Orr / Rainville v MTCC 1056 and Gowlings (Ontario Superior Court of Justice)

MTCC 1056 is a 39-unit townhouse condominium and is one of three 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 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 declaration of the condominium – until he sold the unit. Weldon agreed to sell the unit in 1997 and the sale closed in early 1998. 

Prior to the sale, the “illegal third floor” was not brought to the attention of the other Board members or the property manager (by Weldon) 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”. 

The purchaser’s lawyer did not review the survey plans with the purchaser prior to closing. The purchaser closed the transaction without knowledge of the fact that the third floor was illegal. 

After the purchase, the purchaser learned of the illegal third floor and also discovered numerous other deficiencies (including water penetration and resulting damage).  The purchaser carried out extensive repairs and renovations, including repairs to the common elements, even after being told by the condominium corporation that the corporation would attend to all required common element repairs and that the purchaser should not carry out any such repairs. 

The purchaser sued the condominium corporation, the purchaser’s lawyer (on the purchase transaction) and the property manager for (among other things): 

• An order amending the Declaration and Description in order to legalize the third floor;
• Damages for all of the purchaser’s repair and renovation expenditures;
• Damages for oppression. 

[A separate claim by the purchaser against Weldon had previously been settled.] 

The condominium corporation sued the purchaser for (among other things): 

• An order directing the purchaser to cease any further work without the Board’s consent;
• An order requiring the purchaser to reinstate the attic to its original condition, plus reasonable compensation for the purchaser’s use of the attic space. 

The condominium corporation also sued Weldon (as third party) for: 

• Indemnification for any amounts found owing by the condominium corporation to the purchaser;
• Reasonable compensation for use of the attic space (during Weldon’s period of ownership of the unit). 

The Court declined to order any amendment to the corporation’s Declaration or Description.  Instead, the Court ordered the purchaser to reinstate the attic to its original condition.  Furthermore, the purchaser (and Weldon) were liable to the condominium corporation for reasonable fees for use of the common elements (during their respective periods of use of the third floor). 

The Court found that the condominium corporation and property manager had no liability to the purchaser even though the problems were not mentioned in the corporation’s estoppel certificate. [Note:  The certificate was issued before May 5, 2001, so the former Condominium Act applied to the issuance of the certificate.]  The Court said: 

It is not the obligation of a property manager to conduct an investigation to determine if there has been duplicitous conduct on the part of a unit owner which might somehow compromise the title to a unit, prior to issuing a certificate. 

And even though a principal of the developer had been on the Board, the Court said that his knowledge was not attributed to the corporation as a whole (on the facts of this case).  Furthermore, the corporation was not vicariously liable for Weldon’s actions (because he did not take those actions in his capacity as a director or as a directing mind of the corporation).

The Court found that the purchaser’s lawyer was liable to the purchaser for damages specifically relating to the illegal third floor.  The Court said that this discrepancy should have been detected by the lawyer. 

Finally, the Court agreed that the purchaser had no right to carry out common element repairs without authorization from the Board.  [The Court also held that the corporation had met its repair obligations, by repairing the roof above the unit, rather than replacing the roof as demanded by the purchaser.]  Nevertheless, the Court held that the purchaser should be paid ½ of her costs incurred for common element repairs up to the time she received written notice from the corporation to stop such work. 

Some of the Courts specific rulings were as follows: 

• There was no error or inconsistency which justified an amendment to the Declaration under Section 109 of the Condominium Act, 1998 (“the Act”).
• “Nor do I agree that because the third floor of (the townhouse) was constructed prior to the registration of the Declaration, it was an oversight which ought to be remedied by the Court.”
• There was no basis for an oppression claim against the condominium corporation.
• “A condominium corporation must consider the rights of all of its unit owners and not prefer the position of one over another.”  In this case, the condominium corporation had initially considered the possibility of “legalizing” the third floor permanently, and then had considered the possibility of permitting the purchaser to continue using the third floor only until the purchaser sold the unit.  The corporation concluded that it is not reasonably possible to permanently legalize the third floor for two reasons:  (1) Other owners could not be refused the same opportunity (to convert their third floors), and (2) Ultimately, the third floor conversions could cause the two sister corporations to seek adjustments to the cost-sharing agreement between the three corporations.
• The Court said:  “It is not simply the issue of what is fair or unfair to the (purchaser) that I must consider; I must consider what is fair or unfair to all of the unit owners.  In my view, legalizing the (purchaser’s) third floor at this time would have consequences that would be unfair to other unit owners in MTCC No. 1056.”
• “As a general rule, the Court will favour enforcement to preserve the integrity of the Declaration.”
• “The failure of (the purchaser’s lawyer) to go over with (the purchaser) the plans showing her unit prior to closing the deal, in my opinion, was a breach of the standard required of a solicitor in similar circumstances acting on a condominium transaction in 1998.”
• In addition to all other orders, the condominium corporation was entitled to $50,000 of punitive damages against Weldon. 

[Editorial Note:  This decision is under appeal.]