After years in the making, the province of Ontario finally released its much anticipated proposed amendments to the Condominium Act. This was done on May 27, 2015, when Bill 106 was introduced at Queen's Park. This Bill, which is not law yet, is formally titled "An Act to amend the Condominium Act, 1998, to enact the Condominium Management Services Act, 2015 and to amend other acts with respect to condominiums".
As indicated in its long title, this Bill, if passed, will serve to amend Ontario's 15 year old Condominium Act as well as other legislation pertaining to condominiums in Ontario. For instance, Bill 106 would amend certain portions of the Ontario Building Code and of the Ontario New Home Warranties Plan Act. Most importantly, this Bill would also lead to the adoption of a new piece of legislation which would regulate condominium managers in Ontario.
Bill 106 is a lengthy piece of legislation of approximately 160 pages. It introduces sweeping changes to the governance and management of condominiums in Ontario. As such, it is difficult to 'summarize' it. For this reason, we propose focusing on some of its highlights, which we believe may be of interest to our readership. It is important to keep in mind that this article is based on the proposed changes, as they currently exist. The final version of the Bill may differ from what has been introduced.
A New Condominium Authority and Tribunal
If Bill 106 is adopted in its present form, the province would create a not-for-profit and self-financed Condominium Authority. The exact mandate and functions of this Authority have yet to be developed through the adoption of regulation, but already, we can expect that this Authority would:
- Provide information and resources to condominium owners and corporations;
- Oversee mandatory training for all condominium directors;
- Oversee the administration of a new Condominium Tribunal (more on this below).
Bill 106 would also see to the creation of a Condominium Authority Tribunal. This Tribunal would have jurisdiction to adjudicate many of the disputes between corporations, owners, occupiers and mortgagees. The precise mandate and authority of the Tribunal have yet to be fleshed out in regulation to be adopted by the province. Still, we know already that the Tribunal would have the following powers:
- The power to refer disputes to an alternative dispute resolution process (such as mediation, for instance);
- The power to order compliance with the Condominium Act or the corporation's governing documents;
- The power to order a party to pay damages as a result of an act of non-compliance, but only up to $25,000. In passing we note that $25,000 is presently the upper limit of the jurisdiction of Small Claims Court;
- The power to order a party to pay legal costs;
- The power to impose a penalty of up to $5,000 to a corporation who has refused without valid reason to allow a person to examine corporate records. The exact amount of the penalty is expected to be set by regulation. Presently, this penalty is set at $500;
- Tremendous power to direct whatever other reliefs the Tribunal considers fair in the circumstances;
- If the Tribunal orders an owner to make a payment to the corporation, this payment could be added to this owner's common expenses. Similarly, if the Tribunal orders the corporation to make a payment to the owner, the owner would be able to set this payment off against his common expenses - meaning that the owner could deduct from his condo fees whatever the corporation owes him or her.
- It is to be noted that the proposed Act would provide owners with the power to claim back from corporations actual costs when they are awarded costs or damages in a compliance matter, which is similar to the power corporations presently have against owners when they obtain compliance. This would be a significant change to the existing regime where only corporations can claim against owners the actual cost incurred in a compliance matter.
It is interesting to note this new Condominium Authority and new Tribunal are required to be self-financed. Some of the financing is expected to be generated by the users who would be required to pay certain fees. The details of how these new entities would be financed have yet to be hashed out through regulation. The Condominium Authority is also expected to be able to levy fees from all condominium owners to finance these new entities. A number that seems to be floating around is the suggestion that condominium owners would pay $1 per unit, per month to finance this Authority. Assuming that there are 700,000 condominium units in Ontario (a generally accepted number), this levy would generate approximately $8.4 Million dollars. Just as a point of comparison, the budget for the Landlord and Tenant Board exceeds $30 Million dollars. We may have a far way to go.
Corporations' Reporting Obligations
Under the amended Act, Corporations would be required to file annual returns with the Condominium Registrar. The exact content of what would be required to be included in these reports has yet to be fixed by regulation. Presumably, this report could (and likely would) include information about the corporation, such as its address of service, the number of units and other similar relevant information. We also know already that corporations would have to report any changes to the composition of the board of directors, whether as a result of election, removal, resignation or vacancy. The records would be accessible to the public.
While this kind of reporting would be new to the condominium industry, similar reporting obligations already exist for for-profit corporations at the provincial and federal level.
Director's Qualifications and Disclosure Obligations
The basic qualifications required to be a condominium director do not appear to have changed. Condo directors would still be required to be individuals (as opposed to corporations), be at least eighteen years of age, be capable within the meaning of the Substitute Decisions Act and not be an undischarged bankrupt.
However Bill 106 proposes to impose mandatory training on all condominium directors. It is not clear at this stage what training would be required, who would provide such training and how frequently such training would have to take place. It is not clear either whether individuals who have already attended CCI's directors' course would be exempt from this requirement.
Finally, directors would be required to proceed with a certain level of disclosure. We will have to wait for the adoption of regulations to know exactly what directors will be required to disclose. We know already that directors would need to disclose their address to the corporation. As for any other disclosure obligations, we can speculate that directors may be required to disclosure any conflict of interests, whether they are engaged in litigation with the corporation and perhaps even whether they have a criminal record. At this stage, however, this is pure speculation. We will have to wait and see.
While additional training and transparency is a good thing, one must wonder if such additional requirements may dissuade certain individuals from serving on condominium boards. This would be unfortunate considering how difficult it already is to convince owners to get involved.
It is interesting to note that Bill 106 proposes to add an entire section on corporations' budgets.
If the amendments are passed, corporations' budgets would continue to be adopted by boards and not be subject to a vote by the owners. However, boards would have to adopt their budget at least 30 days before the end of the corporation's fiscal year and would have to circulate it to the owners within 15 days of its adoption. More importantly, boards would not be allowed to implement their budget until it has been circulated to owners. In the event the board was to amend the budget, it would also have to provide notice of such amendments to owners.
It is interesting to note that condo corporations would not be allowed to go over budget on certain expenses (which have yet to be identified by regulation) unless notice is provided to owners. It is also interesting to note that Bill 106 proposes to require specific procurement processes when the corporation contemplates entering in certain contracts or arrangements. The kind of contracts requiring a more stringent procurement process and the kind of process to be followed has yet to be defined by regulation.
Bill 106 proposes various amendments pertaining to reserve funds. Unfortunately, we will have to wait for the adoption of regulation to fully understand what changes, if any, are being made to reserve funds. We see already that regulation may define what additional purposes the reserve fund can be used for and to see what could constitute "major repairs" for which the reserve fund can also be used.
Also, the concept of what is "adequate" funding to the reserve fund could be further defined by regulation. Presently, the current Act provides that the contributions to the reserve fund have to be adequate to provide for the expected costs of major repairs and replacement of common elements. We can expect further clarifications as to what would constitute adequate funding.
Bill 106 also introduces the concept of a "Reserve Fund Study Providers". It is unclear as to who exactly such a person would be and what would be his/her qualifications as these will be set by regulations. For the time being, the only clue we have is that such a person would be required to meet the prescribed requirement for the purpose of conducting a reserve fund study. Presently, the reserve fund study must be provided by an accredited or certified appraiser, architect, engineer, certified reserve planner, quantity surveyors, amongst other, all of whom must not have any affiliation with the board or with the corporation.
The proposed amendments would add the Reserve Fund Study Providers to the list of professionals on which directors can reasonably rely to benefit from the statutory protection found at section 37 of the Condominium Act.
Bill 106 would make it mandatory for corporations to provide owners with an advance notice 35 days before the AGMs. This advance notice would be followed by the regular 15-days notice.
Presently, a corporation does not have to give an advance notice of its AGM. All it has to do is give its owners a 15-day notice before the AGM. Without an advance notice, some owners felt that they were not given an opportunity to put their name forward for election in time to have their name included in the AGM package and on the proxies. In order to allow owners a fair chance to put their name forward for election before the AGM package goes out, many corporations already got into the habit of providing owners with advanced notices. Bill 106 will make this process mandatory.
Bill 106 also proposes important changes to the level of quorum required at AGMs. The standard quorum required for an AGM to proceed will be fixed at 25% of the owners. However, in the event quorum has not been reached on the first two attempts, quorum would then be reduced to 15% on the third and on any subsequent attempts to hold the AGM. While this quorum seems low, keep in mind that, under the present legislation, 15% of the owners are already sufficient to requisition a meeting of the owners. This reduced quorum would allow for corporations to hold their AGM even though they are unable to achieve a 25% quorum.
Bill 106 would also allow for electronic or telephonic voting at owners meeting. Such voting could be made with the assistance of technological means such as telephone calls, emails, faxes, automated touch-tone systems or computer systems.
The introduction of this kind of technology will also facilitate the holding of board meetings, allowing them to proceed by way of teleconferences (even without a by-law as is required presently) provided that all directors consent.
Special Owners Meetings
As it presently stands, owners can requisition an owners' meeting provided that they get 15% of the owners to sign a requisition in support of such a request. If the corporation receives such a requisition, it must call and hold a meeting within 35 days (or, if the requisitionists consent, the meeting can be held at the next AGM). Presently, boards do not have to acknowledge receipt of a requisition. All that boards have to do is send a notice of the meeting 15 days before the meeting. This often means that the requisitionists hear nothing for the 20 days following the communication of their requisition. They are left to guess whether the corporation will call a meeting or not and, if so, when. This is often the source of stress and frustration.
There are significant changes to this process under Bill 106.
Under the proposed legislation, the board would have up to 50 days to call and hold a requisitioned meeting (up from 35 days). It may appear odd, at first glance, that the proposed legislation provides for such an extension of the time to call a requisitioned meeting. This is because Bill 106 introduces numerous interim steps between the communication of the requisition and the calling of the meeting. These steps are aimed at improving communication between the requisitionists and the board and at streamlining the process.
Under the proposed changes, the corporation would have 10 days to respond to the requisitionists. In this response, the corporation would have to advise whether it intends on calling the requisitioned meeting or not. If the corporation does not intend on calling the meeting, it would have to advise of the reasons for this refusal. Requisitionists would then have 10 days to correct their requisition and submit it again to the corporation or they would have 20 days to bring the corporation's refusal to hold the meeting to the Condominium Tribunal (or to the Court of Justice if the Condominium Tribunal has not been set up yet). If the requisitionists do not modify their requisition or do not bring the matter to adjudication, they would be deemed to have withdrawn their requisition and the board would not have to call the owners' meeting.
It is interesting to note that requisitionists would also be able to withdraw their requisition, although the conditions and timing of such withdrawal are not entirely clear as of yet. For instance, could the requisitionists withdraw their requisition after the notice of meeting has been sent to the other owners?
The proposed modifications clarify and provide a more complete list of what constitutes a record of the corporation. It also allows corporations to keep their records on paper or electronically. Finally, it would indicate the length of time during which corporations must retain records, although the details of this have yet to be clarified through the adoption of regulation. What we know for now is that financial records would have to be kept for at least six year following the end of the fiscal year.
Proxies would no longer be treated differently from other corporate records. Presently, under the current Act, proxies (but not voting ballots) must be kept for a period of 90 days. Under the new act, both the proxies and the voting ballots would form part of the corporate records. We will have to wait for regulation before knowing how long they have to be kept for.
The process by which an owner can access and get copies of corporate records appears to also be slightly simplified. An overly technical approach under the current Act appeared to impose on owners the obligation to first inspect the documents prior to requesting a copy of same. It is interesting to note that the penalty for a corporation who refuses to grant access to its records without a reasonable excuse may jump from $500 to (up to) $5,000. The fees a corporation could charge an owner to examine or obtain copies of the corporation's record would also likely be set by the province - and potentially not by the corporation anymore.
The exceptions to an owner's right to access records remain similar to those present under the current legislation. Under the current Act, an owner cannot access records relating to employee of the corporation, records pertaining to actual or pending litigation or insurance investigation or record relating to other owners.
Repair and Maintenance Obligations
One of the most important proposed changes to the legislation, in my view, is that the responsibility to repair a unit after damage will no longer fall to the corporation (unless the declaration provides otherwise). The responsibility and the cost of repairing units after damage would be shifted back onto each owner.
In my view, this is a welcomed change, which will simplify greatly many matters including issues surrounding insurance. Unfortunately, the proposed Act does not appear to make this change retroactive. This may be a problem as many corporations have had their declaration drafted under the current (or prior) legislation. For this reason, many of the existing declarations impose on corporations the obligation to repair a unit after damage. At the time of incorporation, this language was simply reflecting the legislation in place. By not making the propose change retroactive, many existing corporation may still be responsible to repair units after damage simply because their "old" declaration says so. Corporations may not be able to benefit from this proposed change to the legislation as amending declarations is a very difficult and costly undertaking. It would have been preferable, in my view, to force all corporations into this new regime unless corporations chose to opt out of it after the passing of the new Act.
Another potential disappointment, at least for me, has to do with how Bill 106 addresses the problems associated with corporations making changes to common elements. Indeed, there has been much frustration and litigation over dispute pertaining to corporation's extensive maintenance and repairs of common elements. Moreover, the definition of what constitutes a "substantial change" to common element remains unchanged and remains defined on the basis of cost alone. This, in my view, does not sufficiently protect owners from changes unilaterally imposed by corporations under the guise that they are strictly proceeding with required "maintenance or repairs". There are many examples of disputes resulting from corporations making significant changes to the look and feel of common elements when changing decks, refurbishing elevators or working on the landscape. When does "require maintenance" amount to a significant change? The proposed Act does not appear to have addressed this.
Below is a quick and basic summary of the level of consultation which would be required under Bill 106 by corporations facing work on common elements:
- Any "required repair or maintenance" using material which is reasonably close in quality (not look and feel) as the original as is appropriate in accordance with current construction standards would not require any form of consultation of the owners. This has not changed from the current Act;
- Any work required to ensure the safety or security of persons or to prevent imminent damage to property or assets would not require any consultation either. This too has not changed;
- Any work which is estimated to costs less than $30,000 or 3% of the annual budgeted common expenses would not require consultation, provided that owners, on an objective basis, would not regard the modification as causing a material reduction or elimination of their use or enjoyment of the element being work on.
Bill 106 therefore proposes to raise significantly the financial threshold at which notice is required to be given to owners. It currently stands at $1,000 and 1% of the budget. More importantly, notice will have to be given to owners if the proposed work may be perceived as materially impacting the owners' enjoyment of the common elements. This is a welcomed change. Still, when notice is given to owners, it will be up to the owners to call an owner's meeting. When/if such a meeting is called, support of 50% of the owners would be sufficient for the changes to take place unless the proposed change constitutes a substantial change;
- Any changes to common elements costing more than 10% of the annual budget will continue to constitute a substantial change, requiring the approval of 2/3 of the owners. This remains unchanged from the current version of the Act. In our view, the concept of what constitute a substantial change should not be limited to a budgetary consideration. The concept of continued enjoyment of the existing facilities should have somehow been incorporated as a consideration in the determination of what constitutes a substantial change.
Proposed Changes to the Management of Condominiums
Finally, Bill 106 proposes the adoption of a brand new piece of legislation: the Condominium Services Act, 2015.
The Act would also provide for the creation of a not-for-profit Administrative Authority overseeing property managers and implementing a complaints mechanism. The new Act could also see the setting up of a disciplinary committee to investigate and respond to complaints made against/about managers. The Authority would have tremendous investigatory powers and would be able to fine property managers. In cases involving protection of the clients, the regulatory entity could freeze assets of managers, former managers and (thank goodness) manager-wanna-bes.
This authority could also adopt a code of ethic applicable to all managers.
Unfortunately, it appears that the proposed Condominium Authority Tribunal has not been granted jurisdiction to rule over dispute between corporations and property managers. If the province is planning on creating such a specialized tribunal, it may have made sense to also grant it authority to rule over these kinds of disputes.
Steps Before this Bill Becomes Law
Readers must keep in mind that Bill 106 has not been adopted as of yet.
Before Bill 106 becomes law, it must go through several more stages, including two more "readings" and royal assent. As part of last month's "first reading", the bill was basically introduced at Queens Park and the MPPs accept the bill for future debate. This is when it was assigned its bill number (Bill 106). The real debate over the substance of the bill will take place during the "second reading". Sometimes bills pass easily to third reading, sometimes they are further examined by Standing or Select Committees. It is during the "third reading", after a final debate, that the MPPs will vote on it. Once the majority of the MPPs have voted in favour of a bill, it is presented to the Province's Lieutenant Governor for royal assent and an effective date is usually given. This is when a bill becomes law. Until then, condominiums are still being regulated by the current Condominium Act.
There are probably many more months, and perhaps even years, before this new Act is enacted. And we can expect more changes to be made to this version of the Bill before it gets adopted as law. At least we now have something to sink our teeth into and start dreaming about what the condo industry in Ontario will look like in the future.
Rod Escayola heads Gowlings' Condominium Law Group. He regularly publishes on Gowlings' condo law blog CondoAdviser.ca. He is on the board of directors of the Ottawa chapter of the Canadian Condominium Institute and is the editor of its quarterly magazine (Condo Contact). Rod co-founded and leads the Condominium Directors Group, a group providing local condo directors with the required tools to collectively better manage their corporations. Rod also sits on the board of directors of his own condominium corporation.