Condo Issues

Robert Noce

Q: I am the board president of a 12-unit townhouse condominium. In August 2015 rain led to flooding in some of the units, and insurance did not cover the repairs. The corporation has reimbursed the owners for the repairs. However, one owner provided an initial quote to repair the bathroom vanity, and now has submitted another invoice in excess of the original quote (in excess of $400) and is seeking full reimbursement. Does the corporation have to pay the higher amount?

A: When the condominium corporation undertook to reimburse all owners for their repairs, did the corporation specify, in writing, the terms and conditions of reimbursement? If not, and there seems to be some dispute as to whether the corporation should or should not reimburse this owner, then I would suggest that, given the amount of money, it probably is in your interest to reimburse this owner. However, I must admit that I am having a hard time understanding under what basis the condominium corporation was legally required to reimburse the owners. Your question had no background on this issue. I hope and trust that you obtained a legal opinion confirming your legal position prior to offering to pay.

Helpful Hint: When insurance fails to cover a loss, the corporation may still be responsible for the costs of repairs. However, the corporation should always engage legal counsel to ensure that it is operating within its legal responsibilities.

Q: I am on the Board of a condominium corporation that just passed a $1.5-million special assessment and is proceeding to get a loan option for owners. Some owners feel that the Board has not been completely open and transparent about the process. Despite providing all of the information that we have, some owners are not satisfied and keep repeating the same "we can't trust the board" rhetoric. What are a condo board's requirements for disclosure to owners?

A: This is a difficult question, and more common than you think in terms of disputes within condominium corporations. I understand that most people get very concerned about paying significant sums of money to their condominium corporation for maintenance or repair issues, for which they may never receive a direct benefit. It is absolutely important for the Board to provide any and all information to the owners. The Board need not provide copies of all of the bids, but should provide information as to how the tender process was followed, and provide owners with all of the information available to them with respect to how the money will be used to carry out the necessary maintenance and repairs. It is never easy to figure out exactly what you need to put out there, but I am of the view that more is better.

Helpful Hint: Keep in mind that no matter how hard you try, there will be owners who will never believe you and feel that you are not to be trusted. Do your best, and always be honest and transparent.

Q: I understand that to change a condo bylaw, the Board would need 75 per cent of the owners and 75 per cent of unit factors to agree. In our condo building there are 44 units, of which 25 are sold. The remaining units are owned by the developer. Does the developer have a vote in a change of a bylaw? Is there a template a person could use to bring a special resolution to the board to change a bylaw?

A: If the developer is still an owner of units, then the developer would have every opportunity to vote for or against the special resolution. Unfortunately, there is a very recent court decision that confuses the voting process.

I think the decision is wrong. However, until the decision is appealed it is the law, which basically states that even though you own more than one unit, you only have one vote. That seems to be inconsistent with the language of the Condominium Property Act. With respect to a template, the resolution should simply state exactly what the owners are being asked to approve or not.

Helpful Hint: Voting is critical in this type of scenario, so ask your property manager or lawyer to assist you in helping you draft the appropriate resolution.

Q: I own a home in Arizona, in a complex where each new buyer pays a buy-in fee that is equivalent to one year's homeowner association fees. The fee goes into general revenue for unexpected maintenance. In Edmonton, I live in a condo complex of less than 50 units. I had proposed to the board that we charge a similar fee for our new buyers in Edmonton. Is this legal? It seems unfair that the residents that have lived here since buying have made it a beautiful complex by spending their own money and a new buyer pays nothing, other than the price of the home.

A: Yes, I believe that any attempt to charge a fee would be illegal. Plus, it would make your condominium corporation very unattractive to potential buyers.

Helpful Hint: Keep in mind that the money that is being spent on your condominium building adds value to your own unit.

Q: Due to mismanagement over the years, the monthly fee on a condo my sister purchased in 2005 increased from $350 to $436 to $644 per month following an assessment in January 2015. Is this allowed? The reserve fund was not kept up until recently. What is the required amount for a reserve fund?

A: Yes, the increases in condominium fees are legal. There is nothing in the Condominium Property Act that provides any direction with respect to the required size of a capital reserve fund. The amount in the reserve fund will vary from condominium building to condominium building.

The amount is generally determined by an engineer who conducts a reserve fund study and provides that information to the board. In Alberta, you are required to conduct a reserve fund study every five years. The engineer would determine that in Year 1, for example, the condominium corporation should replace the shingles, and the amount to replace the shingles is X amount of dollars.

Armed with that information, the board, when setting its budget, not only will raise sufficient funds to pay for the operating expenses of the condominium corporation, but also put money aside to pay for the capital improvement that will occur in 2016.

If there are insufficient funds to pay for the capital improvement for that particular year, then the only way the condominium corporation will get that money is to issue a special assessment. That means people will be hit with a significant one-time fee to pay for a particular capital improvement.

Helpful hint: The whole purpose of the reserve fund is to minimize special assessments. Use the reserve fund study and budget appropriately so that current and future owners will not be burdened with bad management decisions.

This is worth repeating: There is no prize at the end of the year for having the lowest condo fees in Alberta.

Q: I am the secretary/treasurer of a 37-unit condo complex. We have stored all the paper records from the past 26 years in boxes. What documents must be kept?

A: The Condominium Property Act and the regulations do not provide any guidance on this issue. I am assuming that your bylaws provide no guidance either. Therefore, I would follow the general practice that many organizations follow with respect to document retention. You are not required to keep documents forever.

Obviously, you want to keep documents /agreements to provide information with respect to ongoing relationships to protect the condominium corporation in possible litigation and ensure compliance with the law.

You may want to consider developing a document retention policy that divides the document retention periods into three easy categories: permanent retention, seven-to-10-year retention and one-year retention.

Helpful hint: Document retention is a huge, yet important, undertaking. As condominium corporations get older, the issue of document retention becomes ever more significant.

Q: Can a condominium board use reserve funds for an item not included in the reserve fund plan?

A: No. Once a condominium corporation has obtained the reserve fund study, the board is required to put together a reserve fund study plan.

It is this plan that will govern the condominium corporation with respect to capital expenditures. If a capital expenditure is outside of the reserve fund plan, then it would be inappropriate for the board to use reserve fund money to pay for an unexpected capital expense.

The reserve fund money is not a slush fund to be used at any time.

Rather, this money must be used in accordance with the reserve fund plan that was adopted by the corporation.

Helpful hint: When in doubt, the board should seek a legal opinion to determine whether or not funds can be used for a particular purpose.

Q: I live in a complex that is a mixed property. The townhouses are billed directly by the utility company for their natural gas. Last year, my condo board over-budgeted the natural gas expenditures for the apartment-style condos (124) by approximately $22,000.

This year, the apartment fees went down, while the townhouse fees went up by over 12 per cent. I empathize with the apartment style condo owners, and I realize the corporation cannot reimburse them for the over-calculation of the natural gas costs, but does the board have the authority to decrease the monthly contributions for one property type and significantly increase another property type in the next budget?

A: The Condominium Property Act states that condo fees are to be determined by levying contributions on the owners in proportion to the unit factors of the owners' respective units.

Or, if provided for in the bylaws, on a basis other than in proportion to the unit factors of the owners' respective units. In other words, if your bylaws allow you to calculate condo fees in a different way, other than unit factors, then you are permitted to do so. If your bylaws are silent in this regard, then it would require an amendment to your bylaws to give the board the authority to calculate condo fees on some other basis. To change bylaws, you require 75 per cent of the owners and unit factors to support that change.

Helpful hint: I am aware of several condominium corporations that assess condominium fees on a different basis than unit factors. However, they do so because their bylaws give them that authority. Check your bylaws.

Q: If the sale of a condo falls through because of a flaw discovered at the time of an inspection request made by a potential buyer, and that flaw might be common to other units, i.e. the roof or installation of windows, do owners have the right to know why the sale fell through if the seller has notified the board? Similarly, if a sale falls through because the buyer's lawyer has recommended that their client not buy the property because the reserve funds are unacceptably low, do the owners have the right to know (again, assuming the seller has notified the board) since any failed sale attributed to these two circumstances will also negatively affect the other owner's property values?

A: If the seller wants to share this information with other owners within the complex, then it would be up to them to decide what information they would like their fellow owners to know.

These kinds of building flaws and reserve fund concerns are items best raised at the AGM, when all owners in attendance have an opportunity to contribute to the discussion. As well, it gives the board an opportunity to respond to owners' concerns.

Helpful hint: There are aspects of home inspections that are subjective, and one prospective buyer may accept a known flaw, whereas another may not. The same can be said with respect to a reserve fund, since a lower purchase price can sometimes offset a future special assessment.

While the board should hear and talk about legitimate concerns, you don't want to create a mass panic situation where none is warranted.

Q: We would like to install an air conditioner in our condominium unit. When we submitted the request to the board for approval, the property manager came to us and said that if we wanted to install an air conditioner, the condo bylaws would need to be amended. We are prepared to accept responsibility for concerns regarding modifications to the exterior wall, but the condominium corporation has said no at this time. Our daughter in another condo building got approval. What should we do — fight or move?

A: I am assuming that the exterior walls of your condo building are common property. As a result, the board would have the authority to either approve or deny such a request. The fact that your daughter in another condo building received approval for her request is immaterial. Each condo corporation is governed by their own rules and bylaws, and what may apply in one may be illegal in another.

Unfortunately, you may not get the answer you want. You may want to consider hiring a lawyer to give you an opinion as to whether or not the position of the condominium corporation is correct.

Helpful Hint: Condo living is tough at the best of times. If the bylaws do not allow for things like adding an air conditioning unit, then there may not be anything you can do unless you want to change the bylaws.

Q: Should all motions, and the discussion pertaining to those motions, be included in the Annual General Meeting (AGM) minutes? Also, shouldn’t the motions that are to be presented under new business at an AGM be quite clear on the AGM agenda? My concern is that only those attending the AGM would be privy to the full context of the motion. All owners, not just those who attend the AGM, have a right to know how their funds are being used.

A: First, the minutes of an AGM and/or board meeting need not include a complete transcript of the discussion. However, if there is a motion that was made at the AGM and a discussion followed, there should be some context of the discussion so that owners and/or future owners become aware of what was discussed at the AGM.

It is a delicate balance of ensuring that people have an understanding of the discussion, but at the same time, it is not a transcript of the discussion. With respect to the motions under new business, it is better if you are able to provide notice to the owners in advance of the meeting, especially if you know that this is going to be discussed at the meeting.

However, from time to time, there are motions that are made from the floor under new business. That is why it is so critical that you attend the AGM and/or provide your proxy to someone you can trust in order to represent and protect your interest.

Helpful Hint: Minute taking is an art, and it requires an understanding of what is relevant and what is not relevant. However, I have always taken the approach that a good set of minutes provides information and an understanding of the direction of the owners and/or board.

Q: I am a director on my condo board, and we are having a difficult time getting people to sit on the board. It seems like the same people get elected every year. I would like to see some turnover. Do you know of any boards that have a maximum term for directors?

A: There is nothing illegal about putting term limits on a Board member. This would require a change to your bylaws, and the length of the term can vary depending on what the owners want to do; it could be four years, six years or 10 years. As well, you may want to consider allowing the person to come back after a year or two having been off the Board.

Helpful Hint: Term limits are a smart idea, but if you are having a hard time getting people to sit on the board then the people who have indicated an interest may be your only people.

Robert Noce, Q.C. is a partner with Miller Thomson LLP in both the Edmonton and Calgary offices. He welcomes your questions at condos@edmontonjournal. com. Answers are not intended as legal opinions; readers are cautioned not to act on the info provided without seeking legal advice on their unique circumstances. Follow Noce on Twitter at @RobertNoce.