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November 27, 2013 Joseph W. Ryan and Mario D. Deo

Tarion Is Not the Only Warranty Stream

The responsibilities taken on by the board of directors of a new condominium are considerable, cannot be underestimated and are often overwhelming.

For example, in the condominium corporation’s first year, the board has to deal with myriad issues, such as: getting communications with unit owners up and running; ensuring that all of the documents that the developer is required to deliver are, in fact, delivered in accordance with turnover requirements; reviewing all service contracts affecting the condominium corporation to determine whether the corporation will resort to remedies available under the Condominium Act, 1998 (the “Act”) for relief from those contracts. Those are but a few examples.

However, perhaps the most important of all of those issues that must be dealt with is the necessity to identify and address construction deficiencies at the condominium, and the corporation’s owner-elected board is invariably confronted, early on after turnover, with the steps that must be taken by the corporation to audit and assess those construction deficiencies.

In considering those steps, boards and management too often assume that the only remedies available to the corporation to resolve those deficiencies are those provided under the Ontario New Home Warranties Plan Act (“ONHWPA”) and administered by Tarion. In making that assumption, boards and management risk, possibly with considerable prejudice to the interests of the corporation, overlooking concurrent common law rights and remedies that may be available to the corporation to remedy deficiencies, particularly where those deficiencies may not be covered by Tarion under statutory warranties. Such oversight can result in serious prejudice to the interests of the corporation and may bar access to otherwise available remedies if, for example, the corporation finds itself outside applicable limitation periods and is barred from recovery. Before offering some instructive points to ease the anxiety that may follow such an observation, perhaps an illustration of this type of situation is helpful.

A condominium corporation has significant deficiencies, estimated to be in the millions of dollars. Those deficiencies include, for example, substantial problems with the condominium’s elevators that will be expensive to remedy, and include serious design problems. All of those problems are identified in the corporation’s initial performance audit. In fact, the corporation’s elevator problems are detailed in a consultant’s report commissioned by the corporation and received even before the corporation receives its initial performance audit, which is then incorporated into the audit. The corporation diligently pursues its remedies for those deficiencies through Tarion. To that end, the matter follows its customary course for claiming under statutory warranties in accordance with Tarion’s Bulletin 49 requirements; the corporation’s performance audit is delivered by the corporation’s engineer and filed in time with Tarion; negotiations with the declarant follow during the applicable builder resolution period to fix the items; negotiations then stall and breakdown, particularly late in the day when the parties have resolved the minor problems but are wrestling with larger, costlier issues of magnitude; a Tarion conciliation is conducted; a Warranty Assessment Report is issued by Tarion determining that some of the issues claimed by the corporation are warrantable and some other important items – e.g. the elevators - are not. The corporation requests a decision letter from Tarion on those non-warranted items and appeals that decision to the License Appeal Tribunal. By that time, if not before, the two year limitation period for commencing proceedings and pursuing any common law remedies for these major deficiencies has expired, and the corporation’s lawyers, who have only been brought in at the end of this process to answer the question “what do we do now”, are left to impart the bad news to the board and management that they may be time-barred from securing any civil remedies.

Here are some observations and tips that will hopefully assist in avoiding the type of situation illustrated above.

First, two years flies by in an instant when managing all of the issues that a new condominium faces. Assume that time is running – if not running out – and that action is required now. Note: the general rule is that the two year limitation period begins to run from the day that the deficiency was discovered or, with the exercise of reasonable diligence, should have been discovered.

Secondly, involve the corporation’s engineers and lawyers at the very outset to develop a strategy for discovering and assessing all deficiency items (to the extent possible) and to develop a strategy from the outset as to what remedies are available, and where and how those remedies will be pursued.

Thirdly, unless and until advised otherwise by the corporation’s lawyers and engineers, assume from the outset that the corporation will need at some point to commence legal proceedings concurrent with the advancement of any claims with Tarion, if only to protect its common law remedies against the expiration of a limitation period. Operating on that assumption will also help to ensure that the due diligence and preparatory work necessary for such a step is addressed early on. It should be noted that the ONHWPA specifically provides that the corporation’s statutory warranties under that Act are in addition to - and not to the exclusion of - any other remedies the corporation may have at law.

Fourthly, be very clear from the outset as to what you need from your consulting engineers, beyond what is provided in the initial performance audit. For example, you should obtain your engineer’s opinion and assessment of the following, among other things: (a) estimated costs associated with all identified deficiencies; (b) an assessment of the deficiencies that are particularly important and that are priorities to remedy – i.e. a “top ten” order of magnitude – along with a costs breakdown for those items; (c) the engineers assessment of the likelihood that identified deficiencies, particularly the important items, will be warranted by Tarion, including most importantly deficiency items for which warranty protection is likely to be denied so that other remedial avenues such as court proceedings can be considered.

Lastly, early and, if necessary, aggressive due diligence is essential in obtaining all documents and warranties, among other things, from the declarant so the corporation and its engineers and lawyers can better assess the issues and what can be done to remedy them. The Act provides remedies to corporations that do not get what they need and are entitled to receive from the declarant. Regrettably, few use them. Don’t be afraid. Use the means available to secure the documents and information necessary for a better understanding of the deficiencies the corporation must remedy.

Ultimately, boards and managers must from the outset remain aware of and alive to the possibility that the corporation will have to pursue two concurrent courses of action to achieve its objective of remedying construction deficiencies. Doing so will assist in avoiding the scenario illustrated above where the corporation pursues one course of action with Tarion to the exclusion of the other, only to find when statutory warranties are denied that it is out of time to pursue any common law remedies that may have been available.

To bring the point home, perhaps it is easier to think of those concurrent courses of action as concurrent streams: you do not want to find yourself all the way up one without a proverbial paddle, only then to find at that point that you do not even have a canoe in the other.

Joseph W. Ryan

Joseph W. Ryan Associate

B.A. (Hons.), LL.B.

jryan@finedeo.com
905.760.1800 x228
905.760.0050

Mario D. Deo

Mario D. Deo Partner

B.A., LL.B.

mdeo@finedeo.com
905.760.1800 x225
905.760.0050

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