In a recent landmark decision, HSCC No. 627 v. Grandview Living Inc., the Ontario Superior Court of Justice ruled that a condominium corporation could not terminate a contract pursuant to section 112 of the Condominium Act (the “Act”) without the approval of two-thirds of the unit owners, where the effect of terminating the contract would result in a substantial change in the corporation’s assets or services. (Section 112 of the Act allows the post-turnover board of directors to terminate agreements for the supply of goods or services which were entered into by the corporation prior to turnover.)

In this case the developer had entered into a renewable energy agreement for a 50-year term (the “REA”) with a related corporate entity to supply geothermal heating and cooling equipment and services. Prior to turnover, the REA was assumed by the condominium corporation by way of an assignment and assumption agreement. The post-turnover board then purported to terminate the agreement in accordance with section 112 of the Act and demanded that the geothermal equipment be removed by the supplier.  The supplier and the developer took the position that the termination of this contract resulted in a substantial change in the corporation’s assets or services, and therefore the corporation was required to comply with section 97 of the Act, which requires that a substantial change be approved by two-thirds of the unit owners. As the board had not obtained such approval prior to terminating the contract, the developer and supplier claimed that the termination was invalid.  The condominium corporation argued that the requirements of section 112 were complied with and that there was nothing in section 112 which cross-referenced compliance with section 97.

The Court did not agree with this position on the basis that section 112 could not be read in isolation and that there is nothing in section 112 or elsewhere in the Act that permits the board to ignore or override section 97. “It is certainly possible to apply two different sections of the Act if they are not in conflict.” The Court determined that the board should have obtained the requisite two-thirds approval of the unit owners before attempting to terminate the REA.  Accordingly, the Court held that the purported termination was not valid and would not be valid until ratified by two-thirds of the unit owners, failing which the REA would continue in full force and effect.

In order to ensure that the unit owners will be completely informed about the issues surrounding the REA, the Court provided very detailed instructions to the parties as to the contents of the information package to be delivered to the unit owners with the notice of the ratification meeting:

  • description of the proposed change
  • the cost and proposed funding plan
  • the specific reasons for the change
  • presentation of alternative arrangements
  • engineering reports commissioned by both sides to the litigation
  • a copy of both sides’ court applications and facta and a copy of the decision
  • a report on the litigation by both counsel for the corporation and counsel for the developer/supplier.

In addition, legal counsel for both the corporation and the developer/supplier will be entitled to make presentations at the meeting on the status of the litigation, with a time limit of one hour per side.

Until this decision, there was no case law specifically dealing with the interrelationship between sections 97 and 112 of the Act. The effect of this case is that section 97 acts as a “reign on the board” in exercising its authority under section 112 of the Act.