Condo Act Reform Reaches Stage Two - Real Estate

As most of our readers will know, the province is in the midst of an extensive review of Ontario's Condominium Act. The current Condominium Act, 1998 came into force in 2001. According to the stage two report (released on September 24, 2013), the province feels that there is "pressing need to overhaul the rules governing condo communities, provide better information to owners, and devise new tools for resolving disputes".

The province has hatched a three-stage process for review of the Condominium Act:

I. Under the first stage, which was completed in early 2013, various participants from Ontario's condominium sector offered their comments and suggestions for reform of the Act.

II. In stage two, the province set up five working groups and a twelve-member expert panel to review and consider the various comments received in stage one, all with a view to developing recommendations for reform and offering ideas for further consideration. The resulting "Stage Two Solutions Report" contains numerous suggestions and comments about Condominium Act reform, including 112 recommendations in the following categories:

1. Condo Office

2. Consumer Protection

3. Financial Management

4. Dispute Resolution

5. Governance

6. Condo Management

III. As far as concerns the "next steps", the stage-two report states as follows:

"We plan to launch the third and final stage of the review process in the fall of 2013:
- A residents' panel will review the stage-two recommendations.
- Government officials will draft an action plan for implementing the recommendations.
- Condo residents and other stakeholders will have an opportunity to review the action plan."

The Stage-Two Recommendations

Here are some of the key recommendations from the stage-two review:

Condo Office

"A new umbrella organization, to be known as the Condo Office, should be set up with four main functions: education and awareness; dispute settlement; licensing condo managers; and maintaining a condo registry. The Condo Office would operate at arm's length from government, but with authority delegated by government. It would be funded by a combination of user fees and a modest levy (estimated at $1 to $3 a month) on each condo unit in the province."
The Condo Office would act as a resource (a source of information) for owners, directors and managers.
The Condo Office would be empowered to make "quick decisions" respecting records, charge-backs, proxies, requisitions, and owners' entitlement to vote.
For certain types of more complex disputes, the Condo Office would provide neutral evaluation, guidance or assistance with the dispute resolution process.
The Condo Office would also oversee a two-stage licensing program for condominium managers:
- Stage 1: The establishment of basic criteria to be met by all condominium managers;
- Stage 2: Overseeing requirements for mandatory course work, experience and testing for condominium managers.

Consumer Protection

The ministry should prepare and publish an easy-to-read Condominium Guide, containing essential facts about condominiums, which would be provided, by developers, to all condominium buyers.
There should be enhanced disclosure obligations for developers and changes to the method for determining the budgeted initial contribution to the reserve fund.
Developers should be prohibited from selling or leasing back to the condo corporation assets that would normally be deemed common elements.
Status certificates should be enhanced, so that they provide more extensive disclosure to purchasers.

Financial Management

There should be a statutory right to quiet enjoyment, with condominium corporations having the obligation to take reasonable steps to enforce it.
Every condominium corporation should prepare two annual budgets – one for annual operations and one for the reserve fund.
Owners should be notified when expenditures exceed budgeted amounts by a threshold (yet to be determined).
Auditors should be required to verify that the board has formally approved the corporation's investment plan.
The condo corporation should be required to check with its reserve fund analyst (about the need for an early update) when the reserve fund balance is less than 50% of the amount predicted in the corporation's Notice of Future Funding.
For preparation of reserve fund studies, "the year-over-year percentage change in total contributions to the reserve fund should be no greater than the assumed inflation rate used in the study, except for the first three years when total contributions may be greater than the assumed rate".
The reserve fund should be available to cover changes required by law and for certain green energy projects.
The voting requirements for approval of "substantial changes" should be lessened.
The provisions respecting "minor changes" that can be made by the board (without notice to owners) should be revised (including increasing the cost threshold for such changes).
There should be an amended definition of "maintenance" to eliminate owners' obligations to repair, after normal wear and tear, any common elements over which they have exclusive use, such as balconies."Corporations should be required to repair all common elements whether or not an owner has exclusive use."
"A 'standard unit' definition should be put in place that applies to all condo units in the province. The definition would cover a liveable unit with finished walls and ceiling, fixtures and cabinetry. The description needs to be adequately detailed to obtain a valuation for a unit." Corporations would still be able to amend their standard unit descriptions through a by-law.
An owner's responsibility for the deductible portion of any loss under the corporation's insurance policy should clearly apply to any damage (to any part of the property) caused by an act or omission of the owner or resident.
The Act should specifically regulate a corporation's right to claim, and to lien for, "charge-backs" (such as charge-backs for legal costs allegedly caused by an owner). The Act should also contain a definition of "charge-backs".
There should be a broadening of a condominium corporation's permitted investments.
"Whenever a corporation contemplates a service contract valued at, for example, over $50,000 a sealed-bid process should apply with standard safeguards."

Dispute Resolution

The Condo Office (see above) would play a key role in the resolution of many condominium disputes.
As noted above, many types of more minor disputes would be decided by the "Quick Decision Maker". And there would be only limited rights of appeal from decisions of the "Quick Decision Maker". "Primary funding for the Quick Decision Maker office would come from user fees and the modest levy on condo corporations proposed to fund the Condo Office."
For many other types of disputes, current mediation and arbitration procedures would be retained, but with added default procedures to ensure more rapid selection of mediators and arbitrators as well as quicker completion of the mediation and arbitration processes. "The working group also proposes that corporations be allowed to pay the entire costs of the initial mediation session up front so that the session can proceed, but that it could recover the owner's share later."
Disputes with tenants should be clarified to confirm the fact that condominium law applies to tenants and also to confirm the obligations of owners for the conduct of their tenants.
The successful party (whether the condominium corporation or the unit owner) should be entitled to recover full costs from the other party, but "this provision would not apply to proceedings involving the Quick Decision Maker and Dispute Resolution Office, where a successful party can only recover a small cost award by the decision-maker".
Other disputes (not covered by the above processes) would still be resolved by application to Court.
The new Dispute Resolution Office would also have special authority to quickly resolve disputes about impending liens (ie. when an owner receives notice of a lien).

Governance

Minimum periods for retention of records should be further detailed.
There should be enhanced/easier access to corporation records (for owners). And there should be significant fines ($1,000 to $5,000) for non-compliance by corporations.
The fees that can be charged by condominium corporations for providing records should be revised. (In some cases, a fee could be charged for retrieval and redaction of records.)
There should be set timeframes (10 days for current documents and 30 days for all other documents) for complying with document requests.
Corporations should be encouraged to keep electronic records.
There should be a standardized proxy form.
Quorum requirements for meetings of owners should be relaxed.
By-laws should be easier to pass.
The procedures to be followed for requisitioned meetings should be further detailed.
There should be new requirements for enhanced communication from corporations to owners including:
- Certain status certificate information should be provided quarterly to all owners.
- Owners should be given additional information about the reserve fund (such as deviance from the study).
- Owners should receive advance notice of the AGM (prior to the actual notice), soliciting candidates for election.
There should be new mandatory training for first-time directors.
The Act should allow on-line tools, such as Skype, for participation in board meetings.
There should be a statutory code of ethics for condominium directors.

The resident-elected director position should be eliminated.

There should be a new "declaration of rights and responsibilities" for owners and directors.
Corporations should be barred from levying fines on owners or tenants.
Charge-backs should be allowed, but clearly defined.

Condominium Management

As noted above, one of the recommendations is that the new Condo Office oversee a two-stage licensing process for condo mangers. Some of the related recommendations are as follows:

The Licensing Office would also draw up a code of ethics for condo managers.
Fidelity bonding and errors and omissions should be mandatory for condo managers.
Certain contract terms should be mandatory for all condominium condo management agreements.
The Licensing office should establish mandatory continuing education for condo managers.
"To qualify as a condo manager (stage one) an individual must:
- Be 18 or older;
- Be a high school graduate or equivalent;
- Not be an undischarged bankrupt;
- Pay the required fee;
- Meet minimum requirements for insurance;
- Agree to a police check for a criminal record; and
- Pass a test on the Condominium Act."
Stage two would involve mandatory training, minimum required experience, continuing education requirements, and then a final exam.
"Anyone with ten years' or more of verifiable experience as a condo manager should be exempt from the education requirements for stage-two licensing. They should still be required to meet the stage-one criteria, including passing the Condominium Act competency test, as well as completing the stage-two examination."

Click here to review the complete Stage Two Report on the Ministry of Consumer Services website. If you would like to provide feedback to the province, the Ministry's website tells you how you can do that. NOTE: The Ministry's website also says: "You can comment on the Stage Two Solutions Report until November 8, 2013." So, if you would like to comment, don't delay.

We're still a long way from the finished product (the actual amendments to the Condominium Act), but it certainly appears that amendments are coming within the next few years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Canada: Condo Act Reform Reaches Stage Two