History of Shared Facilities Agreements
When the Ontario Condominium Act was first registered in 1968, it served one main purpose – to provide a set of rules and guidelines for owners of a single condominium to live harmoniously. However, when more than one condominium corporation share assets, this creates a need for different condominiums to get along with each other and can prove to be quite challenging. The recent amendments to the Condominium Act (1998) are meant to provide clarity for these shared assets.
21.1 Subject to the regulations, if any of the following persons or any combination of them share or are proposed to share in the provision, use, maintenance, repair, insurance, operation or administration of any land, any part of a property or proposed property, any assets of a corporation or any facilities or services, they shall enter into an agreement that meets the prescribed requirements and shall ensure that it is registered in accordance with the regulations.
This means that for any group of condominiums that share assets, a Shared Facilities Agreement (SFA) must be created. These agreements are designed to provide a framework for determining cost sharing for the assets.
What is the Root Cause Behind this Recent Change?
Unfair cost allocations have been front and center around what once was a vague iteration of how to split the costs of shared facilities. Previously, under section 113 and 135 of the Act:
- Under Section 113, which states that where a corporation has entered into a SFA prior to the turn-over meeting, then within 12 months following the election of a new board at such turn-over meeting, any party to the SFA may make an application to the courts to amend or terminate the agreement if (a) disclosure of the terms of the SFA was inadequate or (b) the agreement produces a result that is oppressive or unconscionably prejudicial to the corporation or any of the owners;
- The more general provision, Section 135, which permits an application for the oppression remedy by an owner, corporation, declarant, or mortgagee of a unit.
Toronto Standard Condominium Corp No 2130 v York Bremner Developments Ltd, 2016 ONSC 5393 (“York Bremner”) brought to the forefront some of the frustrations that many condominium corporations faced when it came to Shared Facilities Agreements.
In this case, the Court found that York Bremner’s conduct rose to the level of oppression due to unclear disclosure of the terms of the Shared Facilities Agreement. It was determined that the declarant had used unfair terms that was self-favouring and that it was not clearly stated who the Common Facilities Manager was – who would have been solely responsible for managing and allocating the costs for the shared facilities. It is interesting to note that prior to this case, there had been no jurisprudence on the interpretation of Section 113, therefore the case had gone on the basis of first principles. The case has been appealed to the Court of Appeal by the declarant since then.
Determining Replacement Cost for Shared Facilities
Due to the recent change in the Condo Act, we have received many requests to appraise shared facilities and we expect many more as more condominiums realize that their shared assets must have such an agreement. As insurance appraisers, we are called upon to determine a replacement cost estimate for the shared assets because insurance of those assets is one of the requirements.
We have witnessed a huge variety in the scope and complexity of these Shared Facility Agreements. We have seen simple agreements where two condominiums share a recreational building and the proportionate share of maintenance, repair and so forth is determined by a simple percentage split. We have also completed appraisals on very complex shared facilities where the proportion of responsibility for specific assets such as HVAC systems, pools, amenity rooms, and elevators vary between the corporations but also vary for each asset. As appraisers this means we are tasked with relatively simple jobs in some cases but very complicated jobs in other cases, requiring specific line-item valuations for each asset.
The appraiser skill and experience required to do a good job therefore is quite unique for these shared facilities. Before we quote on these jobs, a thorough review of the agreements and other documents must be done to estimate the number of days that will be required. Upon approval, a property inspection takes place and an inventory along with photographs are obtained. Following that, the research into reasonable replacement costs for the assets are done and an appraisal report is created and sent to the client.
Hiring a qualified insurance appraiser can help you check the insurance requirement off your list. An appraisal will help provide clarity of coverage to the different corporations and will help reduce conflicts that may arise.