shared facilities agreement

Shared facilities agreements increasingly complex

Spats over common interests may be eligible to be heard by new tribunal
Thursday, February 9, 2017
By Michelle Ervin

As developments become increasingly complicated, so do the relationships between condo corporations and other parties bound by co-ownership of building assets such as parking garages, according to presenters of the seminar Shared Facilities Agreements: The Problems & the Solutions at PM Expo last fall.

“Some of the big complexes, like around the ACC [Air Canada Centre], you’ll see the agreements are getting very, very thick,” said Armand Conant, head of the condo law group at Shibley Righton, “and it’s getting very complex, because you have everything from retail component to commercial, parts that are non-condo, parts that are shared facilities.”

At the same time, recent changes to Ontario’s condo laws are poised to make shared facilities agreements mandatory among parties with common interests. It’s also hoped that spats over shared facilities agreements will be among the types of conflicts eligible to be heard by a new tribunal provided for in Condominium Act reforms, said Conant.

While the industry awaits the roll out of changes to Ontario’s condo laws later this year, there are other ways to overcome these disputes and improve these relationships now.

‘The root of the problem’

Shared facilities agreements essentially establish the terms of relationships between parties with a common interest, setting out how decisions are to be made and who is to pay for what. Common interests can include amenities, equipment and services such as pools, chillers and landscaping.

Also known as mutual use and reciprocal cost-sharing agreements, if they are documented, they are written by the developer.

“They’re not drafted by the parties who are sharing these facilities; that’s the root of the problem,” said Conant. “A, they don’t have to have them, but b, when they are done … you find that often they’re slanted towards whatever the developer is retaining or the commercial component.”

It may not be appropriate to share costs evenly across owners, regardless of use of, say, an amenity, as is done within condo corporations, said Tania Haluk, vice president of operations for Ontario, FirstService Residential. For example, a residential condo corporation may complain that it’s unfairly being forced to subsidize the costs of a commercial condo corporation responsible for an outsized portion of a hydro bill. These rifts only emerge when the parties to the agreements begin to use the shared facilities, she said.

In one dispute, a condo corporation punished its sister condo corporation for a perceived breach of their undocumented terms of agreement by cutting off access to the shared facility, which was on its property. The sister condo corporation responded in kind by refusing to pay its contribution to the facility’s costs.

‘A whole new declaration’

As developments have incorporated a growing number of components, these agreements have bound together a growing number of parties, bringing more people and opinions to the shared facilities committee table. Complicating these agreements further is the move to spell out in greater detail what each party can expect, Haluk illuminated.

“You read these shared facilities agreements that used to be a page or two about right of access,” she said. “Now they’re like a whole new declaration, breaking out every single component, which seems onerous but is actually a good thing.”

The process of hammering out a protocol for when problems arise while everyone is on amicable terms is kind of like signing a prenuptial agreement before getting married, as Haluk put it. She also suggested succession planning for individual condo boards as a way to sustain positive relationships among the parties to the agreement. A consistent understanding of the basis for cost-sharing provisions and decision-making rationales can avoid challenges every time a party to the agreement changes its representative on the shared facilities committee, she explained.

Although not all shared facilities agreements are cause for friction, some can and do get reopened for renegotiation. If that happens, Haluk recommended checking emotions at the door and minding other parties’ perspectives.

“No one wants to gouge anyone,” she said, but added: “Who’s going to put their hand up and say, ‘I’d like to pay more fees for something because we’re unfairly enriched in the cost-sharing agreement,’ so it’s difficult.”

‘A more sustainable resolution’

If detailed shared facilities agreements are similar to prenuptial agreements, then common interests are similar to the kids in a messy divorce, maintaining a link between two parties that might otherwise sever ties with one another. Sister condo corporations that co-own assets can’t just walk away from their neighbour, as Marc Bhalla, mediator, Elia Associates, remarked. When disputes do inevitably arise in this context, it’s possible to resolve differences with a view to long-term peacekeeping.

“When you are able to successfully mediate a conflict in a shared facilities situation, not only do you receive a more sustainable resolution, you’re able to accomplish one that keeps in mind that you have this forced, ongoing relationship,” he said.

It’s important for condo corporations to come to mediation with an accurate picture of what their options are, particularly their best alternative if mediation breaks down, Bhalla advised. He recalled a case where a penny-pinching corporation entered mediation without a lawyer, relying on an outdated legal opinion.

Other mistakes can include overlooking the condo corporation’s end goals in preparing for mediation.

“Say you have a lot of bad blood between two boards of directors who are trying to figure out how to cooperate and get along running the recreation facility, and you have one member of one of those boards who’s been there forever and who is not well-liked,” Bhalla offered by way of example. “Is that the best representative to have in mediation for that board?”

Property managers and lawyers can similarly play supporting roles in helping or hindering prospects for dispute resolution, he cautioned.

Even if mediation fails to settle all of the issues on the table, it’s valuable to cross some of the items off each party’s list before heading to court, Bhalla said, if that’s where a dispute is headed.

Relief from oppressive agreements

A court ruling last year confirmed that condo corporations can get relief when a shared facilities agreement is oppressive, said Conant. A judge found that the agreement for a downtown Toronto complex known as Maple Leaf Square met that test. As a result, the judge amended the agreement, which had originally given complete decision-making authority to the developer-controlled commercial component of the complex.

The basis for the ruling lies in section 113 of the Condominium Act, which Conant noted is the only reference to shared facilities agreements in the current legislation. The clause gives the first owner-elected board of a condo corporation 12 months following turnover to end an agreement if a corporation can show that an agreement was inadequately disclosed by the developer and produced an oppressive result.

There are two options for condo corporations that want to amend their shared facilities agreement but don’t meet these criteria, Conant said. Formal changes have to be embedded in bylaws, which requires a favourable majority vote in each of the condo corporations that are parties to the agreement in order to succeed.

“You’ve reached an agreement, you all sing Kumbaya, but how do you get it passed by your unit owners?” he asked rhetorically, pointing to the challenge of going this route.

Alternatively, it may be possible to alter a shared facilities agreement by adding a clarification clause, which Conant likened to a signed contract between the parties. However, he added that this approach would not hold up to scrutiny as well as passing a bylaw, which is the ‘most conservative’ approach to take.

Michelle Ervin is the editor of CondoBusiness.

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