August 12, 2015
Author: Jaime Bell
The newly proposed Condominium Act, Bill 106 and aptly named the “Protecting Condominium Owners Act” was recently released and is the product of major collaboration between condominium owners, developers, lawyers and other major stakeholders across the province. As expected (and as subtly indicated in its title) it has completely overhauled the near 16-year old Condominium Act and is chalk full of protections for the estimated 1.3 million condo-dwellers in Ontario, which means changes to the development and sales process for developers. A few highlights developers should note:
Sale and leaseback of units and common elements
In new developments, it is common for developers to unitize certain components of the building that could have formed part of the common elements of the condominium, such as a party room, gym or guest suite, and then sell or lease these components back to the condominium.
Opponents of such practices pointed at sale and leasebacks as contributing to the inflation of unit prices, and also as causing a source of tension amongst the condo community.
As a result, the proposed act will permit the regulations to dictate the specific components of the building which must either be owned by the condominium from the time of registration, or form part of the common elements. Condominium corporations would not be permitted to acquire an interest in property unless a post-turnover owner-elected board agreed to do so. It would also forbid developers from circumventing this by including provisions to the contrary in purchase agreements. The exception to the above would be selling or leasing back certain energy-efficient equipment or certain facilities to be shared between the condominium property and other properties. These exceptions will be fine-tuned during the drafting of the regulations.
A major concern raised amongst unit owners during the stakeholder meetings was the type and format of information that is being provided to them by developers. Although the current act requires a table of contents setting out the important points of the disclosure package to potential purchasers, the proposed act will standardize disclosure statements and declarations as to form and content and must also include a government prepared guide with general information about condominiums, and the rights and obligations of unit owners and directors.
Developers will be required to disclose the finalized first year budget to purchasers at least 10 days before the closing date of the purchase agreement. Developers will also be required to include a statement of circumstances that they know, or ought to know of which may result in an increase in the common expenses after the one-year period immediately following the registration of the declaration and description and the anticipated amount of any potential increase that is likely to take place. These provisions have been included in an effort to increase transparency and impede the practice of deferring certain condominium costs until the expiry of the first year following the registration of the condominium.
Currently, the current act provides potential purchasers with a 10 day “cooling-off” period wherein they can walk away from a purchase for any reason whatsoever. It also provides that a purchaser can terminate a purchase agreement in the event of a ‘material change’ to information contained in the disclosure statement, or that should have been contained in the disclosure statement. The current act, however, did not define what is, or is not, a material change
The proposed act will offer criteria with which to measure a “material change” and will exclude certain changes, such as an increase of less than 10% to the amount of the projected common expenses previously disclosed to the buyer, or as otherwise set out in the regulations. The 10% rule, if accepted, would be in keeping with the rule-of-thumb adopted by the industry and will be a useful objective standard for both the developers and purchasers.
The proposed act seeks to add transparency and provide protection to purchasers who are unfamiliar with the process and realities of purchasing new condominiums. This will mean changes for the entire development team including with respect to the initial organization of the condominium, and disclosure packages provide to purchasers during the sales process. We encourage you to review the new bill here:
and we will keep you up-to-date as the proposed act moves through the legislative process.