Modifications: Part 2
In our first blog post on modifications (here), we discussed changes to the property, assets and services of a condominium corporation that are corporation- or board-initiated pursuant to section 97 of the Condominium Act, 1998 (the “Act”). We promised a future entry would discuss the proposed amendments to section 98 of the Act, which addresses modifications made by unit owners. This is that entry. However, we can no longer refer to these provisions as “proposed” amendments to the Act since, in the meantime, Bill 106 has received Royal Assent and simply awaits formal proclamation to come into force and effect. The once “proposed” amendments to the Act are now “the” law in all but actual effect.
Some Things Stay the Same…
Section 98, as amended in Bill 106, is not in all respects different from the law that is currently in place. As under the current regime, the amended section 98 still requires that before an owner makes any changes to the common elements, the proposed changes must obtain board approval and be subject of an agreement between the corporation and the owner, which agreement needs to cover particular issues (such as the obligations for repair, maintenance and insurance of the changed common elements) and is to be registered on title to the owner’s unit. This type of agreement is often referred to as a “section 98 agreement,” an “indemnity agreement,” or an “alterations agreement”.
There are, however, other ways in which the new section 98 is significantly different from the existing law. One of these significant changes is the use and definition of the term “modifications” itself.
As we noted in our first blog entry on this topic, the term “modification” is given two separate and distinct definitions in the amended Act. In the amended section 97, pertaining to modifications made by the corporation, a modification can include a change to the common elements, assets or services of the corporation. However, in the amended section 98, modifications that owners are permitted to make are restricted to changes affecting just common elements or assets. Unlike section 97, under section 98 the term does not include modifications to services. This means, the only way modifications to services of the corporation can be made is in accordance with section 97 of the Act, which requires the initiative of the corporation, not a unit owner.
Another important distinction between sections 97 and 98, and something that may be viewed as a change from the current law, is that a modification under section 98 is a singular modification and cannot be combined together with a series of modifications that relate to one another. Conversely, under 97 the corporation is entitled to treat a combination or series of additions, alterations, improvements or changes to common elements, assets and/or services as a single modification. This means that when an owner proposes to change common elements or assets, it is possible there could be several separate modifications at issue that are required to effect the overall change sought. It would appear that each modification would then be subject individually to the requirements of section 98. Though this distinction appears minor, and in several cases might not impact the processes of the corporation at all, it also provides the opportunity for greater flexibility in the allocation of various obligations relative to a section 98 agreement. For example, the allocation of obligations for costs, repair, maintenance and insurance in respect of one modification may be different than for another, even if both modifications are part of the same overall set of changes that an owner desires to make.
A New Objective Standard Re Modifications to Exclusive Use Areas
Another new amendment to the Act sets out a new objective standard as to whether a proposed change to an owner’s exclusive use common elements area negatively impacts other owners.
Currently, section 98 of the Act provides that where an owner wishes to make a modification to his or her exclusive use common element area, the owner will not be granted permission, unless the board is satisfied that the proposed change will not,
- adversely affect units owned by other owners,
- give rise to an expense to the corporation.
- detract from the appearance of buildings on the property,
- affect the structural integrity of buildings on the property, or
- contravene the condominium’s governing documents.
The new section 98 amends the first requirement, such that, rather than simply assessing if there could be adverse effects on other owners’ units, the board must determine whether other 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. Essentially, this requires the board to conduct an analysis of how a reasonable unit owner, in the same circumstances of the owners at that particular condominium, would regard the modification in this manner.
If this sounds familiar to you, it might be because the same language is used in the amendments to section 97 under Bill 106, as was discussed in our prior blog entry on modifications. In that post we noted that this new requirement has the potential to substantially restrict the scope of what modifications can be made, and is also tricky for a board to analyze with certainty since the objective standard leaves a significant amount of room for interpretation. However, here in the amended section 98 as in the amended section 97, the language of the Act 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. We will have to wait and see.
Easements and Covenants in Section 98 Agreements are Binding
Under the current legislation, a section 98 agreement runs with title to the unit and binds all future owners of that unit. This is unchanged under Bill 106; however, the new amendments include additional language that clarifies, confirms and potentially expands these provisions.
First, the new section 98 confirms that where the subject matter of the agreement is an easement or covenant, that easement or covenant, whether positive or negative in nature, shall run with title to the unit. While this amounts more or less to just a clarification or confirmation of the current law, it helpfully does so and may serve to eliminate some disputes.
Second, the new section 98 lists the parties entitled to enforce the easement or covenant against one another. They are: (a) any party to a section 98 agreement; (b) the owner or any subsequent owner of the unit; and (c) subject to the regulations, the corporation and any of its successors and assigns. This is significantly different from the current legislation, which merely references that the agreement is enforceable against the owner and the owner’s successors and assigns. Therefore, the current legislation did not expressly grant the unit owner the right to enforce a section 98 agreement against the corporation or other parties, which the new section 98 does. It also opens up the possibility of there being parties to the agreement other than the unit owner and the condominium corporation. Lastly, it opens up the possibility of a section 98 agreement remaining enforceable even after the termination of the condominium. The circumstances in which these impressions would be tested or verified are not very common, but could become more so as condominiums, unit owners and their respective lawyers seek to push the envelope and test the boundaries of the new legislation.
Time to Pay for Failure to Comply
Finally, where a section 98 agreement binds an owners’ unit and that owner fails to comply with the agreement, a condominium corporation has the authority to add the costs, charges, interest and expenses resulting from an owner’s failure to comply with the agreement to the contribution to the common expenses payable for the owner’s unit.
Under the current legislation, when that happens the corporation may also specify a time for payment by the owner. Thus, regardless of when the actual costs arose, the corporation can make a “demand for payment” setting a particular date by which the owner must pay the costs, charges, interest, etc., which date then (if the owner does not pay) becomes the day of default on which a condominium lien arises against the owner’s unit and on which the 90-day clock starts running for the purposes of registering a certificate of lien protecting the condominium’s interest.
The amendments in Bill 106 remove the statement that a condominium corporation may specify a time for payment by the owner. This means that as soon as the corporation adds the cost, charge, interest or expense to the owner’s common expenses account, the owner is technically in default, a lien arises and the 90-day clock begins to run. It therefore will behoove the corporation (as a matter of “best practices” at least) to ensure that notice of the debt is provided as early as possible to the unit owner. After all, if a unit owner doesn’t know what amount has been added to the common expenses, he or she is unable to pay it, and it is hardly fair to enforce a lien against an owner who simply does not know there is a debt or how much it is.