The first year of a condominium corporation is a big one. In addition to dealing with ongoing construction work, construction deficiencies and perhaps budgetary issues, the board of directors has to take important decisions in terms of management of the building and has to set the tone with the owners and residents. Depending on how the developer/declarant left things after the turn-over meeting, there may be a lot of work to be done for the newly elected board of directors.
The following is a short list of some of the issues board members should be working on during the first year of a condominium corporation.
At the turn-over meeting, the declarant has a statutory obligation to provide the newly elected board of directors a number of documents under section 43 of the Condominium Act, 1998 (the “Act”). This includes, namely, the seal of the corporation, minutes book, copy of insurance policies and copies of all agreements entered into by the corporation. After the turn-over meeting, the declarant has 30 days to deliver to the board a second set of documents, which includes warranties, plans and specifications. The board should collect all turn-over documents and review them in order to determine whether there is anything missing and, if needed, do the necessary follow-ups with the declarant.
The board should also review the agreements entered into by the declarant on behalf of the corporation. The board should obviously be familiar with these documents but, more importantly, the board should determine whether any of them should be terminated. Sections 111-113 of the Act list which agreement can be terminated, how they can be terminated and under which conditions. This includes, amongst others, management agreement and mutual use agreement. Please note that the Act also provides specific deadlines to terminate an agreement or commence such process. The board should consult the corporation’s lawyer before terminating any agreement.
Another task that the board will have to tackle during the first year is the performance audit of the common elements under section 44 of the Act. The performance audit has to be conducted no earlier than 6 months, and no later than 10 months, following the registration of the declaration. The performance audit has to be conducted by a professional engineer or architect, but naturally the board and management will be involved in the process.
Once completed, the performance audit must be filed with the Tarion Warranty Corporation within the prescribed time. This allows the corporation to make claims to Tarion with respect to common elements deficiencies. If the corporation does not file the performance audit in time, it will not be able to make claims under the Tarion warranty program. It is very important that first-year warranty claims and any subsequent warranty claims be made in a timely manner and that Tarion’s strict deadline are adhere to.
The board should also review the disclosure package that was given to the owners at the time of purchase, and in particular the disclosure statement. The goal of this exercise is to determine whether the developer/declarant delivered all the items/amenities that were promised. If not, the corporation should seek explanations or commitment from developer/declarant. In the event that the developer/declarant is refusing to deliver some items, or has made or is making substantial changes to some of them, the corporation should consider whether to advance a claim.
Please note that, in Ontario, there is a general limitation period of 2 years to commence a lawsuit. This limitation period starts from the moment the corporation knew or ought to have known it had claim. Therefore, it is important that any lawsuit, whether it be for constructions deficiencies or undelivered items, be commenced in a timely manner. The corporation’s lawyer should be involved as early as possible.
First Year Budget
Under section 75 of the Act, the declarant is accountable to the corporation for the budget statement that covers the one-year period immediately following the registration of the declaration. After receiving the audited financial statement, the board has 30 days to compare the actual amount of common expenses and revenue with the budgeted amounts and to give written notice to the declarant of the amount that the declarant is required to pay to the corporation if there is any shortfalls. However, please note that some exclusions apply and that set off applies as well if the actual amount of revenue is higher than budgeted.
In addition to collecting first-year budget shortfalls, the corporation should also collect from the declarant reserve fund contributions. Indeed, pursuant to subsection 80(5) of the Act, if the declarant charges to a purchaser a monthly occupancy fee for interim occupancy of a proposed unit for longer than 6 months, and such a fee includes a projected contribution to the reserve fund of the corporation, then the declarant has to remit to the corporation, upon registering the declaration, the portion of the monthly occupancy fee that represents the projected contribution to the reserve fund for each month after the 6th month.
Reserve Fund Study
Pursuant to section 94 of the Act, a new condominium corporation has to conduct a reserve fund study within the year following the registration of the declaration. The purpose of a reserve fund study is to determine whether the amount of money in the reserve fund and the amount of contributions collected by the corporation are adequate to provide for the expected costs of major repair and replacement of the common elements and assets of the corporation. After the first year, the corporation has to conduct periodic studies.
After receiving the reserve fund study, the corporation has 120 days to review it and propose a reserve fund plan for the future funding of the reserve fund and make sure the fund will be adequate for the purpose for which it was established. If the contributions to the reserve fund were insufficient in the first year, and if they are significant first-year shortfall in the operational budget, owners may be faced with a special assessment and/or an increase in the condo fees.
The first year in the lifespan of a condominium corporation is a very important one as it lays down the foundations for future years. The foregoing “to-do list” is a simple summary of some of the items that should be worked on during that first year. Obviously, there is a lot more to do and to take care of on a daily basis, including countless hours of communications and negotiation with the developer/declarant and with the new owners. Being on this first board of directors of a condominium corporation is certainly a lot of work and comes with a lot of responsibilities. If the board and/or management is not on the ball, it may have significant long-term impact on the community. New boards should not hesitate to consult or hire professionals along the way for guidance.