A blanket of intrigue has been cast over cost issues pertaining to new condominium purchases, following a recent decision by the Court of Appeal of Ontario.
The decision in York Region Vacant Land Condominium Corp. No. 968 v. Schickedanz Bros. Limited has polarized counsel involved in the case and prompted the Law Society of Upper Canada to schedule the matter as the focus of a Six Minute Lawyer learning session next month.
On one side, condominium lawyer Jonathan H. Fine says the decision requires his condominium owner clients to pay common element costs they didn't expect, and "flies in the face" of the provincial Condominium Act.
On the other side, lawyer Irving Marks - a litigator retained to represent the developer in the matter - says the decision merely upholds the status quo.
The case involves two high-rise condominium towers build by Schickedanz Bros. Ltd. at Ballantrae Golf & Country Club in the town of Whitchurch-Stouffville north of Toronto.
The towers were two of five slated for construction although the other three haven't yet been built - they exist to date as parcels of tied land or, under the act, "Potls."
Since purchasing their units, the owners in the two completed towers have contributed to the expenses of maintaining common element property, including a "ring road" and associated lighting, sidewalks, landscaping, and maintenance.
But after a couple of years, construction of the three neighbouring condominium towers didn't materialize and the unit owners, under their registered designations, York Region Vacant Land Condominium (YRVLC) corporations No. 968 and 1002 respectively, calculated they were over-contributing to the common expenses beyond what they had expected to pay.
YRVLC No 968 claimed over-contributions from February 2002 to June 2005 totalling $250,450; YRVLC No. 1002 claimed the sum of $64,200.
Arguments basically hinged on whether the unit owners knew - or ought to have known - at the time they purchased their condos that they would be responsible for paying for the ring road until at least 50 per cent of the units in the three other planned towers were built and sold.
The unit owners won their case at the Superior Court, but lost when the developer appealed.
In its Sept. 25 decision, the Ontario appeal court acknowledged, "Essentially, Schickedanz did not want the undeveloped Potls to contribute to common expenses . . . because these were vacant parcels and hence there was no reason for them to contribute to the maintenance of a ring road they were not using.
"The result was a declaration creating a bifurcated expense formula which had the effect of saddling the developed phase with over 75 per cent of the common expenses in 2002-03 and over 48 per cent of the expenses thereafter."
The court continues, "The bifurcated expense formula outlined in the declaration was disclosed to all prospective purchases of units in the two respondent corporations."
Ultimately the court narrowed down the case to three key issues: whether the declaration that was presented to the owners at the time of purchasing their units was compliant with the act, whether developer Schickedanz acted oppressively or was unfairly prejudicial in its drafting of the declaration, and last, whether Schickedanz - the registered owner of the units first built and occupied until their corporation was registered - should be credited with having paid at least some contribution during that time.
In its decision, the court determined the bifurcated formula requiring users of the ring road to pay for its upkeep was "clearly spelled out in the declaration, which was fully disclosed to purchasers."
It also determined "we recognize that the bifurcated formula clearly favoured the interests of Schickedanz at the expense of the unit holders, but in our view, it does not necessarily follow that this conduct was either oppressive or highly prejudicial."
Last, in allowing the appeal on the first two issues, the court concluded that the sections of the Condominium Act and related regulations argued throughout the case "ought to be interpreted in light of the commercial realities of the condominium industry" and found it unnecessary to address the matter of the developer's credits.
Costs for the unit owners were fixed at $14,000.
Fine, of Fine & Deo in Vaughan, says the decision "puts the burden on people who actually close."
His clients, says Fine, "could, hypothetically, end up having to maintain this whole road themselves forever because the other parcels of land may never get developed."
Fine suggests the decision "flies in the face in practice of the theory of condominiums, that all the owners should bear the expenses, and flies in the face of established cases and the Condominium Act," which he says specifically prohibits phased condominium developments in vacant land and common element condominium projects such as this, as a means of consumer protection.
While the Court of Appeal recognized that this was a "staged" development, it did not refer to or apply the prohibition in the act, he observes.
"Lawyers are going to have to really take a good, hard look and figure out - with calculators - what the actual costs are going to be for the purchasers, the ongoing carrying costs," Fine advises.
Marks, of Robins Appleby & Taub in Toronto, says the decision affirms that a declaration that is compliant with the act can't be varied after the fact "because some party feels it's not to their benefit. That's what [the court] meant by 'commercial realities.'
"All it does is confirm what the act already says," he adds.
Marks suggests condominium buyers have the right to a 10-day "cooling off period," so if they don't like the deal once their lawyer has reviewed it, they can pull out.
Mark Freeman of Harris Sheaffer LLP in Toronto drafted the declaration for the developer. "We came up with a formula we thought was fair and equitable," he says, noting that the Court of Appeal agrees.
"If you live on the ground floor of a condominium and the declaration says you are going to pay $X for common expenses, you can't say I'm not going to pay that portion of my common expenses because I don't use the elevator," Freeman says.
"We could have said, 'You'll pay for everything and future phases will pay nothing.' And the court said that there's no problem in doing that. But we didn't."
