk agreement for that service.

In Zordel, Schedule “E” of MTCC 949’s declaration contained a list of specific expenditures to be included as common expenses. One of the listed expenditures was cable television. The applicants argued that the reference to cable television was to authorize the corporation to provide the service on the common elements, not within the individual units.

The court found that the reference to cable television in Schedule “E” meant “the provision of cable television services to units.” The basis of this finding was that cable television was included in the same list as water and electricity services. The court found that if cable television was not intended to be provided to each individual unit, and was instead only intended to be provided on the common elements, this intention would have been expressly stated in the declaration.

The applicants also argued that the expanded scope of the agreement to include internet services was beyond what was contemplated in the declaration. MTCC 949’s general bylaw gave the condo corporation authority to “enter into a bulk telecommunications agreement.” The applicants argued that such a bylaw was contrary to the act, and thus MTCC 949’s decision to acquire internet services on a bulk basis was invalid.

The court found MTCC 949’s decision to enter into a bulk agreement for television and internet services was valid. The judge found the explicit wording in the general bylaw and the declaration gave the corporation the necessary authority to enter into the agreement for both television and internet services.

The judge found that MTCC 949 met the notice requirements in the act

Under the act, a corporation must notify unit owners of changes to common elements or assets if certain conditions are met. The relevant provisions are contained in section 97 of the act. In Zordel, the applicants argued that MTCC 949 should have notified the unit owners of the change and/or sought approval from the unit owners before signing the bulk services agreement. The applicants argued that the new agreement used a different technology to deliver television service, and/or the increase in cost for the new service triggered the notice requirements under the act.

The court found that MTCC 949 met the notice requirements. First, the court found that “a different technological delivery method … does not change the service itself.” Second, it was held that the increase in fees as a result of the new bulk services agreement did not trigger the notice provisions of the act.

The court confirmed that when assessing whether notice to the owners is required, the cost of the change itself (and not the total cost of the project or agreement) is the relevant cost to be assessed pursuant to section 97 of the act. In Zordel, this meant that the cost associated with the internet services only was the cost to be considered under section 97 of the act, not the entire cost of the new bulk telecommunications agreement.

Important guidance from Zordel

For condo corporations that are interested in entering into a bulk services agreement for telecommunication services, Zordel identifies important considerations that corporations should keep in mind when making the necessary arrangements. In particular:

  1.  If the act or declaration lists telecommunications as a common expense, and does not explicitly state that the expenditure relates only to the common elements, the corporation can enter into a bulk agreement for both the common elements and the units.
  2. The corporation’s declaration and bylaws can be relied on to support a condo corporation’s authority to enter into bulk agreements.
  3. Consideration must be given to the notice requirements under section 97 of the act when undertaking a change to the common elements or the services being offered to the owners.
  4. However, when assessing whether notice is required under section 97 of the act, only the cost of change is relevant, and not the total cost to be incurred.

Cheryll Wood is an associate at Davidson Houle Allen LLP, and has been practicing condominium law for five years. She represents condominium corporations, their directors, owners and insurers throughout eastern Ontario.

David Lu is an articling student at Davidson Houle Allen LLP.

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