Amend the Condominium Act, 1998 to Avoid the Creation of Tenements

Just as life as we know it started as a “primordial stew”, the Government of Ontario has concocted its own version of a condominium primordial stew which will create tenements and slums akin to the worst parts of Detroit and New York City.

How? By not putting any teeth into the requirements to create and execute a reserve fund funding plan, and to maintain a properly funded reserve fund. 

I have said all along that it appears to me that the Condominium Act, 1998 was created by a collection of beaurocrats and industry “leaders” who had this wonderful brainstorming session and came up with all sorts of ideas, but then forgot stages two and three of the process: vetting these ideas to weed out the bad ones, and then honing them so that they make sense and work.   

In this regard, the idea of a mandatory reserve fund, reserve fund study and reserve fund funding plan was a glorious and noble piece of paternalistic legislation BUT the legislation did not go far enough because there is no teeth in the legislation – i.e. no consequences for failure to follow these requirements.

This issue came to a head recently when I attended an annual general meeting where the auditor announced that not only was the condominium corporation not following its reserve fund funding plan, the reserve fund accounting entry was not supported by cash.  In other words, although the financial statements provided that the reserve fund account had $X in it, the money was not in the bank because it had been borrowed to pay for operations.

From the comments of the unit owners and the board of directors, it was clear to me that the building, which was at least 30 years old, was in dire need of some serious repairs and that the board of directors could not raise the common expenses to pay for these repairs for many reasons, including, that if they did so, they would simply be removed by a group of owners campaigning on the platform that they would not raise common expenses.

It was also clear to me that without assistance, this condominium corporation would never be able raise the necessary funds to properly maintain and repair the building and that consequently, the building would continue its downward slide and fall more and more into a state of disrepair.  Eventually it would become a broken down slum tenement building.

So what is the solution?

Put some teeth into the legislation.  If the government is going to be paternalistic, then be paternalistic!

Here’s my plan.

Amend the Condominium Act, 1998 to provide something like this (This is my initial draft and I would be interested in comments as to how to improve the wording and make it more workable):

131 a Any auditor who:

a.            is of the opinion that a condominium corporation is being managed in a fiscally irresponsible or incompetent way, including but not limited to the failure to pay its bills in a timely manner, or who,

b.            determines that

i.              a reserve fund funding plan has not been followed in a material manner for a period of at least 13 consecutive months; or that,

ii.             there have been materially insufficient funds in a bank account or accounts of the condominium corporation for a period of at least 13 consecutive months to support the amount that should be in the condominium corporation’s reserve fund account,

iii.            ??? (I would be interested in comments concerning criteria triggering the auditor’s obligation to seek counsel and apply for an administrator)

shall seek the opinion of a lawyer, at the condominium corporation’s cost, within 30 days of such determination as to whether there are reasonably sufficient grounds for the appointment of an administrator.

131 b. If the lawyer is of the opinion that there are reasonably sufficient grounds for the appointment of an administrator, then the auditor shall retain such lawyer, at the condominium corporation’s cost, to bring an application pursuant to s. 131 of the Act, for an order appointing an administrator.

131 c. for the purposes of this section, a condominium corporation shall be deemed to be being managed in a fiscally irresponsible or incompetent way if:

a.            a reserve fund funding plan has not been followed in a material manner for a period of at least 13 consecutive months;

b.            there have been materially insufficient funds in a bank account or accounts of the condominium corporation for a period of at least 13 consecutive months to support the amount that should be in the condominium corporation’s reserve fund account,

c.            ??? (I would be interested in comments concerning the definition of what is considered to be managing in a fiscally irresponsible or incompetent way)

131 d. Upon such an application, the court shall make the order if the court is satisfied that:

a.            a condominium corporation is being managed in a fiscally irresponsible or incompetent way, including but not limited to the failure to pay its bills in a timely manner; 

b.            a reserve fund funding plan has not been followed in a material manner for a period of at least 6 consecutive months; 

c.            there have been materially insufficient funds in a bank account or accounts of the condominium corporation for a period of at least 6 consecutive months to support the amount that should be in the condominium corporation’s reserve fund account; or that,

d.            ?

Clearly, the appointment of an administrator in such circumstances would result in an increase in common expenses and likely a special assessment which some, if not many, unit owners could not afford.  These owners would either have to make the necessary arrangements to borrow the required funds, or sell the unit (which they could not afford).  This may seem harsh,  but there are many people who live in various priced homes which they cannot afford and are required to sell as a result thereof – homes from lower priced condominium apartments to mansions in Rosedale and Forest Hill.  To be able to afford the privilege of owning real estate, it is not sufficient simply to come up with the funds to purchase it - one must also afford to maintain it in a good state of repair.  I welcome your comments.

Condominium Act 1998