In one of our recent cases, a judge ruled that the issuance of a deficient status certificate was oppressive and that the condo owner was exempt from having to pay their prorated share of a special assessment. This case contains important lessons for all corporations and managers who issue a status certificate.

Facts of this case

Since 2017, this condo corporation had been experiencing serious issues with its watermain and lift stations. This had been discussed as several condo board meetings.

In 2019, the corporation obtained a $415,000 quote for partial replacement work.

In My 2020, the corporation retained consultants for this project.

In November 2020, the corporation’s auditor flagged that:

The Corporation has tendered the water main repairs. It was unknown at the time of the audit the cost of this project, but it is esimated to be significant. The work is expected to commence and be completed in the following fiscal year. To fund this project, there is a possibility of a special assesment to the unit owners and/or an application for a loan.

In March 2021, the corporatin tendered the project.

In June 2021, someone who wanted to purchase a condo at this corporation asked for a status certificate. The realtor for the vendor handed over a status certificate they (the vendor) had obtained on June 8, 2022.

Paragraph 12 of the status certificate read as follows:

The Corporation has no knowledge of any circumstance that may result in an increase in the common expenses for the unit. Except: the Corporation’s fiscal year end is August 31, 2021. Therefore, monthly common element fees may be increased in accordance with the new budget which has yet to be determined.

The status certificate package contained numerous other documents (as they always do). Burried in this pile of documenta was a copy of the 2020 audited financial statement that flagged the need to repair the lift station and the fact a special assessment/loan may be required.

The purchaser’s realtor reviewed the status certificate and concluded that “the finances looked ot be in order”, tha tthe reserve fund “seemed to be properly funded” and that ther was “nothing to suggest there migh be any special assessments any time soon”.

Relying on the status certificate, the purchaser made an unconditional offer, which was accepted.

Two days later, the corporation received a bid for the project, costing it at 2 Million dollars. The Corporation then looked into passing a borrowing by-law, which is the first time the purchaser became aware of the situation.

The Corporation’s position

Amongst various arguments raised by the Corporation, they argued that:

  • The status certificate contained all the required info, including a note about possible increases to the budget at the end of the fiscal year;
  • The status certificate contained the auditor’s comments which were sufficient to alert the purchaser;
  • The corporation did not know the actual cost of the project until after the status certificate was issued;
  • A status certificate, even an eroneous one, cannot exempt an owner from the obligation to contribute to common expenses;
  • The purchaser ought to have retained a lawyer to review the status certificate and advise them;
  • Exempting the purchaser from the totality of the assessment could result in a windfall to the next purchaser when/if they were to sell their condo.

Questions/answer

The court answered the following questions:

  • Did the satus certificate adquately disclose the project and the likelyhood of the assessment?
    • No
  • Is this owner exempt from the special assessment or loan?
    • Yes, for as long as he owns the unit
  • Was the issuance of an inadequate status certificate oppressive?
    • Yes.

Decision

The court reminded the parties that the Condominium Act is consumer protection legislation with features to safeguard the interest of current and future owners – such as the status certificate.

A status certificate must bring to the attention of a prospective purchaser matters which may be of concern to them when contemplating to buy a unit. The purpose of these certficate is to ensure that buyers have enough information to make an informed purchase.

It makes no difference who requests the status certificate (in this case, the vendor had requested it and had handed it to the purchaser). A status certificate binds whoever relies on it.

The Corporation knew since 2017 that the water main and lift station would require a costly replacement. To state that the it had “no knowledge of any circumstances that may result in an increase in common expenses” was clearly inacurate. The obligation to disclose is not only triggered when the cost becomes known or certain. Condos must disclose when they have knowledge of any circumstances that may result in an increase.

Condo corporations who issue inadequate or inaccurate status certifcates are prohibited from claiming against a unit owner payment for an expenditure that had neligently failed to disclose.

The court also concluded that inaccurate disclosure in the status certificate may result in a finding of oppression. In this case, it would be oppressive to impose on this owner the cost of a project that the Corporation had known for more than 4 years but that had not been disclosed.

What about the audited financials?

So, what about the fact that the status certificate included a copy of the audited financials alerting owners to the special assessment and loan? Was that sufficient to alert the purchaser?

No.

The status certificate is an overview for a prospective purchaser. It should flag in clear language any financial concerns that should prompt a prospective purchaser to dig deeper into the “fine print” of all of the attachments… It is unrealistic to assert that notwithstanding the summary “all clear” statement in paragraph 12 … the purchaser should have been expected to dig deeper.

What if the owner sells his unit, does the next purchaser get the same break?

The court did accept the argument that this purchaser should not receive a windfall if/when he sold his unit. Basically, the judge exempted this owner, not the unit. When/if the unit is sold, the next owner must be advised of their requiremnt to pay a pro-rated portion of the special assessment. This must be flagged in…. you guessed it…. the status certificate.

You can read the full decision here.