Bowling alleys, guest suites, basketball courts, and movie theatres … It all sounds great, so why the commotion about shared facilities?
Shared facilities vary widely, and can also include less alluring items, such as underground site services, roadways, and mechanical rooms. Oh, and there is typically a committee that manages, governs, and operates the shared facilities, composed of directors from each of the sister corporations. The condo corporations are parties to a shared facilities agreement (sometimes called a reciprocal agreement or cost sharing agreement), which sets out the parameters of their legal relationship.
Take a glimpse at one of these agreements, and it’s easy to see how headaches can arise. These agreements typically define the shared facilities (albeit, sometimes rather vaguely), allocate costs (oft in sparing detail), explain the role and composition of the shared facilities committee, and outline a dispute resolution mechanism, just in case (or when) the parties refuse to play nice. The dispute resolution procedure tends to include good faith negotiations, followed by an all boards meeting, mediation, and lastly, binding arbitration.
Shared facilities agreements are generally drafted long before a developer breaks ground on a condo project. So when the developer’s lawyer drafts the shared facilities agreement, many items may remain unsettled or unknown. Outstanding questions may include what facilities will actually be built, how they will all interact with each other, or how they ought to be shared. The number of units may change; even the number of buildings may not be set in stone. All of these variables can shape the future shared facilities and the potential for disagreements.
The shared facilities agreement spells out how the shared facilities committee must make decisions — typically by either unanimous or majority approval. Where agreements require unanimous approval, disputes can arise from a simple deadlock on an issue. Conversely, where majority rules, the minority may be bullied or have their interests downplayed or ignored. In these circumstances, there is little the minority can do except trigger the dispute resolution procedure.
The management of shared facilities can also breed significant disputes. When deciding whether to retain an independent manager or one of the sister corporations’ managers, the committee may consider a variety of factors, including the size of the shared facilities, its budget, and the format originally established by the developer. Where one of the sister corporations’ managers also manages the shared facilities, there may be an actual or perceived bias, leading to significant disputes.
Yet the most common source of disputes over shared facilities is money; how much each corporation should contribute, what expenses are to be shared, or whether the parties should be responsible for back charges and interest. It would be next to impossible for the shared facilities agreement to outline every potential shared expense. As a result, agreements are subject to interpretation and disputes will likely continue to arise over cost contributions.
Cost contributions were at the centre of the dispute in TSCC No. 1487 v. Market Lofts Inc. The case concerned a shared facilities agreement that the parties had not observed for many years. Once TSCC 1487 became aware of the agreement, it also discovered it was entitled to significant amounts owing from Market Lofts Inc. dating back to 2006. (The action commenced in 2013.) Market Lofts Inc. refused to pay when TSCC 1487 demanded payment, claiming that the parties had a mutual understanding that costs would be shared informally.
The shared facilities agreement provided that if a party defaults, the non-defaulting party has a lien enforceable in the same manner as a mortgage. This provision, which exists in many shared facilities agreements, appears to have played a significant role in the court’s decision.
Market Lofts Inc. argued that a general two-year limitation period (under the Limitations Act) should apply, which would prevent TSCC 1487 from recovering amounts that were incurred more than two years prior to the claim. However, since the default was secured by a lien, the court found that, instead, a 10-year limitation period under the Real Property Limitations Act applied. As a result, TSCC 1487 was entitled to all of the outstanding arrears, dating back to 2006, and was successful in recovering more than $160,000 (including more than $50,000 in interest).
The case ultimately highlighted the importance of understanding, relying on and enforcing the provisions of shared facilities agreements from the outset.
Given the many challenges of governing shared facilities, sister corporations should make a concerted effort to start their relationship off on the right foot:
Read and enforce the agreement
In certain circumstances, it may seem more expedient and simple for condo corporations to share costs or manage the shared facilities informally, without referring to the shared facilities agreement. While this practice may work well while the relationship is good, or where one manager oversees the entire complex, circumstances and relationships can change quickly. Before long, one of the sister corporations can turn around and allege a party’s failure to comply with the agreement and claim years’ worth of back-payments and interest, resulting in headaches, budget shortfalls, and disputes.
As a first step, each corporation should become familiar with the scope of the agreement, understand how costs are shared, how decisions are made, and the rights and obligations of each party.
Resolve issues proactively
Left unresolved, tensions rise and disputes can escalate to a point of no return. Allow parties to express ideas freely, and maintain a positive relationship by raising concerns before they morph into disputes. Even if the issue can’t be resolved, the environment fostered through open communication can be a significant benefit. After all, once the dispute is resolved, the representatives have to continue to work together.
Leave emotion at the door
The representatives should try their best to prevent emotion from clouding their judgment. Always keep in mind that the relationship will, quite literally, last forever. What is fair does not govern the shared facilities relationship, nor does it necessarily prevail. Rather, the relationship is governed by what is outlined in the agreement itself. Unless it’s relevant to the agreement, parties should try not to get hung up on which party appears to benefit most or within which building the shared facilities are located.
Similarly, parties should refrain from taking irrational or overly aggressive positions in a dispute; this has the risk of inflaming the situation and virtually guaranteeing the failure of the informal dispute resolution mechanisms. To help resolve disputes, parties could attempt to remove subjectivity from the cost equation — for example, by separately metering utility use or obtaining separate quotes for services.
Recognizing the potential for disagreements — and their consequences — consider these relationship-building steps preventative medicine for the headaches shared facilities agreements can cause.
Josh is an associate in Aird & Berlis’ condominium group. His practice is focused on advising condominium corporations on all matters relating to the Condominium Act.