This article was updated on April 29, 2014.
The new Ontario Condominium Act is nearly here. As the government was finalizing its hotly anticipated draft legislation, a group of industry experts involved in the province’s 18-month review sat down for a panel discussion at Springfest in Toronto on April 10 for a seminar called Condominium Act Reform is Approaching: What Issues Still Need to be Resolved?
Moderator Mario Deo, partner at Fine & Deo Barristers and Solicitors, spoke of the need to continually update legislation to close loopholes. The current Condominium Act is more than a decade old.
“As rules come out, people figure out how to get around them,” Deo said. “On top of all that, the intensification of condominiums — people living closer together — also requires more rules, because everybody wants to protect their own little space.”
The panelists highlighted quorum, reserve fund adequacy, and responsibility for maintenance and repairs as among their outstanding concerns.
Quorum and proxies
Bill Thompson, president at Malvern Condominium Property Management, isn’t entirely sold on the recommendation for resolving problems attaining quorum contained in the Stage Two Solutions Report. In it, an expert panel proposed that 25 per cent of owners continue to constitute quorum. However, if a condominium corporation calls two meetings and fails to reach that threshold, whoever shows up at a third meeting would constitute quorum.
Thompson said that this will train owners not to show up until a third meeting is called, essentially tripling a condo corporation’s meeting costs. Painting condominium boards as a fourth level of government (after federal, provincial and municipal), he suggested that condominium communities take their cues from Canada’s other democratically elected levels of government. (Whoever shows up to vote has their vote counted, and the candidate who receives the most votes is elected.)
Similarly, just as municipalities don’t put every bylaw they pass to a referendum, Thompson suggested that bylaws be made as easy for condominium boards to pass as rules. On the matter of proxies, he said that electronic voting should be permitted.
Armand Conant, partner at Shibley Righton LLP, cautioned against treating condominium corporations strictly as a fourth level of government. Legally, condominium corporations are structured similarly to corporations found in the private sector, with owners viewed as shareholders.
“A lot happens at meetings where that proxy owner can’t hear the pros and cons of an issue and make a decision,” he said.
But, based on feedback following the solutions report, Conant didn’t think that the government would be adopting the three-meeting quorum model, either.
Reserve fund adequacy and fraud protection
Sally Thompson, executive vice-president at Halsall Associates, focused on how developers’ year-one contributions to corporations’ reserve funds — 10 per cent of their operating budgets — are woefully inadequate.
“I think what’s happening is young people are getting tricked into buying units at a price point that they think they can afford, and then finding out in the second year that they can’t really afford it, but they’re stuck with the unit because they’re in there now,” she said.
Thompson said that it’s important to get the first year contribution closer to the stabilized level to minimize increases in subsequent years. She said that ideally, the first year contribution to the reserve fund should be 1.5 to two per cent of the construction cost. However, developers are against using this measurement, because doing so would reveal how much they’re profiting on projects.
Thompson also raised concerns about the potential for fraud to occur as condominium corporations grow larger, with some exceeding 1,000 units. Their corporations’ reserve funds may swell to as high as $20 million, she said. Currently, all it takes is the signatures of two board directors to cut a cheque.
A corporation can obtain fidelity insurance up to a certain amount. Beyond that threshold, Thompson recommended requiring corporations to invest reserves in a central fund. The corporation would then have to apply to the investment manager to get the funds back, with a contract or reserve fund budget. It wouldn’t eliminate the risk of fraud altogether, she conceded, but it would minimize the amount of money at risk.
Bill Thompson said that he is concerned about the models of fidelity insurance being contemplated. Instead of putting the onus on property managers, for whom it would be either prohibitive or impossible to obtain insurance for all the funds they have access to, he said corporations should be asked to take out a fidelity bond and name their property manager.
Proposed “condo office” and maintenance versus repairs
Conant characterized the murkiness around maintenance and repairs as one of the most serious defects in the current Condominium Act. Condo owners are responsible for the maintenance of their units and exclusive-use common elements such as balconies (defined to include repair after wear and tear). An infamous court decision set the precedent that an owner could arguably be held responsible for replacing worn-out concrete and rebar on their balcony.
“So each unit owner on the 26th floor of the building is going to have to have their own scaffolding, their own contractor, to rebuild their concrete balcony,” he said. “It makes no sense.”
Instead, Conant suggested that a condo owner’s role in maintenance should be limited to general cleanliness and upkeep, for example, sweeping their balconies. The expert panel recommended that maintenance and repairs be better defined, and that corporations be responsible for repairs to all common elements — exclusive use or not.
Finally, the proposed “condo office”, which would house a database of condominium corporations, educational and informational resources, a dispute resolution office and a licensing body for condominium managers, leaves many questions for the government to answer, Conant said.
He wondered who would pay for the office, adding that the idea of monthly user fees for condo owners has faced pushback. Conant also questions how quick decision makers in the dispute resolution office would be trained, and how the condominium community’s expectations would be managed.
Bill Thompson suggested that the condo office not be treated as a Swiss Army Knife that can solve all problems at once, and that the government begin with education.
In closing, Deo compared the new Condo Act to a buffet. “You’re going to like going to it, there are going to be mostly good things,” he said, “but there are going to be some things you’re not going to eat.”
Michelle Ervin is the editor of CondoBusiness.