Legal

June 22, 2023 Published by Toronto and Area Chapter - By Brian Horlick

The Uninformed Purchaser

From the Summer 2023 issue of CCI Toronto Condovoice Magazine.

Editor’s Message

Recent Case Highlights the Need for Full Disclosure in a Status Certificate

Ontario courts have regularly reaffirmed that the Condominium Act, 1998 (the “Act”) is consumer protection legislation that contains various features designed to safeguard the interests of both existing and future condo unit owners. One of these protective features is contained in section 76 of the Act, which requires a condo corporation to issue a status certificate, upon request, to bring to the attention of a prospective purchaser or mortgagee matters which may be of concern to them when contemplating the purchase or financing of a unit. Such matters which may (and arguably should) be of concern to a prospective purchaser include, among other things, a corporation’s financial status, any ongoing legal disputes in which the corporation is involved, and its rules and regulations.

Given the duty imposed on condo corporations under section 76, this begs the question - when a condominium corporation does not adequately disclose to a prospective purchaser in a status certificate the existence of a potential project that will likely result in a special assessment or loan, and an owner relies on that status certificate in purchasing a unit, should such owner be relieved of his obligation to pay his/her unit’s proportionate share of any subsequent special assessment or loan?

In a recent decision released by the Ontario Superior Court of Justice, Bruce v. Waterloo North Condominium Corporation No. 26, 2023 ONSC 2995 (Bruce), the court offered a warning to condo corporations that failing to make fulsome disclosure in a status certificate can have adverse and costly consequences for a condo corporation.

In Bruce, a unit owner, Adam Bruce, bought his unit in June 2021 in reliance on a status certificate which stated in paragraph 12 (emphasis added): “The Corporation has no knowledge of any circumstance that may result in an increase in the common expenses for the unit. Except: The Corporation’s fiscal year end is August 31, 2021. Therefore, monthly common element fees may be increased in accordance with the new budget which has yet to be determined.”

Around May 2022 or 11 months after purchasing his unit, Mr. Bruce was surprised to learn that the respondent condominium corporation was seeking authorization from the owners to borrow up to $2.5 million to repair or replace its lift station and water main’s supply (the “Project”). Mr. Bruce’s expected share of the Project was estimated to be around $34,000, which would be payable either up-front as part of a special assessment or as part of a loan. The corporation’s board knew of the need to undertake the Project since at least 2017, the corporation obtained quotes in 2019, the corporation retained a consulting engineer in May 2020, and the corporation’s auditor flagged in November 2020 the potential need for a special assessment and/or loan to pay for the Project.

In brief, Mr. Bruce’s position was that the respondent corporation failed to disclose material facts about the Project that it had known about for years and was in the process of tendering for, and that he relied on the clear and plain language of the status certificate that there was “no circumstance” which “may” lead to a special assessment or a loan. Accordingly, Mr. Bruce sought a declaration under section 76(6) of the Act that the status certificate issued to him on June 8, 2021 binds the corporation with respect to the information that it contains or is deemed to contain and a declaration that his unit is exempt from any special assessment, levy, loan or obligation to contribute towards the cost of the Project.

Ultimately, the court sided with Mr. Bruce and declared that the corporation’s status certificate did not fully disclose the existence of the Project and the likelihood of a special assessment. Furthermore, the court ordered that Mr. Bruce’s unit was exempted from the special assessment or loan, for the period of time that he owns such unit.

As a result, what would otherwise have been the contribution of Mr. Bruce’s unit toward the special assessment or loan would now have to be borne by all of the other unit owners.

In light of Bruce, I hope that condominium corporations will recognize that they must discharge their duty to make full disclosure in a status certificate. This entails inserting clear language in relation to all known circumstances that may result in an increase in the common expenses. Corporations that do not make fulsome disclosure run the risk of being unable to collect a unit owner’s proportionate share of a special assessment or loan where such owner purchased the unit in reliance on a deficient/incomplete status certificate.

Brian Horlick B. Comm, BCL, L.L.B., ACCI, FCCI