Among the more significant changes to condominium law being made by PCOA (the “New Act”, the first phase of which will come into force November 1, 2017), are those relating to the maintenance/repair obligations in respect of the units and common elements.
Under the Condominium Act, 1998 (the “Old Act” presently in force), it is the corporation’s responsibility to maintain and repair the common elements. While unit owners are responsible to maintain their units, the corporation is also obliged to repair the units following damage. However, this obligation does not include any requirement for the corporation to repair damage resulting from normal wear and tear, and of particular importance, it does not include any obligation to repair “improvements” made to the unit. It is left to the owners to repair unit improvements, with such improvements being determined either in the schedule provided by the declarant following the turn-over meeting (see s. 43(5)(h) of the Old Act), or pursuant to a standard unit by-law passed by the corporation in accordance with s. 56(1)(h) of the Old Act.
Given the corporation’s duty to repair damage to both units and common elements, the Old Act provides that, “The corporation shall obtain and maintain insurance, on its own behalf and on behalf of the owners, for damage to the units and common elements that is caused by major perils”, defined to include fire, lighting, smoke and water escape. By way of example, in the case of a leaking toilet which causes water damage to a unit, the corporation typically reports the claim (subject to the deductible issue, discussed in more detail below) to its insurer to repair the damage. The owner then looks to his/her own insurer to repair damage to contents and to any “improvement” made to the unit.
Steps taken under the Old Act
As a means to keep insurance claims under control, the Old Act enables the corporation to take the following two steps:
(i) Passing a standard unit by-law – this by-law defines what is included in a “standard unit”, which in turn establishes what the corporation is obliged to insure and repair. Each owner is then responsible to both insure and repair anything beyond the standard unit. For instance, if the owner has replaced the builder installed plywood cupboards in the kitchen with mahogany cupboards, the corporation will only cover the costs to install plywood cupboards. The owner must look to their own insurer to cover the balance in the event they wish to have the mahogany cupboards re-installed. The corporation must always be mindful of the fact that the more elements included in a standard unit by-law, the more costly its obligations to insure and repair the unit become.
(ii) Passing an insurance deductible by-law – typical of most personal insurance policies, the insured is required to pay the first part of the loss, called the deductible. However, depending upon its’ claims history, the corporation’s deductible can be extremely high, often exceeding $20,000. In the absence of an insurance deductible by-law, because it is specified to be a common expense, the corporation would generally be required to pay the amount of the deductible. The deductible payment is made out of the operating account. The Old Act permits the corporation to shift the deductible cost to an owner only if the damage is limited to the unit and only if it is caused by an act or omission of the owner (or their tenants/guests). The adoption of an insurance deductible by-law permits the corporation to extend circumstances in which it shifts the responsibility to an owner to pay the deductible. These circumstances can include situations where the damage also results to the common elements, as well as situations where the damage has not been caused by the owner’s act or omission, provided it is not caused by the act/omission of the corporation, its directors, agents or employees. The owner will often look to the unit insurance policy to cover the deductible costs. In this regard, the corporation’s declaration may require (or at least recommend) that each owner obtain insurance, which will cover their potential liability for the amount of the corporation’s deductible.
Simply put, the two by-laws described above enable the corporation to delegate to the owners much of the responsibility to insure and repair the unit after damage.
Changes in the New Act
With respect to the repair and maintenance obligation, the single most important change in the New Act is that it is now the owner’s responsibility to maintain and repair the unit. Subject to other provisions in the New Act, as well as the corporation’s governing documents, the corporation will continue to be responsible to repair and maintain the common elements.
This change does simplify the obligations to repair (and insure), since by making the owner responsible for the unit, the New Act patterns the situation found in a single residential dwelling where the owner must insure the entire dwelling. Limiting the corporation’s responsibility to the common elements should permit it to reduce its insurance coverage and ultimately insurance costs, given that the less one insures, the less that insurance should cost.
It is disappointing, however, that this provision in the New Act has also been made subject to what is provided in each corporation’s declaration. Unfortunately, most declarations simply repeat the language of the Old Act, stating that the corporation is responsible to repair the unit after damage. Accordingly, to take advantage of the more beneficial repair (and insurance) provisions found in the New Act, the corporation must amend their declaration, which will require the consent of 90% of the owners. Such a consent level is, to say the least, extremely difficult to achieve.
With respect to insurance deductible by-laws, the New Act provides that a corporation wishing to have such protection in place will be able to do so only by amending the declaration. Accordingly, as of November 1, 2017, the corporation must obtain the consent of 80% of the owners to include in the declaration a provision extending the circumstances for recovery of the insurance deductible1 . It will no longer be possible to do so by passing an insurance deductible by-law, which requires the agreement of “just” 50% plus 1 of the owners2 .
Prepared by Michael Spears
© Deacon, Spears, Fedson + Montizambert, 2017. All rights reserved.
1 – Such circumstances may, for example, include deeming an individual owner liable for the deductible where the cause of the damage emanates from that owner’s unit.
2 – At the present time it is unclear whether insurance deductible by-laws, already in place, will be “grandfathered” and continue to be operative once the New Act is implemented.