Condo Living

May 14, 2024 Published by North Alberta Chapter

Grim Prospects for Owners of Evacuated Edmonton Condo

From the Spring 2024 issue of the CCI South Alberta CCI Review

Who is Financially Responsible for Repairing Alberta’s Shoddy, Aging Condominium Buildings?

In theory, Alberta’s lawmakers have already implemented a solution to this conundrum: the New Home Buyer Protection Act creates the Alberta New Home Warranty Program, which insures all residential homes built after February 2014 against latent construction deficiencies, including condominiums.

Unfortunately, the New Home Warranty Program is of no assistance to the unlucky owners of the Castledowns Pointe condominium in Edmonton, one of Alberta’s many (allegedly) shoddy old condo buildings.

Following a fire at Castledowns Pointe last spring, inspections were performed which revealed dangerous latent structural deficiencies, leading to a mandatory evacuation in the fall. The Castledowns Pointe project was built in 1999-2000, long before the New Home Warranty Program was created. Even if the Program had existed at the time, such belatedly discovered defects would have fallen outside the New Home Warranty Program’s lengthiest coverage (ten years for structural defects).

According to Global News, construction of Castledowns Pointe was linked to the Carrington Group of Companies, a prominent condo developer throughout Alberta and in the Okanagan. CBC Edmonton recently reported that the Castledowns Pointe project was not built in accordance with the architectural and structural design drawings. CBC also reported that the Castledowns Pointe board approved a special levy for repairs, which has left unit owners financially devastated.

Sadly, the owners would likely face an uphill legal battle. Lawsuits for latent construction deficiencies involve numerous obstacles: the expiry of limitations periods, the destruction or loss of records, faded memories, evolving industry standards, and – critically – the disappearance of defendants, or at least, their assets.

“Real estate developers frequently create single-purpose corporations for the sole purpose of purchasingg and developing properties for profit,” as noted by the Supreme Court of Canada in Southcott Estates Inc v Toronto Catholic District School Board, 2012 SCC 51 at para 1. The law on single-purpose corporations was most recently summarized by Alberta’s top court in Condominium Corp No 0828219 v Carrington Holdings Ltd, 2023 ABCA 222 at paragraphs 12-13 – indeed, this case involved another (allegedly) shoddy condominium that was (allegedly) built by Carrington under a single-purpose entity:

[12] …under corporate law Carrington Holdings and Carrington Hermitage are separate legal entities. One is not liable for the debts or obligations of the other. The concept of the separate corporate personality is not a loophole or a technicality... It has been an essential part of corporate law for over a century, and vital to the economy. The fact that Carrington Hermitage was a “single-purpose” corporation, or that it was “completely controlled” or “dominated” by its parent makes no difference.... Absent some fraud or improper p urpose the shareholders are not liable for the obligations of the corporations they own and control. There is nothing inherently wrong with single purpose corporate vehicles.

[13] Sometimes the separate corporate personality is disregarded where the corporation is merely a “sham”, or “alter ego” of its controlling shareholder… [but] expressions like this ‘risk assisting moral indignation to triumph over legal principle.’ This categorization is only apt where the corporation never, from the beginning, had any legitimate business or assets of its own and was merely being used as a pretext… In this case Carrington Holdings and Carrington Hermitage had separate existences and separate businesses, and neither was the alter ego of the other. Put differently, courts deal with law, not morality. Regardless of whether single-purpose corporations or the doctrine of “separate corporate personality” are morally repugnant, these concepts are firmly entrenched in contract law.

Put differently, courts deal with law, not morality. Regardless of whether single-purpose corporations or the doctrine of “separate corporate personality” are morally repugnant, these concepts are firmly entrenched in contract law.

Lawmakers have recognized that this principle is ripe for abuse. As noted by the Court of Appeal at paragraph 19 of Carrington, lawmakers enacted section 227(4) of the Business Corporations Act (Alberta) to soften the harshness of the common law rule. The provision allows a plaintiff to pierce the corporate veil when a corporation is dissolved, so “the shareholders of a corporation cannot strip the corporation of its assets, leaving behind its debts.” A detailed discussion of s. 227(4) and the 2023 Carrington decision was published in the Fall 2023 edition of the Canadian Condominium Institute Review, and is available on the HMC Lawyers LLP website: Alberta Court of Appeal Discusses Use of Single Purpose Corporations By Real Estate Developers.

Thus, the principle of separate corporate personality is here to stay. The Castledown Pointe owners might be able to pierce the veil of Carrington’s single-purpose corporation under s. 227(4) of the Business Corporations Act – if they can follow the money to the Carrington parent corporation. Given that nearly 25 years have elapsed since construction, that’s a big “if.”

Recent case law suggests a possible workaround. Condo developers/builders may be personally liable if the defective construction is actually dangerous, not merely shoddy: see Parks v McAvoy, 2023 ABCA 211; Condominium Corporation No 0522151 (Somerset Condominium) v JV Somerset Development Inc, 2022 ABCA 193; Centurion Apartment Properties Limited Partnership v Sorenson Trilogy Engineering Ltd, 2024 BCCA 25.

This workaround imposes liability in negligence – through tort law instead of contract law – thereby circumnavigating the contract law principle of separate corporate personality. Unfortunately, this workaround may disproportionately prejudice smaller builders and developers, who tend to have more personal involvement with project owners compared to the principals of larger developers/builders: see The Owners, Strata Plan KAS 3410 v Meritage Lofts Inc, 2022 BCCA 109. Notably, this workaround may only apply to condos built before the creation of the Alberta New Home Warranty Program in 2014.

Thus, while the Castledowns Pointe condo owners may have a workaround to the singlepurpose corporation problem, the law on this point is unsettled and nuanced.

The Condominium Property Act also has safeguards against “hit and run developers, who promise much but deliver little, whether because of ineptitude, negligence, greed or worse yet, fraud”: Condo Corp No 0321365 v MCAP Financial Corp, 2012 ABCA 26. However, these protections only apply to purchasers of new condos, and they are balanced against the “economic and social reality” that condos will not be built unless developers can secure reasonably affordable construction financing.

Curiously, in 2021, Alberta lawmakers exempted new condominium projects from the New Home Buyer Protection Act’s mandatory technical assessment requirement, which proactively identifies construction defects in newly-built homes. Condos were apparently exempted from the “Building Assessment Report” requirement to appease developers and builders, although the government insists that this “will not compromise construction quality” because inspection and permit requirements will still apply.

Yes – the inspection and permit process that failed to detect the major construction defects at Castledowns Point. Sadly, it seems that Albertans could be facing a new generation of the shoddy condo problem.

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Dana Hagg
HMC Lawyers LLP