Problems and the Solutions

Volume 23, Issue Number 1, Fall 2017
Purchasing/Living in a Condominium

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Problems and the Solutions

Amending or Terminating the SFA, the Roles of Legal Counsel, Changes that are Coming to the Condominium Act and the Creation Of the Condominium Authority of Ontario

By Armand Conant | Other articles by Armand Conant

Shared facilities and shared facilities agreements (they go by several names, but I will refer to them as "SFAs") have become an integral part of the condo community, but also a source of problems and conflicts.

This is the third article of a three part series on SFAs. In the Spring issue, Tania Haluk discussed what are SFAs, why do they exist, what are the boundaries, who drafts them and what is normal (if in fact there is a normal). In the Summer issue, Marc Bhalla wrote about the ongoing relations between the participant corporations (often integral to a shared facilities structure), disputes that arise and various manners in which to deal with them, particularly using mediation.

I will briefly discuss some of options that may be available to amend or terminate the SFA, the roles that legal counsel can play in finding solutions and lastly some of the changes that are coming in the reforms to the Condominium Act, 1998 (the "Act") introduced by the Protecting Condominium Owners Act, 2015 (Bill 106), and the creation of the Condominium Authority of Ontario (CAO) and its tribunal, the Condominium Authority Tribunal (CAT).

As Tania and Marc have mentioned, SFAs come in all shapes and sizes. Condominium developments have become far more complex, involving residential condo corporations, commercial and retail condos, hotels, and non-condo commercial businesses – all under one roof sharing a wide variety of facilities.

Some of the reasons problems have arisen include:

(a) the SFA was drafted many years ago and thus did not contemplate the issues being faced today;

(b) they were drafted poorly or without sufficient detail;

(d) the sheer number of shared facilities and equipment makes it complicated (some SFAs include over 400 facilities and shared equipment);

(e) multiple SFAs may exist;

(f) no SFA exists (not required by the Act) so the parties have to fend for themselves; and

(g) some were drafted heavily in favour of the developer or the commercial owner.

What do you do if you find yourself with no SFA or one that appears to be unfair? Many Boards have good skills to be able to appreciate the problem and see potential solutions, however, a Board should consider obtaining the advice from its professionals (engineers, lawyers, auditors, etc.).

With respect to lawyers, there are several services they could provide, including: 1. Understanding the agreement(s) and explaining it to the Board. - SFAs can be 40 pages in length and are usually not written in a reader-friendly manner, which often leads to alternate interpretations of some provisions. There can also be multiple, interrelated agreements.

The lawyer (usually with the aid of the engineer) should review the shared facilities and equipment. This can be important in interpreting the agreement. For example, what does the equipment serve? How were the percentage contributions determined (square footage, number of units, etc.)?

Then the lawyer can explain their interpretation of the agreement and discuss possible solutions (friendly versus adversarial), along with the estimated costs. For example, does the SFA mandate a certain process for dispute resolution? Does it apply to all types of disputes? In this manner the Board can then make an informed decision, in the best interests of the corporation and all unit owners.

2. What if no agreement exists? Since the Act does not yet mandate SFAs, then the lawyer can advise of any rights or obligations that may exist (e.g. is there an easement or right-of-way?).

3. Amending the SFA - The majority of SFAs were approved by their corporation via a by-law registered on title (usually done when the developer controlled the Board). So how do you amend these? There are several legal views:

a. The SFAs can only be amended by way of an amending by-law;

b. The original by-law was only for the purposes of authorizing the Board to execute, or assume, the SFA and thus a by-law is not required to amend it; and

c. For changes that are not true amendments but rather clarifying the SFA, then a written agreement amongst the parties is sufficient and a by-law is not required. The agreement should still be registered on title but might not have the same force as a registered bylaw amending the SFA, however, this may still be adequate.

4. Terminating or Amending Under Sec. 113 of the Act - If you are a new corporation still in its first year after the turnover meeting then you may be able to terminate the SFA under Sec. 113; however, the criteria is onerous. You must prove that the disclosure statement did not clearly and adequately disclose the provisions of the SFA, and that the agreement produces a result that is oppressive or unconscionably prejudicial to the corporation or any of the unit owners. The analysis of whether it applies and the criteria to be met are quite complicated.

In a recent case, the court amended, rather than terminating, a complicated SFA in a large mixed-use complex beside the Air Canada Centre. Amongst other things, the agreement placed all the power and decision- making authority in the hands of the commercial owner and its manager. There was no shared facilities committee and no right of the residential corporation to have any input on such matters as the annual budget or selecting management. The court decided that there should be a shared facilities committee including representatives of the residential corporation, and the parties could decide on management.

5. Chairing meetings for the purposes of negotiating an amended agreement - This can be done with each party's lawyers, but it may be preferable to have an outside, independent lawyer chair the meeting and guide the parties through negotiations. This could be a preliminary step before mediation.

Given the associated costs of legal counsel, it is prudent for every board to undertake a cost-benefit analysis. If the amounts in dispute (short or long term) are far less than the anticipated professional costs, then the Board should consider whether it is worthwhile having counsel present throughout the process, keeping in mind the situation discussed by Marc.

An example was two corporations fighting over the shared portion of a laneway. The parties dug in their heels with each represented by counsel. The amount in dispute (determined by the engineer) was about $1,900 per annum and by the time the matter was finished the total legal costs were significant. This is not to say that there are not situations where counsel should be used even though the amount in dispute is small. Quite the opposite. However, a fully informed Board can make the decision.

The Future – Condo Act Reform

The reforms to the Act will obligate developers to have SFAs. There is no indication at this time if the government will regulate or prescribe the form of the SFA (as has been done for status certificates), but at least an SFA will have to be in place. This is a major first step, however, it is doubtful that it will resolve such problems as the balancing of rights and obligations, having a fair method of determining the percentage contributions to the shared costs, etc. So disputes will still arise.

Early on in the reform process there were discussions at committee level about the CAO and its tribunal (the CAT) having the jurisdiction to deal with SFA disputes, thus avoiding the courts. This has not yet been decided. However, it would not necessarily change the role of legal counsel, particularly considering the complexity and financial ramifications these disputes can have.

We believe that in the future better agreements will be drafted both as to clarity of the language and completeness, along with providing for a more equitable sharing of power, rights and responsibilities. This coupled with a possible faster dispute resolution mechanism will only improve the management of shared facilities and the relationship of the parties that share them.

Lawyers will always have an important role to play, but every board should consider when advice from professionals is needed, remembering not to be penny wise and pound foolish.