On December 2, 2014, the Ontario Court of Appeal issued its decision in the case of Orr v. Metropolitan Toronto Condominium Corporation No. 1056.
The most important takeaway from this case for condominium managers and board members is the importance of having an accurate status certificate with few (if any) deviations from the form prescribed under the Condominium Act, 1998 (the “Act”). If there are special circumstances that necessitate the insertion of a special provision, always verify the accuracy of the statement and have the provision reviewed by the corporation’s solicitor. After this recent decision, the risks of not doing so are greater than ever.
The Purchaser, Orr, entered into an agreement to buy what she believed to be a three storey town house unit. Prior to closing her purchase transaction, she requested a status certificate from the condominium corporation’s property manager. The status certificate prepared by the property manager stated that “there are no continuing violations of the declaration, by-laws, and/or rules of the Corporation”. Although that statement was inserted by the property manager, it is not required by the Act. After the completion of the purchase, and while renovating the third floor, it was discovered that the statement was inaccurate because the vendor of unit 113 had illegally built into the common element attic space above the unit to create a third storey. The condominium corporation’s Declaration and Description defined the townhouse as a two storey unit like all the others in the development.
Justice Lauwers, writing for a unanimous Court of Appeal, held that the condominium corporation owed the Purchaser a duty of care in the preparation of the status certificate. Although the employees of the management company prepared the status certificate, they did so as agents for the condominium corporation which was therefore ultimately responsible for the contents of the status certificate. Justice Lauwers further held that if a condominium corporation is going to assert that “there are no continuing violations of the declaration, by-laws, and/or rules of the Corporation” in its status certificate, it must make an effort to verify the accuracy of the assertion.
MTCC 1056’s management agreement contained a provision that the property manager shall inspect the “common elements appurtenant to the unit” before completing a status certificate. The Court held that the property manager confined his inquiries to the condominium documentation and the information in the townhouse’s unit file, and that if he had inspected the “common elements appurtenant to the unit” he would have discovered that the third floor of townhouse 113 was illegally built into the common elements.
The court held that the management company did not owe the Purchaser an independent duty of care because it was acting as agent for the condominium corporation in preparing the status certificate. However, the management agreement, as in most management agreements, contained an indemnification provision which made the property manager “responsible for the accuracy and completeness of all information contained in the Estoppel Certificate”. Accordingly, the court held that the management company must pay the condominium corporation for all financial liability arising from the negligent misstatement contained in the status certificate issued to the Purchaser.
The management agreement further provided that the manager was not responsible to the condominium corporation “for any information within the knowledge of the Board but not communicated to the manager and which should be included in the estoppel certificate.” The management company argued that some of the condominium corporation’s board members had knowledge of the illegal alterations carried out by the prior owner of unit 113 and such knowledge should be attributed to MTCC 1056. On this issue, Justice Lauwers was reluctant to impute the knowledge of a condominium director to its board as a general matter, as doing so would have the potential to vastly increase the liability of condominium corporations and would make risk management on their part all but impossible.
The damages and legal fees in Orr v. MTCC 1056 will likely be in the millions of dollars, all because a property manager elected to insert an unnecessary 15-word statement in the status certificate. We encourage boards of directors and managers to review their respective status certificates and management agreements. If the status certificate of your corporation contains provisions that go beyond those found in the standard form set out in Ontario Regulation 48/01 (i.e. Form 13), always verify the accuracy of such provisions and have them reviewed by the corporation’s solicitor.