New Condominium Act and Case Law Update

As most of you are aware, the new Condominium Act received royal assent on December 17, 1998 and will be proclaimed sometime in March 1999 when all of the supporting regulations will have been completed. Although it is beyond the scope of this report to give you full details, the legislation should be regarded as consumer legislation and as such, the bulk of the amendments are aimed at assisting consumers and condominium owners.

This of course means that once the new regime comes into force, selling new condominiums will be somewhat more difficult and expensive, and extreme care will have to be exercised in preparing all condominium and purchase documentation.

On the other hand, there are a number of improvements to the Act which will be of benefit to the development community.

Some of the key changes in the Act include the following:

1. significantly increased disclosure and turnover requirements;
2. a requirement for a performance audit to be conducted no earlier than 6 months and no later than 10 months after closing, the details of which are still being negotiated between the Ministry and the development community;
3. elimination of the need for "phantom" mortgages as interest will cease to accrue and be payable to purchasers from and after interim occupancy, with purchasers being responsible to pay the developer interest from and after that date on any unpaid balance. The use of purchaser's deposits is still subject to trust requirements or the use of prescribed security (e.g. London Guarantee bonds or similar instruments);
4. a requirement for a reserve fund study to be conducted even for new condominiums. This requirement will apply to all condominiums unless they are registered prior to the date the new Act is proclaimed. Accordingly, developers will have to incur this cost as it presumably would not have been included in the first year's budget. Failure to include this cost, however, would not be considered a material change to the disclosure statement;
5. creation of leasehold condominiums, vacant land condominiums and common elements condominiums will now be permitted which should allow flexibility in certain circumstances, particularly when dealing with hospital and university lands which generally cannot be sold;
6. new phased condominiums will be permitted. However, it is unlikely that these provisions will be utilized extensively, given the potential for liability to the developer if changes are made to the original disclosure materials;
7. changes in the turnover procedures which could result in new directors being appointed before the declarant has lost control of the Board;
8. priority of Commercial Condominium Liens over prior charges;
9. the transition provisions provide that the new disclosure requirements will only apply to condominiums where no Agreements of Purchase and Sale have been entered into. Accordingly, for any new projects, as soon as one agreement of purchase and sale has been entered into, the entire project would be grandfathered, provided the agreement is accepted prior to the new proclamation date.