Modifications: Part 1
Not every change to the Condominium Act, 1998, (the “Act”) that is proposed by Bill 106 is necessarily a big one, but even the minor amendments can significantly alter the way things are done or thought about. Such are the changes proposed to sections 97 and 98 of the Act which govern modifications made to the common elements, assets or services of a corporation. They don’t change everything; they don’t even change major things; but they do make important changes.
One Word to Bind Them All
One such change is the adoption of the new general term “modification” to define every alteration that could be made to the common elements, assets or services of a corporation. While it seems to be just a simple matter of efficiency to start using one word describe all these changes, the effect is greater than that.
Having said that, it is not clearly for the purpose of efficiency that the term is adopted, since “modification” is, in fact, not just one term, but two. That is, the word is given a different meaning in section 97 than it has in section 98.
In section 97, the term is used not just to describe individual changes to common elements, assets or services, but also to describe any combination or series of changes that collectively relate to each other. The significance of this is that individual changes made by a corporation that make up a single whole project or process cannot be separated out for the purposes of determining whether or not notice to, or approval by, unit owners is needed. Under the current Act, a corporation can sometimes avoid notice and approval requirements by doing just that; that loophole appears to be eliminated under Bill 106.
In section 98, the scope of the term is changed and now means only changes to common elements and assets of a corporation, but not to services. This is an example of the law both giving and taking away. On the one hand, owners’ opportunities to impact the condominium are now increased to include the right (upon approval, etc.) to make changes to assets of a corporation, not just the common elements, but an owner is not entitled to propose or make a change to the condominium corporation’s services.
In section 98, it also appears that combinations or series of changes do not necessarily constitute a single modification. This will likely permit greater flexibility in allocating the obligations to costs, repair, maintenance and insurance in section 98 agreements.
Modifications made by the Corporation
In the balance of this blog entry, we will focus on the provisions of the new section 97, which govern modifications made by condominium corporations. In a future entry, we will discuss the changes to section 98 that govern modifications made by unit owners.
Currently, under the Act a corporation may make a change to the common elements, assets or services of the corporation in any of three ways: (1) without any notice to or approval from the unit owners; (2) with notice to the owners, but not necessarily requiring their approval; and (3) by obtaining the approval of a sizeable majority of the owners at a duly called owners meeting. This much, Bill 106 doesn’t change, but it does change some of the provisions relating to these options.
1. Modifications made without notice to owners:
Where the change is made in the course of carrying out the corporation’s repair or maintenance obligations, provided the corporation uses materials that are “as reasonably close in quality to the original as is appropriate in accordance with current construction standards”;
where the change is required by law (including if required by a mutual use agreement between the corporation and another condominium or property owner);
where the change is necessary, in the opinion of the board, to ensure the safety and security of persons using the property or assets of the corporation, or to prevent imminent damage to the property or assets; or
where the estimated cost of the change, in any given month, is no more than the greater of $1,000.00 and 1% of the annual budgeted common expenses for the year in which the modification is proposed.
With respect of option 4, Bill 106 does not substantially change the idea that lower-cost modifications should not require notice or approval, but it does raise the threshold to include any work that is estimated to cost less than the lesser of $30,000.00 and 3% of the annual budgeted common expenses. It also imposes an additional condition, which is that the owners, on an objective basis, would not regard the modification as causing a material reduction or elimination of their use or enjoyment of their units, the common elements or the assets of the corporation, as determined by the regulations.
This is another case of the law giving and taking away at the same time: The increased threshold provides boards of directors with substantially more authority to make changes to the common elements, assets and services without requiring unit owner approval, while the additional requirement pertaining to owners’ use or enjoyment of the property could substantially restrict the scope of what they can do.
Determining objectively whether owners’ use or enjoyment of the property is negatively affected by the modification, leaves a significant amount of room for interpretation and could put boards in a tricky position. Essentially, it would require an analysis of how a reasonable unit owner, in the same circumstances at that particular condominium, would regard the modification. This is the kind of analysis that can cause even experienced judges to reach contrary conclusions. However, we also note that the added phrase in this provision – “as determined by the regulations” – suggests that the regulations may set out certain criteria or parameters that could help boards make such determination in a simpler, more concrete and objective manner. While we expect to see boards generally erring on the side of caution (and reasonableness) by providing notice to owners more often than not, we also think it is possible there could be a significant amount of dispute, including litigation, over this issue.
2. Modifications made with notice to owners:
First, it provides that if a meeting is requisitioned and called but a quorum of owners fails to attend the meeting, there is no requirement for to attempt a further to hold the meeting and the modification can proceed. Under the current Act, this option was not clearly available.
Second, Bill 106 states that the notice of the proposed modification must include particular, prescribed statements. A “prescribed statement” is one that is specified in the regulations (which are yet to be drafted). One of these statements must address the estimated cost of the modification and proposed method of payment. The current legislation requires the estimated cost and method of payment to be explained in the notice, but did not require a particular form of statement for this purpose. The other statement is required if the owners, on an objective basis, would regard the modification as causing a material reduction or elimination of their use or enjoyment of their units, the common elements or the assets of the corporation. Once again, there might be some room for interpretation by boards as to when such statement should be included, but also once again such determination is to be made in accordance with whatever criteria or parameters are set out in the regulations. (Once again, we anticipate this requirement might give rise to occasions for dispute.)
3. Substantial Modifications:
A modification is substantial if (a) its estimated cost (regardless of when it is paid) exceeds 10% of the annual budgeted common expenses (or such other amount as the regulations may specify), or (b) it is deemed by the board of directors to be substantial. In the case of any proposed substantial modification, a meeting of owners must be called and the modification be approved by owners representing 66-2/3% of all the units before it can be made.
Surprisingly, while Bill 106 proposes to integrate the concept of undiminished use or enjoyment of the property to the other categories of modification, this concept has been left out as a consideration for what constitutes a substantial change. This is surprising since the definition of “substantial change” has been the subject of significant litigation over the years, where overzealous corporations have unilaterally made significant changes to the common elements, citing maintenance and repair obligations and relying on the fact that the cost of such changes did not reach the “substantial” level. Integrating the concept of undiminished use and enjoyment into this definition would have offered unit owners some protection from such conduct. However, Bill 106 proposes to stick with the status quo and what constitutes a substantial change will continue to be decided on the basis of cost, or absolute board discretion, only.