Approval Process for Condo Structural Changes not Permitted to Reopen
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A home renovation can be a long and drawn-out process; one that causes great inconvenience to a homeowner and may require extensive permissions before it can even begin. Anyone who undertakes a major renovation after completing the due diligence to obtain the necessary permits would be justifiably surprised and upset if said authorization was revoked after the work had been completed. That is just what occurred in a conflict that was recently decided by the Ontario Superior Court between condominium owners and the condominium corporation. The dispute centred around the lack of an agreement under s. 98 of the Condominium Act (the “Act”).

What is a s. 98 Agreement?

Before looking at the case itself, it is helpful to review the purpose of s. 98 of the Act. This section requires that an owner enter into an agreement with the condominium corporation before making any changes that affect the common elements of a condominium. If the changes are approved, the corporation will enter into an agreement with the owner(s) with the primary purpose of setting out the following terms:

  • To apportion the cost of the proposed change(s) between the owner(s) and the corporation;
  • To set out the maintenance, repair, and insurance obligations with respect to the proposed change(s).

Generally, once an agreement is executed, it will be registered on title for the property.

Background of the Case

The applicants in the case at hand were the owners of one unit in a twenty-unit condominium in Muskoka. Soon after purchasing the unit, the applicant husband was appointed to the Board of Directors (the “Board”), a role that he filled for three years. At one point the applicants expressed an interest in buying another unit in the building in order to accommodate more visitors, and the owners of the unit next door to theirs advised them that they were planning to sell. Before committing to purchase the unit, the applicants submitted a proposal to the Board seeking approval to create an opening between the two units in order to create one large condominium. The changes would affect a common element in the building, being the shared wall between the two units.

At the time of the proposal, the Board consisted of four members, one being the applicant husband and another being the owner of the unit next door to the applicants. All four of the Board members were present for the meeting, along with the property manager. However, the owner of the unit the applicant wanted to purchase declared a conflict of interest and excused himself for the relevant portion of the meeting. The applicant remained for the entire meeting but abstained from voting on his proposal. The proposal was approved, leading the applicants to then purchase the condominium from their neighbour. At the meeting, those present had discussed the need for a formal agreement under s. 98 of the Act, but one was never put into place. At the time, the condominium corporation was in the habit of approving changes to common elements without a formal s. 98 agreement.

The applicants completed extensive renovations, opening the connecting wall between the units, and removing the kitchen in one unit to create a more cohesive single condominium. After the changes had been completed, a new Board president was elected. The new president took issue with the lack of a s. 98 agreement with respect to the applicants’ renovations, and all other changes that had been made by other condo owners. It was decided that all owners who had made changes affecting common elements would be required to enter into retroactive agreements. The applicants were provided with an agreement to sign, which contained a clause not found in the agreements received by other owners. It stated as follows:

The Improvements shall be removed by the Unit Owner, at the Unit Owner’s sole expense, before the Unit is sold.  Specifically, the Unit shall be restored to the condition before the Improvements were made, including but not limited to the reinstallation of the common element demising wall within the Unit and any changes that were made by the Unit Owner related thereto.  

The Court’s Ruling

The applicants brought a claim against the corporation, saying that the clause overreached by requiring the restoration of changes unrelated to the common elements. They claimed that the corporation’s behaviour was oppressive and unfairly prejudicial in light of the fact that the changes had already been approved and completed, and the agreements provided to the other owners did not contain a similar clause. The corporation responded saying that the permission previously granted was invalid due to the applicant’s conflict of interest, which resulted in a non-quorum at the meeting, and cited the lack of a s. 98 agreement to further invalidate the approval.

The court found in favour of the applicants, reasoning:

Board approval was sufficient and was given.  [The applicant] did not have a conflict because the proposal was not material to the Condominium.  There was therefore a quorum.  The approval is not problematic as a result of these issues. I therefore conclude that there was an effective Board approval given for the structural change made by the applicants.  The relief sought by the Condominium, which assumes that it can begin the approval process again, is therefore inappropriate.

The court awarded the applicants $10,000 in general damages due to the corporation’s oppressive and unfair conduct. The court did agree that a s. 98 agreement was necessary but ordered the overreaching language in the oppressive clause be removed. The applicants will be required to restore the common wall prior to selling either unit, but would not be required to say, reinstall a kitchen in the second unit. The changes unrelated to the wall would not be covered by a s. 98 agreement as they are not common elements. The applicants would be under no obligation to restore them since restoration was not contemplated at the time approval was granted.

This case should be a lesson to condominium boards regarding the importance of putting a s. 98 agreement into place from the start and setting out all expectations with respect to changes affecting any common elements. A corporation will likely be prevented from placing an unfair onus on condominium owners after the fact if that onus is deemed to be oppressive or unfair.

At Baker & Company in Toronto, we take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100 or contact us online for a consultation.

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