Part 44 published on 01/11/13
Agreement to limit developer’s liability, entered into by developer-controlled Board, found binding and enforceable
The condominium corporation applied for a declaration that one its by-laws, and the related agreement between the condominium corporation and the developer, were “void and of no force and effect”.
The original Board, controlled by the developer, had entered into the agreement and arranged for the by-law to be passed (at a time that when the developer still owned a majority of the units). The agreement said that the developer’s liability to the condominium corporation was limited to the developer’s obligations under the Ontario New Home Warranties Plan Act. The by-law required the condominium corporation to enter into the agreement, and purported to prevent the condominium corporation from terminating or breaching the agreement.
The court described the positions of the parties as follows:
- “The (condominium corporation) says that the by-law and the agreement were ultra vires the board of the (condominium corporation) and are contrary to the Condominium Act, 1998, S.O. 1998, c. 19. They say that the agreement was not in the best interests of the (condominium corporation), and that no reasonable board of directors would have agreed to it.”
- “The (developer) says that, as a developer and builder, it is entitled to limit its liability to the statutory provisions of applicable legislation. It has done so in agreements of purchase of sale with individual unit-owners. In the impugned agreement it has done so with the condominium corporation. There is no other practical way for the developer to limit its liability.”
The Court agreed with the developer and dismissed the condominium corporation’s application.
The Court said:
- “A developer of a condominium is entitled to limit its risk, in much the same way that a builder of new homes may do so. The only mechanism for implementing such a limitation in respect of the common elements in a manner consistent with the notice requirements under the Condominium Act is an agreement to this effect between the developer and the condominium corporation that is (a) disclosed in advance to prospective purchasers; and (b) is registered on title so that subsequent purchasers will have notice of it.”
- “… I note that the limitations on the (developer’s) liability to the (condominium corporation) were included in the original disclosure made to unit-purchasers, are contained in the agreements of purchase and sale with those unit holders, and were registered on title to the project once the by-law was enacted. In this way, owners and potential owners had notice of the limitation of the (developer’s) liability in respect to the project.”
The Court noted that the condominium corporation could amend its by-laws, but this would nevertheless leave the agreement “unscathed”.
[Editorial Note: I believe that the Court might have come to a different decision if the by-law and agreement had not been in keeping with the previous disclosure to the unit purchasers.]