How can a condominium corporation disclose what it doesn’t know?
A recent Ontario Court of Appeal decision sheds some more light on the effect of the failure to disclose certain declaration violations in a status certificate issued by a condominium corporation. Unfortunately, as discussed below, the decision also raises a number of difficult questions for condominiums, managers and unit owners, which can be summarized as “how can you disclose what you do not know?”
In the case of Metropolitan Toronto Condominium Corporation No. 723 v. Reino, released in March 2018, the Court of Appeal decided that a status certificate bound the condominium with respect to the party who requested it (the current owner), but not necessarily any future owner.
The facts are essentially as follows. In 2013, respondent Dante Reino purchased the subject residential condominium unit from his mother. A status certificate was requested from the condominium, and a ‘clean’ certificate was issued. A ‘clean’ certificate had also been issued in 2004 when Mr. Reino’s mother purchased the unit from an undisclosed third party.
Subsequently, Mr. Reino sought to sell his unit in 2016, and requested a new status certificate. At this point, the condominium disclosed in the new status certificate that the unit was in breach of the declaration due to unauthorized alterations to the unit, being the addition of a second bedroom and relocation of the kitchen. The status certificate stated that the condominium was not willing to allow the alterations to remain and that the condominium may require the removal of same, with the costs of removal to be added to the common expenses.
It appears that the unapproved alterations were made sometime before the issuance of the 2004 status certificate, by a previous owner.
Mr. Reino then applied to the Ontario Superior Court for relief. The trial level judge agreed with Mr. Reino’s position that the condominium was bound by the earlier certificates and that the condominium could not now make such a reference in the status certificate. That is, the court decided that the condominium was estopped from issuing anything but a ‘clean’ status certificate going forward.
The Court of Appeal overturned the Superior Court’s findings. The Court of Appeal’s key findings in this case were as follows:
The 2013 status certificate binds the condominium with respect to the party who requested it and relied upon it (the current owner). That is, the condominium cannot require Mr. Reino to remove the unapproved alterations.
However, the condominium can (and in fact has a duty) to include the corrected information in the 2016 status certificate such that the condominium can enforce the removal of the alterations against a subsequent owner of the unit.
If Mr. Reino considers that the unit has lost monetary value due to the omission of the reference to any unapproved alterations in the 2013 status certificate, he may have a claim for damages against the condominium if there was a negligent misrepresentation.
The Court of Appeal did not rule one way or another concerning any negligence of the condominium or manager. There was brief mention, however, that condominium representatives had been in the unit on numerous occasions over the years.
This decision raises a few questions:
In the absence of any finding that the condominium was negligent in failing to mention the unapproved alterations, is it really reasonable that the current owner cannot be held responsible for compliance with the declaration? This does seem open to dispute if, for example, the corporation was completely unaware of the renovations when the 2013 status certificate was issued.
Does this decision then, in effect, make a unit inspection prior to issuing the status certificate advisable or mandatory? Is the court stating that the condominium in issuing a ‘clean’ status certificate essentially certifies that there are no breaches of the declaration (or bylaws or rules) with respect to the unit?
Was there some underlying assumption that the condominium ought to have included a reference or that the condominium may have been negligent? Maybe, but not in so many words.
The Reino decision differs from the earlier 2014 Court of Appeal decision of Orr v. Metropolitan Toronto Condominium Corporation No. 1056. This case also involved the failure to identify an unauthorized alteration in a status certificate. In Orr, a previous owner had without authorization built a living space into a common element attic. Ultimately, the condominium was essentially not successful in seeking that the current owner remove the renovations at her expense (and the parties incurred much more than $1 million combined on legal costs of the litigation).
However, the condominium in Orr actually made a statement in the subject status certificate to the effect that ‘there are no continuing violations of the declaration.’ In the absence of such a statement in a status certificate (which should essentially never be made in any event), it is unclear why a condominium should be held accountable to disclose violations of which it is not aware since “you can’t disclose what you don’t know!”
The Orr decision indicated that performing a unit inspection may not be advisable as this could provide grounds for a dispute, should any violation not be identified during an inspection. That is, the fact an inspection may create a presumption of no violations. Reino would appear to create a presumption that no violations exist with a ‘clean’ certificate, even without an inspection.
It’s now a matter of wait and see how the case law develops and how these situations are resolved in practice. For example, if there was a hidden declaration violation of which the condominium could not possibly be aware, and no mention in the status certificate as a result, could the condominium enforce against the party who requested the certificate? The decision in Reino seems to say no, but perhaps there will be some further judicial interpretation in the future based upon different facts. What if such an unauthorized alteration in the future begins to affect other units or the common elements? Would there still be no recourse to enforce against the owner?
Condominiums might consider a ‘disclaimer’ in the status certificate to the effect that no unit inspection has been performed and that any subsequent owner shall be responsible for addressing any violations relating to the unit which may subsequently be discovered. It is unclear what the legal effect of taking such a step may be, but it might conceivably be helpful for a condominium if a dispute were to arise. Would such a provision have affected the outcome in Reino?
The Reino decision is relatively brief, but creates a lengthy list of questions, which again may require further judicial interpretation based on various fact scenarios that may arise.
A version of this article was first published in CondoBusiness magazine