Legal

January 1, 2021 Published by Manitoba Chapter - By Manitoba Chapter

Condo Conversation Corner: A View & A Voice - Manitoba Winter 2020/2021

Here are some items in relation to prior newsletter articles, Lunch-n-Learns, webinars and Conversations in prior Newsletter editions. If you want to contribute to the discussion, you can make a submission to cci-manitoba.ca/resources/condo-conversation-corner

Unauthorized Changes to Common Elements or Units

We had an inquiry from someone who purchased a condo unit, and then sometime after moving in, they were approached by the condo corporation (CC) about an unauthorized change by the prior unit owner, who had put in a patio. Sound legal advice is required here and CCI Manitoba is not in a position to provide such advice. For reference, here is our standard disclaimer

Please be advised that our office is unable to provide specific legal advice. We recommend that you speak to a lawyer regarding the challenges or problems you may be experiencing. For your information, a list of lawyers who are Professional Members of the Manitoba Chapter of the Canadian Condominium Institute can be found in the newsletter and on our website.

While we can’t provide advice, we can use this as a learning example and consider the general case of an unauthorized change within the context of new ownership of a condo unit. This is where you, our members can help. We’d like to have a comprehensive discussion on the topic and are asking you to contribute through our Condo Conversation Corner. While buying or selling a condo do you have any first hand experience with unauthorized changes, disclosure problems or material changes? How familiar are you with the disclosure requirements? Do you thoroughly read the disclosure statements and the status certificate, or just rely on your lawyer to do so? What other comments do you have to contribute to the discussion?

Condo Corporation Public Health Orders

A question was submitted asking whether a condominium corporation (CC) could ban all visitors in a building and/or ban visiting between condo owners and renters in the same building. This was touched on during our April 27th webinar Condos & Covid-19, the recording of which is available on our website https://cci-manitoba.ca in the Members Only area under Podcasts. At about the 35 minute mark of the recording the question about the authority of CCs is raised in relation to public health orders. Basically, the CC does not have the authority to enforce a public health order.

Condo Corporation Loans

A Lunch-n-Learn presentation was made on the topic of Condominium Corporation Financing: An Alternative to Special Assessment Feb 27, 2020.[1] The spring 2020 Newsletter also contained a related article. [2], that prompted a member to provide feedback. The member expressed concern that by promoting the option of condo corporation loans, CCI was enabling CC Boards to underfund the reserve fund providing an advantage for current owners at the expense of future owners. . We agree that underfunding a reserve fund is problematic, and in some cases, a loan might be a reasonable alternative to a special assessment. CCI is not endorsing one plan over another, only pointing out an option that unit owners and CC boards have.

When the Manitoba Condo Act was updated in 2015 requiring reserve fund studies (RFS) every five years, many CC Boards found their reserve fund inadequate. Diligent CC Boards would have responded promptly based on their RFS, and increased their contributions to their reserve fund. However, if there were urgent needs to repair or renovate the common element, if the CC was unaware of the loan option, the current owners might have had to fund a special assessment for current repairs or replacement while also increasing their reserve fund contributions. In this case a CC loan would seem to be a reasonable course of action.

Another possible situation for which a loan might be reasonable in lieu of special assessments could be due to the CC Board including an upgrade project within the scope of work identified within the RFS. For example, if the roof was being replaced with money coming from the reserve, the Board might take the opportunity to upgrade the insulation at the same time. Likely,  the upgrade would not have been included in the RFS and hence the reserve would have insufficient funds to do both. The Board would then have to choose amongst the various options, including”

• only replace the roof and forgo energy efficiency improvements;
• defer the roof replacement for a few years until sufficient funds are available to do both;
• replace the roof and upgrade with insulation with the additional funds coming from a special assessment;
• replace the roof and upgrade with insulation with the additional funds coming from a CC loan.

Assuming the economics of the insulation upgrade were sound, the Board should be prudent and proceed with both projects. Note that the CC bylaws may have some bearing on how the Board proceeds and will likely vary amongst the various CCs. Per section 142 of the Manitoba Condo Act

If the by-laws of a condominium corporation so provide, and the board determines during a fiscal year that the common expenses fund will not be sufficient pay the common expenses for that year, the board may authorize a special assessment for additional contributions to the common expenses for that year.

The by-laws will be key in this regard, and will likely have clauses about special assessments and loans. It is worth noting that the by-laws will likely allow the Board to authorize a special assessment on their own but would require approval from unit owners to enter into a loan agreement.

So there are a few good reasons for a CC to take out a loan. Now consider the case for which the Board may indeed be ethically challenged, imprudent and/or not taking their fiduciary responsibilities to heart. If the CC Board deliberately kept the fees low and underfunded the reserve, knowing that they could take out a loan to pay for required future work, what would the effects be?

The current directors and owners would indeed have lower fees than appropriate and could sell their units before major work is undertaken. If so, as part of the disclosure to the buyer the RFS would be provided, which would allow the buyer to see the underfunding situation and perhaps then revise their offer to purchase or cancel it during the cooling-off period.

After reviewing the RFS and the funding gap, if the other owners didn’t like the approach taken by the Board, they could replace some or all of the directors at a special general meeting, or pass a motion at a special general owners meeting to properly address the funding gap.

If the unit  owners were not paying attention to what the Board was doing, nor read and digested their RFS, it is possible the low fee and underfunding situation would persist, to the future detriment of all owners. Hence the phrase ‘buyer beware’ is appropriate.

There is some merit in the idea that the loan option (or special assessment option for that matter), may enable boards to avoid hard decisions that are in the best interest of all unit owners. A recent article by the CBC[3] suggests boards generally are not addressing underfunded reserve accounts “The audit also found the majority of condo boards surveyed did not have adequate reserve funds set aside to cover future repairs and replacements.“. This situation persists in Ontario even though they require RFS every 3 years and have had the requirement for RFS updates much longer than Manitoba.

To avoid the need for CC loans or special assessments, establishing proper reserve fund contribution(RFC) levels is key. A search of the internet finds multiple sources suggesting the RFC portion of the monthly condo fees should be 15% to 40%, assuming the reserve fund balance is adequate. If however the reserve fund balance is inadequate, the CC should implement a recovery plan to build up the reserve so they are sufficient funds prior to need. This may require a significant increase to the RFC and hence the monthly fees. This recovery plan should be well underway before the next RFS update is initiated, otherwise the CC could find itself in an even deeper financial hole.

Protection of Unit Owner Contact Details

A member questioned if a condo board (or property manager) could compile a list of unit owner names, unit numbers and phone numbers (and perhaps email addresses) then publish a directory listing to all unit owners.

Generally speaking, so long as there is clear consent to the use of the personal information, which consent must be specific to the use (i.e. it would have to be a consent for personal information to be included in the condominium corporation directory that is shared with unit owners and the property manager), the use for that purpose should not be an issue. There are, however, considerations that the corporation should bear in mind:

• unit owners must have the ability to withdraw their consent at any time, such that the directory would then need to be republished and re-circulated, and older versions should be destroyed
• the board would need to be comfortable that the directory will only be used for internal purposes and doesn’t end up being used for commercial purposes.