Thursday, January 10, 2013

Condo Owners – We need your help!


In October 2012 a major ruling occurred in the Alberta courts that has shaken the condo world.  The only resolution to this matter will require a massive outcry of condo owners who are willing to put in the time to lobby for extensive change to the Condominium Property Act, the Condominium Property Regulation, the New Home Buyers Protection Act and possibly the Real Estate Act.

Yes, I am hitting the panic button with all my might as there are hundreds, if not thousands, of condominium owners in Alberta who will be impacted by this ruling.  In speaking with competent condo lawyers, the people at Government Services Alberta, and fellow professionals in the condominium industry; it seems unanimous that the only solution to this ruling is to have a condominium that can afford a legal action, take this ruling to the court of appeal.  The consensus for advising clients who are impacted directly by this ruling is to suggest they continue to operate as they were until one of the owners files a legal action. 

The real solution is to amend the legislation.  These Acts are intended to provide consumer protection to condo owners, buyers and board members.  It is obvious, by the number of condominium consulting files we have at Condo-Check, that the system is broken, and therefore; is not providing any protection to any condominium group or individual owner who does not have the ability to hire expensive lawyers.  The irony is that the simple solution is for owners and boards to operate within reason, with a focus on what is best for the condominium as a community. But there is always someone who is a stickler for the law or someone who just will not agree to a compromise, and that is when the entire community goes to battle.  Bylaws have been trying to regulate common sense since the dinosaur age and every year the volume of pages required grows, because someone needs to challenge the rules, just on principle.  Maybe the real solution is for condominium owners and board members to be mandated to take training in how to be compassionate, kind, considerate, responsible and respectful of one another.  These seem to be greatly absent when it comes to the disputes and conflicts that arise between condo owners and condo boards.  Everyone can’t be right!

This ruling is a case where a bare land condominium has been operating for many years as if it were a full service condominium, where the condominium owners shared in the maintenance cost for the exteriors of the buildings and the capital items based on the description of the “Managed Property” in the bylaws.  Now, as the buildings have aged and there are increasing demands to repair and replace capital items, some owners feel they are paying a share that is greater than their neighbors.  The owners, on the advice of a lawyer, have taken the board to task as to the legal application of the wording in the condominium legislation and bylaws, as it applies to bare land unit ownership.  The court has ruled that the condo corporation does not have the right to collect or to spend reserve funds for the purpose of replacing capital items on components located within the units (in this case the buildings) and restricts the use of the reserve funds to the common property or real property.  In this case, as is true for many bare land condominiums, means that the road is the only area that the corporation can collectively manage and collect reserve funds for.  This means the owners have no choice but to pay a special assessment when capital items need to be replaced, as they cannot use the reserve funds that have accumulated over the past many years!  Add to all this, that the corporation cannot refund or pay back to any owners any of the reserve funds that had been collected for replacement of the capital items.  This means that if a condo has hundreds of thousands of dollars in the reserve account, they can only spend it on the “road” (using this example) and they cannot transfer the money to the operating fund or return it to the owners.  It is questionable whether the condo board has the authority to collect a fund to replace these capital items that are located within the unit boundary at all, as the bylaw wording restricts them to maintain and care for the managed property components and does not state replacement. No, I am not trying to be funny!  This is real life condominium dilemma; happening to many condominiums as we speak! 

Over the past few years, owners and boards for condominiums have been managing construction defects, rogue boards, lousy property management, aging properties and now this really damaging ruling.  When are owners going to stand up and say no more?  Historically the solution to bad condominium is to sell… my question is to whom?  The problem projects are out numbering the problem free projects. So buyers are taking a risk!  And for those who are buying, thinking it is not important to hire a competent document review company, thinking we are all alike so it really doesn’t matter; I have news… you are not exempt from these problems just because you were not aware of these problems when you bought.  This impacts the property values for ALL condominiums so why are so few owners concerned?

I don’t have easy answers or solutions.  I do know that much of this bad law is generated from people taking matters to court instead of seeking a compromise.  The courts need to follow the law and when the legislation that supports the law is proven defective; the answer is not to keep looking to the courts for remedy. Mediation is effective in solving many of the disputes that arise; however, too often the opposing parties won’t even compromise enough to agree to mediation. People want their day in court!!!

Maybe with this ruling, a group of bare land condos could get together and appeal… that is a question for the lawyers.  What I do know is that you all live in condominiums that are located in someone’s constituency and it is time to stop by and to pay them a visit.  Start lobbying your MLA’s, offer to support them in getting the attention of the Premier. The days of being a condo bystander are over.  We need to join collectively, in community and make change happen.

Bernie Winter, A.C.C.I., F.C.C.I. 
C.E.O. at Condo-Check
your condo, your investment


Case reference: Maciejko V Condominium Plan No. 9821495, 2012 ABQB 607 

44 Comments:

At February 6, 2013 at 2:48 PM, Blogger Ruth Seeley said...

Bernie - I'm vice president of my condo board (16 units in Lethbridge) and have been for two years - just re-elected for a second term. I will write or speak to my MLA, but I'd like to know what's happened to the proposed major overhaul of Act that was supposed to be in the works in 2011 (see article here): http://edmontonrealestateblog.com/2011/06/condo-act-changes-coming-in-alberta.html

Found the article above on Monday, which was the date of our AGM, and felt quite hopeful after reading it. No condo corporation can afford legal fees - most can barely afford the fees to get their own regulations changed. But developers of condo corporations can afford these kinds of legal fees - it'd be peanuts compared with what they're spending to defend themselves from lawsuits from unhappy owners and potential owners who've put down deposits and then sued over construction/occupancy delays.

 
At February 10, 2013 at 12:24 PM, Blogger Unknown said...

Ted Petroff-As a concerned resident and board member of a bareland condo complex in Edmonton. This court decision has caused considerable consternation among the bareland condo communities and there are serious legal and financial implications for boards, owners, property managers, reserve fund study planners and lawyers dealing with condominium issues.What we are learning from this case is that the CPA and Regulations are not well written documents. The Alberta Legislature needs to act and act immediately to deal with this special issue involving barelands. At present section 38 of the CPA provides for reserve fund levies only with respect to common property and condominium owned property and therein lies the problem. The legislation needs to be changed as it relates to bareland so that boards can be given the power to pre-collect contributions to the reserve fund for the future repairs and maintenance of “managed property”. In our opinion, the definition of common property needs to be re-defined to include “managed property” as described in properly worded by-laws. It is permissible for an apartment style condo to pre-collect but not for bareland condos. Surely the legislation was not intended to treat bareland condos differently on the issue of pre-collecting. It does not seem logical and the existing Condominium Property Act (CPA) and Regulations show a lack of understanding of the uniqueness of barelands. Justice Germain has stated that bareland boards cannot pre-collect and any “managed property” improvements will have to be funded on a pay-as-you-go method. This approach takes us back to prior September 2000 when reserve funds were not mandatory and boards were reluctant to pre-collect adequate fees instead, relying on the undesirable practice of unexpected and costly special assessments and pay-as-you-go. The reserve fund is intended for long term planning but how do you accomplish this if pre-collecting fees is not permitted? To ensure the financial health of a condominium and its reserve fund, all condominiums, including barelands, should be permitted to pre-collect.

A condominium corporation has certain maintenance and repair responsibilities to keep property in good state of repair and to establish and enforce architectural and landscaping guidelines to preserve the design and appearance of the condominium. Responsible boards cannot possibly function properly by being unable to put aside sufficient pre-collect funds for future repairs to maintain a consistent and standard level of upkeep. Justice Germain recognizes that failure to undertake necessary repairs would ultimately affect property value.I understand that condominium legislation changes are planned for 2016. This matter is too important to delay any longer and some changes need to be implemented. As a first step, I recommend the following addition to Section 38 of the CPA - Reserve Fund

(1.1) In a bareland condominium, if the bylaws provide that the corporation maintain portions of a unit as managed property, as though the managed property were common property, then for the purposes of this section, the corporation is authorized to maintain and use the capital replacement reserve fund to provide for major repairs and replacement of the managed property as though it were common property if the reserve fund study includes the managed property in its assessment of reasonable fund levels.
The importance of this issue cannot be over emphasized and immediate action is required to rectify shortcomings of current condominium legislation.

 
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