With the loosening of COVID-19 restrictions and the doors of immigration re-opening in Canada, there should be no shortage of cranes in the ground over the next few years. Thus, it is important to reflect on the issues that are prevalent with newly built condominiums in the early years post development. In Part 1 and Part 2 of our series we provided four considerations for new condominiums. Here we will discuss two more critical considerations: 1) the first year Tarion warranty and, 2) shared facility agreements.
5. First year Tarion warranty
Every new condominium building in Ontario comes with warranty coverage provided by the builder and guaranteed by Tarion Warranty Corporation (Tarion).
Warranties are enforced or honoured by Tarion (in the event of the builder’s inability or unwillingness to do so), provided the buyer formally reports the deficiencies in writing to Tarion on the prescribed forms within the prescribed time periods.
As the “owner” of common elements, a condominium corporation is required to make warranty claims to Tarion. In most cases, the board of directors will appoint a designate to manage this process on behalf of the condominium corporation.
The warranty provided covers three distinct warranty periods of one, two, and seven years (depending on the claim or deficiency in issue). Warranty coverage on common elements begins on the date that the condominium corporation’s declaration and description are registered. It is therefore critical that this date is carefully tracked for each of the three warranty periods.
The first year warranty provides coverage for all claims or deficiencies relating to:
- The manner in which the building was constructed (i.e. constructed in a workman-like manner and free from defects in material).
- The building’s fitness for habitation.
- Any breaches of the Building Code.
- Any unauthorized substitutions.
The Condominium Act, 1998 (Ontario) (the “Act”) requires that a performance audit of the common elements be conducted between 6 and 10 months following the registration of the condominium. An audit is conducted by either an engineer or architect that is retained by the condominium corporation.
To make a warranty claim under the one year warranty, the condominium corporation must submit a First-Year Common Elements Claim Form or a Performance Audit to Tarion with a Performance Audit Tracking Summary by midnight of the first anniversary of the registration date.
6. Shared facility agreements
Many new condominiums will have a shared facilities agreement (“SFA”) to navigate, and it is a good practice to spend time to determine what rights and obligations the corporation will have under the SFA.
In addition to determining what exactly is shared with another condominium or property owner, it is important to determine the type of governance and cost sharing structures that the SFA provides for. The following are just a few examples of the important questions that should be asked:
- Is there a shared budget? Who is responsible for creating and implementing the budget?
- Is there a shared manager and how are they selected?
- Is there a shared facilities committee and how many representatives does each party have?
- If there is a shared facilities committee, how are decisions made? Is it by consensus or a simple majority?
Similar to terminating agreements during the first year, as set out in Part 2 of our series, in certain circumstances a SFA can also be terminated by a corporation during its first year, pursuant to Section 113 of the Act.
The process to terminate a SFA, however, is much more stringent and requires the corporation to commence a court application to terminate or amend the SFA only in circumstances where:
- the disclosure statement did not “clearly and adequately” disclose the provisions of the agreement; and
- the agreement, or any of its provisions, produces a result that is “oppressive or unconscionably prejudicial.
The test under Section 113 of the Act is a high bar and the corporation’s legal counsel should be contacted as soon as possible to determine if there are reasonable grounds to seek to amend or terminate a SFA during the first year.
We hope that this series has been helpful and that the six considerations we covered help your new corporation get off to a great start!
