The Dirt: Changes to common elements among trends as condos age

Condominium legislation has been available in Ontario for decades, went through at least one massive overhaul in 1998, and is about to go through another revamp any day now after an exhaustive public consultation and review process.

The government’s goal was to have residents and industry experts work together to identify issues and develop recommendations to modernize the Condominium Act. By all accounts, this collaboration has been a success. The Ontario Ministry of Government and Consumer Services has been busy converting this extensive public input into new condominium legislation ever since with Marko Djurdjevac, Crown counsel with the legal services branch, assuming the legal lead on what promises to herald some of the most exciting new developments in condominium law since the creation of the first condominium in Ontario.

New condominium legislation in Ontario would be timely. Ontario is now home to more condominiums than any other jurisdiction in the western world. Toronto alone currently has approximately 260,000 condominium units.

At the same time, much of Ontario’s existing condominium stock is beginning to age and one of the ways that maturity is manifesting itself is through the common elements. Many amenities that were popular at the time of construction have long since become redundant. For example, some urban condominiums close to public transit with large common-element parking structures or other automobile-centric infrastructure are finding that other uses, such as extra locker space, are eclipsing the demand for such facilities. In other condominiums, outdoor and underground spaces formerly dedicated to recreational purposes are seeing little use.

In many condominiums, corporations can convert superintendent suites (all of which are common elements) to very saleable ground-floor units. In some condominiums, some outdoor exclusive-use common elements (like backyards and balconies) might better serve the residents by closing them off and adding them to the adjoining units themselves.

Concurrently, condominium corporations of almost all stripes are looking for ways to hold the line on their common expenses. While some common elements see little use, the common expenses to operate and maintain them continue to go up, especially at some older buildings using outdated technologies or simply facing the reality of years of deferred capital spending.

As Odysseas Papadimitriou of Miller Thomson LLP points out: “For many of these older condominiums, it is not simply a matter of utilizing common-element space in a way that better suits residents’ needs; it is, instead, a matter of raising desperately needed cash to either top up reserve funds or to ameliorate the impact of common-expense increases or even special assessments.”

While condominium corporations have care and control of all common elements for the benefit of the unit owners, their directors, even if they’re unanimous in their decision, can’t convert common elements into saleable units simply by passing a resolution. This type of major amendment requires a super-majority vote by unit owners. For instance, s. 107 of the Condominium Act requires a 90-per-cent vote of unit owners for such a major amendment, something that’s no simple task in almost any condominium corporation and is virtually impossible in some of the really big ones that exist nowadays. Similar provisions for super-majority approval exist in almost all other jurisdictions that have statutory condominium ownership, and rightly so as converting the common elements into saleable units can be a drastic change to the character, value, and use of a building.

Although amending a condominium declaration to convert underutilized common elements into saleable units is becoming more common, such conversions aren’t without some legal intricacies. In some jurisdictions, the condominium corporation itself owns the common elements. This isn’t technically the case in Ontario since the passage of the act in 1998. While it’s fair to say that the condominium corporation has care and control of the common elements for the benefit of the unit owners, in Ontario the unit owners collectively own the common elements in accordance with their respective percentage-ownership interests as scheduled in the declaration.

So in a hypothetical condominium of 100 units, all of the unit owners technically own the common elements with each having an undivided interest of one per cent. Moreover, even after 90 per cent of such owners have voted to amend the declaration pursuant to s. 107 of the act, immediately after converting the condominium common elements, the resulting saleable units are then owned in the same way as immediately before the conversion: by all of the unit owners, as co-owners, with each having an undivided interest of one per cent.

To sell such converted common elements, all 100 owners will then have to sign a transfer. While a vote of 90 per cent of unit holders is extraordinarily difficult to obtain as is, the concurrent co-operation of 100 per cent of all owners on almost any issue is all but impossible.

Of course, this feature of the act shouldn’t — and apparently hasn’t — deterred condominiums from converting such underutilized common elements into saleable units. There are a number of legal techniques available to real estate lawyers to avoid the difficulties involved, but the most elegant and perhaps cheapest legal fix is for the condominium corporation to apply to the courts for a vesting order confirming that it owns the title to the newly formed units rather than the unit owners collectively as undivided cotenants.

From a policy perspective, there’s no reason why a court shouldn’t allow the condominium corporation to own the new units until it can sell them off to buyers (or sometimes the court order will put the title directly into the names of the new buyers with the proceeds payable to the condominium corporation in cases where it has already ascertained the purchasers) since this type of vesting order would merely make practical what the legislation seems clearly to have intended in theory.

Even with such logistical hurdles to go through, the frequency of such condominium common-element conversions continues to increase, something that’s a testament to the changing demographics and demands of unit owners.                                

Jeffrey Lem is editor-in-chief of Real Property Reports and director of titles for the province of Ontario. The opinions expressed in this article are personal to him and not attributable or referable to the Ontario government.

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