Orr/Rainville v. Metropolitan Toronto Condominium Corp. No. 1056 (Ontario Court of Appeal)

MTCC 1056 is a 39-unit townhouse condominium and is one of 3 sister corporations which share certain facilities.  Richard Weldon (“Weldon”) was one of the principals of the original developer of the project.  Weldon had acquired one of the units and had “expanded the unit” into the common elements (namely, the third floor attic) without Board approval.  This work had started before, and was completed shortly after, the condominium was declared.  No related amendments were made to the declaration or description.  The registered description (in particular, the survey plans) showed the townhouse as a two-storey unit with a common element attic space above.

Weldon was on the Board of Directors (along with another representative of the developer) for the first few years after the declaration of the condominium – until he sold the unit.  Weldon agreed to sell the unit in 1997, and the sale closed in early 1998.  The purchaser (Ms. Rainville) believed that she was buying a three-storey townhome.

Prior to the sale, the “illegal third floor” was not brought to the attention of the other Board members or the property manager and was discovered by them only after the unit was sold.  The estoppel certificate issued to the purchaser (in 1997) did not include mention of the “illegal third floor”.  However, the estoppel certificate stated that “there are no continuing violations of the declaration, by-laws and/or rules of the corporation”.

The trial decision, rendered in August of 2011, essentially placed responsibility on the lawyers who acted for Ms Rainville on the purchase.  The trial judge dismissed the key claims against the condominium corporation and its manager. [See Condo Cases Across Canada, Part 36, December 2011.]

The decision was appealed, and the Court of Appeal held that the condominium corporation was also liable to Ms Rainville; and the condominium manager was liable to the condominium corporation.  Some of the key reasons for the Court of Appeal’s decisions were as follows:

1. As noted above, the estoppel certificate said that “there are no continuing violations”.
2. The manager had noticed a window on the third floor, which should have led him to further investigate the possibility of an illegal third floor.
3. The Court said that “there was an obligation on MTCC 1056 to take reasonable steps to ensure the information in the estoppel certificate was correct, even if the information was not statutorily mandated.  This obligation flows from the common law and not from the statute.”
4. The Court of Appeal held that the manager’s failure to make virtually any inquiries into the veracity of the representation that the townhouse complied with the declaration was “not reasonable or prudent in the circumstances, and could not meet any reasonable standard of care”.
5. The Court of Appeal said:  “It follows from this conclusion and the incorrect statement in the estoppel certificate that MTCC 1056 is estopped from demanding that Ms. Rainville close up the third floor and restore the unit to its two storey configuration at her own expense and that she pay occupancy rent for the third floor.”

The Court of Appeal held that the manager, as agent for the condominium corporation, was not directly liable to Ms. Rainville.  However, the manager was liable to the condominium corporation.

In addressing the manager’s liability to the condominium corporation, the Court of Appeal also addressed the corporation’s knowledge of the problem.  The manager had argued that the condominium corporation had a duty (under the terms of the management agreement) to share its knowledge with the manager – including the knowledge of any of the Directors (such as Mr. Weldon).  The Court of Appeal was not prepared to impute such knowledge to the corporation in this case.  The Court of Appeal said:

I am reluctant to impute the knowledge of a condominium director to its board as a general matter.  Doing so would have the potential to vastly increase the liability of condominium corporations and would certainly make risk management on their part all but impossible.

[So, the corporation’s liability in this case was not based upon its knowledge, but rather upon its failure to confirm the statement added to the estoppel certificate.]

The Court of Appeal agreed with the lower court that an amendment to the condominium’s declaration and/or description could not be ordered, because there was no error or inconsistency.  However, the Court of Appeal went on to state as follows:

That said, the interests of the parties now array somewhat differently. Perhaps the way for the parties to sort out their respective liabilities at the least cost would be for the third floor to be legalized.  MTCC 1056 may now wish to consider whether the appropriate course of action is to legalize the third floor (of Ms. Rainville’s townhouse).

In summary, the Court of Appeal said that MTCC 1056 and Ms. Rainville’s lawyers were jointly and severally liable to Ms. Rainville for the difference between the value of her townhouse as a two-storey unit and its value as a three-storey unit; but this damage could of course be significantly moderated if the parties decided to legalize the third storey. 

The Court of Appeal also overturned the lower Court’s ruling respecting Ms Rainville’s repairs to the common elements.  The Court of Appeal said:

MTCC 1056 had a statutory obligation to repair the common elements…The stop work letter did not shift this responsibility from MTCC 1056 to Ms Rainville.  The trial judge made a factual finding that Ms Rainville incurred reasonable expenses of $41,681 to make necessary repairs to the common elements (although Ms Rainville claimed to have spent more).  Under both the relevant legislation and MTCC 1056’s Declaration, MTCC 1056 must reimburse Ms Rainville for this full amount, not simply one-half as the trial judge concluded.