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REAL ESTATE LAW UPDATE: Is a Condominium Corporation Obligated to Buy the Superintendant’s Unit?

Coincidentally, the day I read the Ontario Court of Appeal’s decision in Lexington on the Green Inc. v. Toronto Standard Condominium Corporation No. 1930, (2010 ONCA 751)[Hereinafter  “Lexington”) was the same day that I reviewed a client’s status certificate from the same Condominium  Corporation so it was extra interesting to review this case.

Under the Ontario Condominium Act, 1998 S.O. 1998 (Hereinafter the “Act”), within ten days of the condominium  Developer registering the condominium declaration and description, the Developer (also known as the Declarant) has to appoint an interim board of directors (the “Board”) to manage the newly created condominium corporation (Section 42(1) of the Act), until such time that the Declarant no longer owns a majority of the condominium units.  Once the Declarant ceases to own a majority of the units, within 21 days the appointed Board must call a first meeting of the unit owners to elect a new board (section 43(1)).  The Court in Lexington considered Section 112 of the Act, which permits for a newly appointed board of directors to terminate agreements (such as property management and other service agreements) which the appointed interim board has entered into.  The purpose is to discourage and prevent any “sweetheart deals” impropriety between the Developers’s appointed Board and condominium goods and service providers who could very well be subsidiaries of the Developer.

In Lexington, the declaration stated that the condominium corporation (the “Corporation”) shall purchase the ownership interest in the residence manager’s unit, one parking unit and one locker unit.  After registration of the declaration, the appointed Board enacted a bylaw authorizing the Corporation to enter into a purchase agreement for the manager unit.  Some months later, the Developer sold off a majority of the units and a turn over meeting was held to elect a new Board.  The new Board decided that it did not want to purchase the manager’s unit and passed a resolution to terminate it pursuant to Section 112.  The Developer brought an application pursuant to Section 134 of the Act for an order requiring the new Board to immediately purchase the unit.

The trial judge found in favour of the Corporation’s new Board agreeing that Section 112 permitted the Board to terminate the agreement and to not purchase the unit and further ordered the declaration to be amended to state that such obligation is subject to Section 112 of the Act.  The Developer appealed.

On the appeal the crux of the case turned on the interpretation of Section 112 of the Act and the extent of the authority condominium boards have in terminating previous obligations such as agreements and contracts.  More specifically, the Court had to consider whether the Board’s power under Section 112 could supersede the obligations set forth in the condominium declaration.

The Court found that declarations are statutorily prescribed documents akin to constitutions which provide the legal framework as to how a condominium is to be governed.  The ordinary meaning of agreements does not include declarations.  Agreements are subject to contract law whereas declarations may not and they are also treated differently under the Act. Further, the declaration is a document which creates the condominium, the condominium corporation and is disclosed and distributed to the purchasers who ultimately make up the Corporation and its Board of Directors.

As a result, the Corporation was ordered to buy the manager’s suite as per the declaration and yes, this was disclosed in the status certificate because each unit was levied with a special assessment in order to cover the expense of the purchase.  This was probably the right decision because as was stated in the case, the purpose of having Manager’s unit is consistent with the purpose of the declaration which is to properly govern and manage the condominium.  Moreover, the fact that the duty to purchase the unit was disclosed in the Developer’s disclosure documents means that any potential Board member should have known about it and if that was an issue, perhaps they should have not purchased in that project.