home inspections

Regs likely to have minor impact on purchases

Home inspections in condominiums look at units, not common elements
Tuesday, November 8, 2016
By James Davidson

The province of Ontario is planning to license and regulate home inspectors, who would need to be properly qualified and meet minimum standards for home inspection reports, among other things. The proposed changes would also establish an independent authority which would be responsible for administering and enforcing the forthcoming legislation and its associated regulations.

“These changes would ensure consumers benefit from quality advice, are protected from surprise costs and aware of safety issues before buying a home,” says the province.

But what, if anything, would this mean for condominium purchases? In this lawyer’s view, the licensing of home inspectors will have only some impact on condominium purchases. Here’s why.

Experience suggests that a home inspection is now a typical step most real estate purchasers take. It’s an excellent way for a purchaser to gain valuable (often critical) information about the condition of the property, normally before the purchase agreement becomes unconditional. In other words, a home inspection is commonly arranged by the purchaser during a conditional period. The purchaser normally depends on, among other things, receiving a home inspection that he or she deems satisfactory to waive conditions (resulting in a binding purchase agreement).

In the case of a condominium purchase, the purchaser sometimes (though not always) arranges for a home inspection of the unit — again, during a conditional period, as described above. So, the province’s forthcoming regulations for home inspectors will certainly have an impact upon those “unit home inspections” arranged by condominium purchasers. As noted above, the idea is that those home inspections will become even more reliable and helpful to the consumer.

But condominium purchasers typically do not arrange for inspections of the common elements for the following reasons.

The common elements can of course be quite extensive. The common elements can also be difficult to access. Take, for example, roof areas, windows, balconies, mechanical and electrical components, elevator machine rooms and mechanical penthouses. Therefore, the cost for a common element inspection can be prohibitive for most purchasers. Inspections of the common elements are of course arranged by condominium corporations as part of performance audits and reserve fund studies; and those costs are typically thousands or even tens of thousands of dollars.

Purchasers also don’t have the legal right to access the common elements (unless and until they are residents of the condominium). Now, the purchaser (and/or his or her chosen inspector) can be invited to inspect the common elements as a guest of the owner/vendor.

But even the rights of residents (and their invitees) to inspect the common elements are limited. In most cases, the condominium’s declaration or bylaws state that certain parts of the common elements (generally areas set aside for maintenance and for mechanical services) are off limits to residents.

Also, residents have no right to access units or exclusive-use common elements (which might be necessary to inspect certain parts of the common elements — take attics as an example). In addition, the inspection process itself might in some respects exceed the rights of a resident to make “reasonable use” of the common elements, as stated in section 116 of the current Condominium Act (1998).

So, even if a purchaser were willing to spend the money for an inspection of the common elements, the inspector likely wouldn’t have the right to conduct a completely thorough inspection (at least without the consent and cooperation of the condominium corporation).

Condominium purchasers typically can’t, in practical terms, arrange for a thorough inspection of the common elements. They normally only arrange for inspection of the unit and those few common elements which are visible during an inspection of the unit.

In that respect, “condominium buyers can’t beware” — at least when it comes to the common elements. This is precisely one of the key reasons for status certificates. So, in order to allow condominium units to sell, the Condominium Act allows purchasers to obtain status certificates, which include the following statement:

“The corporation has no knowledge of any circumstances that my result in an increase in the common expenses for the unit, except…” (And then any such circumstances known to the corporation must be listed.)

Condominium corporations are also obligated to arrange reserve fund studies, which include an inspection of the common elements at least every six years. With the benefit of the reserve fund study, the condominium corporation then determines the necessary annual contribution to the reserve fund. And the corporation is obligated to say, in the status certificate, if the corporation is aware of circumstances revealing that the annual contribution may need to increase (beyond inflation), or if a special assessment may be required, at some time in future.

Therefore, if paragraph 12 of the status certificate is “clear,” this tells the purchaser that — as far as the condominium corporation is aware — the condominium fee is the “whole story” and is expected to stay constant (increasing only by inflation). And the purchaser knows that the condominium corporation has reached this conclusion, at least in part, with the benefit of a reserve fund study. That’s also why condominium purchases are typically conditional upon the purchaser obtaining a status certificate that is satisfactory to the purchaser.

In summary, the idea is that mandatory reserve fund studies combined with the ability to obtain a status certificate gives purchasers the necessary information about the common elements to go ahead with the purchase — even though it’s not practically possible for the purchaser to arrange for a home inspection of the common elements.

James Davidson is a partner at Nelligan O’Brien Payne LLP, and has been a member of the firm’s Condominium Law Practice Group for more than 30 years. He represents condominium corporations, their directors, owners and insurers throughout eastern Ontario.

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