The condominium corporation’s first year: is there a period of time in the life of a condominium corporation that causes a corporation’s board of directors and representative management more stress and anxiety?
The question is largely rhetorical, as those who have served a Condominium Corporation during that initial period of time will likely recall all too acutely the stresses and anxiety of navigating through the dark, unfamiliar territory of a Condominium’s first year. There are plenty of individuals prepared to assist a Corporation in finding its way (for a modest fee, of course). Invariably the course is somewhat easier to navigate if the board and management are aware of the key markers that signal potential hazards. That observation is particularly true in situations relating to the Condominium’s recreational amenities and the agreements governing their use and operation.
In an age of shrinking average unit sizes, it seems developers are increasingly attempting to attract prospective purchasers with enticing shared facilities - such as an exclusive night club or a Mediterranean style pool or spa - as the bait to get purchasers to bite.
However attractive they may be, all of these facilities are governed by agreements. Boards and management must therefore be particularly vigilant of more complex agreements that might contain onerous or even oppressive provisions for the Condominium Corporation. These provisions could have unforeseen, unanticipated consequences, particularly as these facilities are increasingly seen as profitable enterprises long after the condominium is turned over.
Consider the following example where a Condominium Corporation is bound by the declarant’s board to an agreement which sets out, among other things, a formula for the calculating and setting of fees and for the collection and payment of such fees, in relation to the use and enjoyment by unit owners of recreational facilities which the developer will continue to own and operate.
That agreement sets the fees at an initial, attractively low rate and freezes those fees for what appears to be a seemingly reasonable period of time, after which the developer can raise those fees annually by a healthy percentage. There is no specified term for the agreement nor any mechanism specified in the agreement for revisiting or renegotiating some of its terms after a period of time.
Likewise, the agreement is silent as to any term of the agreement or mechanism for its renewal, nor is there any sunset provision on the developer’s right to increase fees annually – in other words, the developer, as owner of the recreational facilities, can increase fees each year up to the maximum prescribed percentage and the corporation is bound to pay it in perpetuity. In such a scenario, the potential cost exposure to the Corporation over time could total in the millions.
However, there is help under the Condominium Act for those who take prompt action in such situations.
First, it is imperative that any agreement or agreements relating to the operation of these amenities be reviewed carefully and as soon as possible after turnover under s. 43 of the Condominium Act.
Any such agreements must be reviewed not just to understand the meaning and implications of individual provisions, but more importantly, to understand the manner in which those provisions interact and how they might operate in concert to visit serious prejudice on the Condominium Corporation. If there is any doubt as to the meaning and import of any individual provision or the agreement as a whole, the agreement should be forwarded to the corporation’s solicitors to review.
Secondly, if there is anything objectionable in the agreement, the corporation should consider, in consultation with management and counsel, the remedies available to it under sections 112 and 113 of the Condominium Act. The nature of the agreement in question will, for the most part, govern which of those sections applies.
But, here is the caution: both sections are similar in that they both stipulate a limitation period for taking steps there under of 12 months from the date of turnover. Boards and managers are cautioned not to underestimate how quickly that 12 month period can pass. That limitation period in those sections is not flexible, fluid or discretionary. The corporation and management should assume that if the corporation is a day past that 12 month period, it is a day too late and a day unlucky.
Therefore, a concluding charge to boards and management alike: get on top of these agreements immediately, mark your calendars, be on the right side of time limits and when you turn to your favourite libation to quiet the noise in your head after a board meeting on this issue, make sure that you are lifting your glass in celebration and not tipping it in commiseration.