Part 1: Top 6 considerations for new condominiums

March 29, 2022 | Jason Rivait

With the loosening of COVID-19 restrictions and immigration doors re-opening, there should be no shortage of cranes in the ground over the next few years. New condominiums have a host of issues to address within the first couple years of registration. With this in mind, over the course of three articles, we will cover our top six (in no particular order) considerations for new condominiums.

1. First-Year Budget Deficit

The developer is required to prepare a disclosure statement, which includes draft copies of the Corporation’s governing documents and a budget. The main purpose of this disclosure is to provide a detailed and reasonably accurate understanding of the future cost to own a unit. The budget must include operating expenses (including reserve fund contributions), the projected cost of the first reserve fund study and performance audit and a host of other items.

If at the end of the first year of operations the condominium corporation is in a deficit position, the developer must make the condominium corporation whole. A deficit arises in the event expenses are greater than budgeted or revenues are less than budgeted or a combination thereof.

To determine if there is a first-year budget deficit, a line by line analysis is not required. Rather, the condominium corporation should compare the bottom line of the actual expenditures with the budget. That said, the developer is not responsible for a budget shortfall if the increased costs to operate (or the deficit) is the result of a change to the services (for example, the termination of a management agreement or another agreement for services).

To determine the amount owed by the developer, the board must compare the audited financial statements to the budget. If there is a deficit, the condominium corporation must notify the developer in writing within thirty days of receiving the audited financial statements. This is a short window to provide notice so condominium corporations need to be on their toes.

If the parties cannot resolve the dispute, then condominium corporation may initiate mediation and arbitration proceedings.

2. Turn-over Meetings and Documents

The developer will create and control the first board of directors. However, once the developer sells the majority of units, a turn-over meeting must be held to elect a new board amongst the unit owners.

The turn-over meeting must be called within 21 days of the developer no longer owning a majority of the units and it must be held within 21 days after it has been called.

The turn-over meeting is very basic. Ultimately, the purpose of the turn-over meeting is to elect a new board and to turn-over certain documents. Many unit owners use this opportunity to convey concerns over constructions deficiencies in the units or common elements; however, that is not the purpose of this meeting.

At the turn-over meeting, the developer is required to provide a host of documents, including but not limited to the following:

  • the minute book;
  • the declaration, by-laws, shared facilities agreement and rules;
  • agreements entered into on the condominium corporation’s behalf (i.e. management agreement, security agreement, sub-metering agreement, etc.); and
  • the register of owners.

At the turn-over meeting, it makes good sense to review the items provided by developer and use a checklist to confirm which items were provided and which items are outstanding. The board and developer should sign the checklist to ensure there is clarity on what has or has not been provided.

The one document that often gets missed at the turn-over meeting is the standard unit schedule. If the developer does not create a standard unit by-law, which defines the items in the units that the condominium corporation is obligated to insure, then they must create a standard unit schedule.

Receipt of the standard unit schedule is of no-consequence until there is an insurable event like a flood or fire and no condominium corporation is immune to water leaks. If the developer does not create a standard unit by-law, then the new board should make sure that the condominium corporation is provided a standard unit schedule immediately.

Within thirty days of the turn-over meeting, the developer is required to provide a host of other documents, including but not limited to the following:

  • warranties;
  • as-built plans, drawings and specifications;
  • financial records;
  • reserve fund studies;
  • proof that the units and common elements have been enrolled in Tarion; and
  • a maintenance and repair table.

Within sixty days of the turn-over meeting, the developer must turn-over the audited financial statements.

In normal course, a friendly email to the developer that certain documents are missing will put any non-disclosure issues to bed. However, if the developer fails to provide documents within the required timeframes (i.e. the standard unit schedule) and is non-responsive, then the condominium corporation may make an application to the Superior Court of Justice for the production of such documents. If the court is satisfied that the developer did not turn-over the documents without reasonable excuse, then the court may order that the developer may damages up to $10,000.

Stay tuned for Parts 2 and 3: Top 6 considerations for new condominiums.

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