An Ontario Court of Appeal decision released in December, 2014, has shone a spotlight on a problem condominium corporations occasionally face: How should boards and managers handle unauthorized alterations to a unit or adjacent common elements? The problem is especially difficult in cases where the unit has been, or is about to be, transferred to a new owner, as in the recent Orr case.

The Orr case

Orr v. Metropolitan Toronto Condominium Corporation No. 1056 concerns a unit owner in a condominium townhouse complex who installed an unauthorized addition to the common elements. In effect, the owner converted an attic area into a third floor, unbeknownst to the board or management.

The plaintiff purchased the unit from the owner who had performed the attic installation assuming that the third floor attic was included in the unit. After the new owner and the condominium corporation discovered that the alterations were unauthorized, the plaintiff commenced litigation against various parties, including the condominium corporation, the corporation’s management company and the lawyers that acted for her on the unit’s purchase.

One of the Court of Appeal’s major findings was that the condominium corporation made a negligent misstatement in the status certificate. This led the court to award damages against the condominium corporation. The relevant provision in the status certificate was the statement: “There are no continuing violations of the declaration, …” Note that this statement was not a required part of the status certificate and was voluntarily added.* No one inspected the unit in preparing the status certificate.

The Orr case raises serious concerns for condominium corporations, in part because of the costs involved. The trial lasted 43 hearing days over three months, and the various parties’ combined legal costs appear to have been in the millions of dollars.

Preventative measures

The ideal starting point for dealing with unapproved alterations is to prevent them. For example, a condominium board may consider including written reminders to owners in notice of meeting packages or newsletters. Hopefully, reminders that alterations to the common elements must be authorized by the board will reduce the chance of owners undertaking unauthorized alterations in the first place.

The status certificate, of course, is a critical point for addressing unauthorized installations before the sale of a unit to a new owner. In particular, the Orr case raises the question of whether a unit inspection should be performed when preparing a status certificate.

There are various reasons why inspections can be problematic. From a practical perspective, there is a capped fee of $100 for status certificates pursuant to section 18(2) of O. Reg 48/01 under the current Condominium Act, which makes it difficult to justify spending additional time on their preparation. What’s more, the condominium corporation must ensure that inspections are complete and note all potential violations of the current Condominium Act, declaration, bylaws and rules. Making a mistake here could expose the condominium corporation to additional liability, as it did in the Orr case.

But including inspections in status certificates could enable the condominium corporation to address unauthorized alterations before a prospective buyer completes the purchase. For example, in Orr, an inspection could have identified the unauthorized attic installation and prevented the complex litigation and substantial legal costs that followed.

Each condominium corporation has to make its own decision as to whether inspections are worthwhile or appropriate based on legal advice particular to its unique circumstances. For example, a unit inspection in a high rise may not involve the same types of issues as those for a townhouse. At the least, a condominium corporation should not make an unqualified blanket statement in its status certificate, as was done in the Orr case, saying there are no violations of the Act, declaration, bylaws or rules. Some qualified wording would be in order.

After discovery

Having laid the groundwork set out above, dealing with the discovery of an unauthorized alteration after a new owner has moved in should prove less difficult. In these cases, a condominium corporation would be in a better position to require removal of the unauthorized alterations and commence legal proceedings if the new owner does not comply.

The precise enforcement steps could heavily depend on the particular facts of these situations, so condominium corporations should consult with their lawyers first. The legal issues could be complex and involve legal proceedings to recover restoration costs from the previous owner.

Another option for condominium corporations to consider is whether to allow the alterations to stay. If, for example, the alteration is not entirely objectionable, it may be that the reasonable solution would be to approve it and effectively “legalize” the alteration. This would be subject to an agreement with the unit owner, which, for proper authorization, would need to be registered on the unit title under Section 98 of the Act. Depending on the precise nature of the alteration, this may also require other steps as contained in the Act and the condominium corporation’s documents.

The Orr case demonstrates that the stakes are huge when dealing with new owners and unauthorized alterations. Inspections may help to address the issue before it becomes a bigger problem with the new owner, but each situation will be different.

*Anticipated changes to the current Condominium Act may address the status certificate form. In particular, the Condominium Act Review: Stage 2 Solutions Report makes the following recommendation: “The certificate should include a range of new information, such as a warning that the unit has not been inspected for alterations (unless otherwise stated)…” (emphasis added).

David Thiel is a partner in the Condominium Law Group at Fogler, Rubinoff LLP. He can be contacted at dthiel@foglers.com or 416-864-9700.