Part 48 published on 01/11/14
Appeal dismissed. Agreement to limit developer’s liability, entered into by developer-controlled Board, found binding and enforceable.
At a time when the condominium Board was controlled by the developer, the condominium corporation passed a by-law which authorized the condominium corporation to enter into an agreement with the developer, stating that the developer’s liability to the condominium corporation (for building defects) was limited to the developer’s obligations under the Ontario New Home Warranties Plan Act. The condominium corporation then entered into the agreement.
After the developer was no longer in control of the condominium corporation, the corporation applied for a declaration that the by-law and agreement were void and of no force and effect. The condominium corporation was not successful at the lower Court. [See Condo Cases Across Canada, Part 44, November 2013.]
The condominium corporation appealed the decision to the Court of Appeal, and the appeal was dismissed. The Court of Appeal said:
The by-law and agreement were disclosed to the individual unit purchasers and that the by-law was placed on title giving notice to the world of its terms. In these circumstances, I see no basis for finding that in passing the by-law and entering into the warranty agreement the directors acted in violation of their duties or for concluding that the by-law was ultra vires.
…
The consideration for the warranty agreement is to be found in the creation of the condominium project as a whole. The unit owners, as a group, own all of the common elements and their purchase from the declarant includes both the purchase of their respective units and, in the aggregate, the purchase of the common elements…
…
There is nothing inherently unreasonable in a declarant limiting its liability for construction deficiencies in the manner done here.
[Editorial Note – it seems to me that this decision may still leave some unanswered questions:
1. Is the decision confined only to warranty claims – not to tort claims? The first paragraph of the decision refers very specifically to limits upon the declarant’s warranties.
2. Along the same lines, is this decision only intended to apply to deficiencies that are covered by the Tarion warranties (ie, warranties under the Ontario New Home Warranties Plan Act)?
The decision includes the following sentences: “There is no suggestion that, when it entered into the agreement, the declarant knew of any deficiencies that would not be covered by the Tarion Warranty Corporation process. All of the construction deficiencies identified to date are being addressed within that process.” So, again, is this decision only saying that the condominium corporation is obligated to pursue the Tarion claims process (as opposed to a Court process) when the Tarion claims process applies or is available in relation to a particular defect?
3. Does the decision also apply to tort claims (for instance, claims for negligent design, inspection or construction) derived from the rights of subsequent purchasers?
4. Would such an agreement (between a declarant and a condominium corporation) prevent the corporation from asserting claims against others involved in the original construction, such as engineers, architects, the municipality, contractors or the builder?]