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After happily ever after: now what!?!

So you bought yourself a condominium unit. Was it lifestyle? Was it price? Was it because you loved those converted New York flats that you saw in the movies? Whatever the reason, whatever the type of project you were attracted to, you have bought yourself a condominium unit. Now what?

If the project is new (i.e., just built), you can rest assured that all things are in order; everything will work; nothing will break down; the developer will fix everything; and the other owners are just like you!

If the project is a conversion, a previously occupied building, likely renovated, and now being offered to the public for the first time), you can rest assured that it is sound structurally and mechanically, and nothing will breakdown; and all the other owners are just like you!

If you are buying a preowned unit (a private sale likely through multiple listing service from someone who either lived in the unit or held it for investment purposes and rented it out), you can rest assured that the project has been well maintained, and that there will be no surprises; and all the other owners will share your point of view!

If these assumptions prove correct, my article is over and you live happily ever after.

On the other hand, if your presumptions prove erroneous, legal counsel may prove necessary.

New Construction

Where the unit is new, but problems arise regarding its physical state, the initial recourse is to the developer through contracted warranty. Suppose, for example, that five months after you moved into your unit, a pipe in the ceiling broke -- perhaps an errant nail in the pipe rusted through leaving a hole -- and water broke through into your dining room. In Alberta, the contracted warranty is commonplace and offered in conjunction with either the Alberta New Home Warranty Program or the National Home Warranty Program offered through Pafco Insurance Company Limited.

These two programs, offered to new home builders, back the builders' warranty. The general direction, in the case of the Alberta New Home Warranty Program, is to provide consumer protection through an organization which represents the builders. By representing builders, the Program sees itself as an industry watchdog benefiting consumers with assured standards of quality and performance. The warranties in either case run one year from initial occupancy

for unit defects and five years from substantial completion for structural and common property defects. Claims are to be made in writing, but note the Warranty Program will likely have the original developer repairing the damaged items. Further, when recourse to the warranty program is taken, judicial remedy may be denied under the warranty terms. So, in the case of your broken plumbing, the warranty would usually cover the original developer coming in to do the repairs. However, if your developer repaired the plumbing under warranty, but you believed there were still problems, you would likely not be able to sue the developer since this would probably be prohibited in the contract.

Although the warranty is commonplace among new townhouse and wood frame construction projects, it is less likely that you will find such warranty in high rise, concrete construction projects. In these projects, the owners must look to their specific contracts and the builder's warranty supplied in their contract.

In either case, it must be remembered that a warranty is a contract and its implementation will be a direct result of its provisions.

Previously-owned Condominiums

As the warranty is based on the contract, purchasers who buy from non-developers (either previous owner/occupiers or investors) have historically been out of luck in pursuing the developer for defects. That was the case until the Supreme Court of Canada decision in Winnipeg Condominium Corp. No. 36 v. Bird Construction Co. 1995. This case specifically addresses the question "May a general contractor responsible for the construction of a building be held tortiously liable for negligence to a subsequent purchaser of the building, who is not in contractual privity with the contractor, for the cost of repairing defects in the building arising out of negligence in its construction"

In this case, a portion of the common property (the exterior stone cladding of the building) proved to be faulty, and repair was done (at a cost of $1.5 million). The Condominium Corporation, then, sued the general contractor and its subtrade that performed the work. The general contractor and the developer were not the same party.

The general contractor defended the claim, and without testing the merits of the Condominium Corporation's case (i.e. did the general contractor act negligently?), made application to strike the claim on the basis that,

(a) the general contractor's obligations are restricted to the construction contract, and the Condominium Corporation, which was not a party to such contract, could not take advantage of these contractual obligations; and

(b) the cost of repairs did not arise directly out of injury or damage, but rather was preventative, and thereby represented economic loss generally not recoverable.

The Supreme Court of Canada held that where the resulting situation is "dangerous" instead of merely a question of "shoddy" work, the cost of repair is recoverable.

Further, the Court concluded that there is tort responsibility of the contractor as well as a contractual responsibility. This duty is "to insure that the building meets a reasonable and safe standard of construction" and exists independently of the terms of the construction (or purchase) contract. In such instances, the danger created by the work breaches the contractor's duty to a subsequent owner, despite its limited contractual relationship with the initial owner.

Interestingly the Supreme Court expressly denied the principle as applying to "non-dangerous defects", as not being necessary to consider. In stating the current description of the law in Canada, Mr. Justice LeForest said,

I conclude that the law in Canada has now progressed to the point where it can be said that contractors (as well as subcontractors, architects and engineers) who take part in the design and construction of a building will owe a duty in tort to subsequent purchasers of the building if it can be shown that it was foreseeable that a failure to take reasonable care in constructing the building would create defects that pose a substantial danger to the health and safety of the occupant. Where negligence is established and such defects manifest themselves before any damage to persons or property occurs, they should, in my view, be liable for the reasonable cost of repairing the defects and putting the building back into a nondangerous state.

Faced with the issue of whether buyer beware applied, the Supreme Court of Canada determined that to apply such a rule to protect the builder would be "to apply a rule that has become completely divorced, in this context at least, from its underlying rationale."

Thus, the Court dismissed the general contractor's application, and a trial proceeded on the question of negligence. A purchaser, even of a previously-owned unit, faced with a seriously dangerous situation will have recourse to the builder or developer.

Other Residents

This will not likely be the case if the purchaser establishes that his inmates are not to his liking.

The relationship amongst unit owners is, as is the general governing of condominium affairs, regulated through the Condominium Corporation,. It operates under the Condominium Property Act, the Condominium Corporation's by-laws, and the Condominium Corporation's enactments and resolutions.

The Condominium Property Act establishes a few very general rules for the operation of the affairs of Condominium Corporations. These fundamental rules fall into two categories: dealing with outsides (people other than owners and mortgage lenders) and dealing with unit owners.

In regard to unit owners, the most fundamental principle of governance and the relationship between unit owners rests in s.26(5) of the Act which provides,

The by-laws bind the (Condominium) Corporation and the (Unit) owners to the same extent as if the by-laws had been signed and sealed by the (Condominium) Corporation and by each (Unit) owner and contained comments on the part of each (Unit) owner with every other (Unit) owner and with the (Condominium) Corporation to observe and perform all of the provisions of the by-laws.

Thus, the by-laws, unlike by-laws in business corporations, form a contract binding all owners to each other and to the Condominium Corporation, and, I suggest, enforceable as a contract.

In this regard, one must note the Alberta Court of Queen's Bench decision in Condominium Plan No. 8810455 v. Spectral Capital Corp. 1990. In this case, an owner of six units in a twenty unit project tried to operate a time share business in its units. Justice Moore applied s.26 of the Condominium Property Act in conjunction with the condominium corporation's by-laws which prohibited this kind of operation. Justice Moore awarded an injunction to prohibit the time share operation.

But not only is such drastic offensive behavior caught under this provision, much less offensive behavior is controlled under the same principles. There is a tremendous amount of time, management fees, and sometimes legal fees expended on these lesser issues of objectionable conduct of residents.

Leading this list of issues is the issue of pets, and particularly, the prohibition of pets from projects.

Unfortunately for those who see pets, particularly dogs and cats, as a nuisance, after-the-fact solutions trying to rid a project of pets already living in the project have been rarely endorsed judicially. As in the case of Owners, Strata Plan No. NW 498 et al v. William McNeilly et al, 1989, the courts have tended to protect the rights of the pet owners unless the pet owner's conduct of bringing the pet onto the project was with full knowledge of by-laws that prohibited pets. Simply put, if the unit owner, before buying, was aware of the prohibition, the courts have been willing to enforce the removal of the pet, but if the prohibition arose after the pet was brought into the project, the courts have protected the unit owner's right to the pet. Interestingly, where pet ownership was permitted by the developer, but in the face of a prohibition in the by-laws, the courts favored the pet's removal, Metropolitan Toronto Condominium Corp. No. 776 v. Clifford, 1989.

With a breach of this statutory relationship comes the issue of enforcement. Sections 29 and 30 of the Condominium Property Act provide that the Condominium Corporation is responsible for the enforcement of its by-laws. The Corporation may go to provincial court to recover "a penalty of not more than $200" in respect of a contravention of its by-laws.

But is this its only remedy? I suggest not. Clearly in the Spectral decision, the courts of Alberta have said that other judicial remedies are available against offending unit owners. This, however, does not mean that the courts will readily grant other remedies. Equally the cost of securing these remedies tends to be prohibitive since the provincial courts' jurisdiction does not extend to injunction and mandatory injunction. This means one must go to the Court of Queen's Bench at a considerably greater expense.

There are other areas where problems can arise. Imprudent management may result in myopic budgets and inadequate reserve accounts. This may have a much greater effect on unit value than any issue of dogs and cats, but can be equated with deferred maintenance (a term used in the commercial real estate setting for it's in bad shape) which is common in many single family home situations. Besides, the issue of adequacy in reserve funds remains debatable.

In any event, just as is the case for any good home owner and neighbor, your investment in your community will determine your real estate investment return. This lesson is much more obvious in condominiums, so, although you may have sought the carefree lifestyle, you may find that it can only be achieved if you care and concern yourself about who is taking care and how such care is taken for you. Good luck.
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Author:Jeffrey H. Selby
Date:Jun 1, 1996
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