THE (NOT SO) NEW CONDOMINUM ACT
As a result of the introduction of the Condominium Act, 1998, R.S.O. 2001, as amended; (the “Act”), a number of new condominium development options were introduced. Having had the opportunity to act for condominium developers who are completing developments that take advantage of the “newer” concepts such as phased condominiums, common elements condominiums and vacant land condominiums, it seems that not all real estate lawyers acting for condominium purchasers appreciate the distinction between the different types of condominiums. This paper is designed to be a little refresher on the issue.
Freehold vs. Leasehold
In Ontario, condominiums are divided into two (2) main categories: Freehold and Leasehold
We do not see many leasehold condominium corporations (“LCC”) in our area, so I will not get into too much detail with respect to these. Suffice it to say, ownership in a unit is limited to the unit itself, with the condominium being created on leased lands. The underlying lease must be for a minimum of forty (40) years. The monthly common expenses will include a contribution for the lease of the lands. The benefit of a LCC is the reduced cost for the unit since the underlying lands are not being purchased.
Most condominiums we see in our area are of the freehold variety in which the developer/declarant owns the fee simple in the underlying condominium lands, and conveys the fee simple to the purchaser. There are four (4) types of freehold condominiums: Standard, Phased, Common Elements and Vacant Land.
Standard Freehold
This is the basic condominium that we have all come to know. The building or structure must be constructed on the property as a prerequisite of registration. The purchaser ends up owning one or more fee simple units within the condominium corporation with access to the shared common elements.
What actually comprises a standard unit within a condominium is of particular interest to any real estate lawyer acting on behalf of a purchaser, and the declaration, condominium plans and standard unit bylaw should be carefully reviewed by a purchaser’s lawyer in this regard. Hopefully by now you are familiar with the case of Orr vs. MTCC 1056, 2011 CanLII 66010 (OSCJ) in which the previous owner constructed a third floor living space into the attic of a townhouse condominium. Unfortunately for the purchaser who completed the purchase (and her lawyer), the third floor was not part of the standard two (2) floor unit but rather was part of the common elements. As a result, the third floor unit had to be turned back into an attic, and the purchaser’s lawyer was found to be negligent for failing to review the plans and advise the purchaser that the third floor did not form part of the unit.
You should also note that many developers will not create a separate “unit” for lockers or parking spaces, but rather the owner of a residential unit will have the exclusive use of such units attached to their residential unit. As a result, such parking or locker areas cannot be conveyed or sold separate from the residential unit. The courts will not allow for the amendment of the Declaration in order to accommodate the sale of exclusive use rights among private owners.
On a related note, purchasers need to be aware that any exclusive use amenities such as parking pads, backyards, patios and walkways, are actually located on the common elements as well. As a result, the installation of any additions to these exclusive use common elements, such as a deck or air conditioner, will likely require the consent of the condominium corporation, and the registration of a Section 98 agreement on title.
Finally, never assume that the unit number assigned by the Land Registry Office to the residential units or amenity units has anything to do with the municipal address or the plans that the developer has prepared for marketing purposes. When reviewing your client’s condominium purchase, pull out the plans and the agreement of purchase and sale with your client to confirm
- the limits of the standard unit that your client is purchasing;
- the location and extent of exclusive use common elements, and the maintenance requirements for such common elements; and
- the location of each of the residential, parking, locker and bicycle units being purchased.
- Phased Standard Condominium
Phased condominiums were created in order to address problems that arose when a developer wanted to complete a condominium project in stages. Prior to the introduction of phasing in the Act, a developer who wanted to develop a number of buildings in one project on a staggered timeline would have to register consecutive condominium corporations with complicated reciprocal easements and cost sharing agreements. Issues arose if the developer chose not to proceed with any of the subsequent condominium corporations as the promise of the shared costs of roadways and other facilities was not fulfilled.
Under the Act, the developer must set out the plans for phasing in the initial disclosure document and the disclosure documents for each subsequent phase. However, the developer is not obligated to proceed with any of the subsequent phases. In addition, the developer has ten (10) years within which to register the subsequent phases. The initial phase of the condominium must have all facilities and services installed (or sufficient security posted in lieu thereof) so that it is able to operate independently should the subsequent phases not be developed.
The initial declaration is registered as a single standard condominium, setting out that it is intended to be a phased condominium and will govern all of the subsequent phases. The registration of each subsequent phase is basically an amendment to the declaration. Eventually, all of the phases will be governed under a single declaration, set of bylaws and set of rules.
Common Elements Condominium Corporations (“CECC”)
There are no units in a common elements condominium, and the CECC is basically the common elements with parcels of land attached. Each of the owners of the CECC will be the owners of a piece of property identified in the declaration as a “Parcel of Tied Lands” (“POTL”). Upon the registration of the CECC, each POTL becomes permanently “tied” to the common elements and each POTL owner has a freehold interest in their POTL.
The common elements themselves will generally be features such as roads, sewers, parklands, trails, playgrounds or recreational areas. Each of the POTL owners will be responsible for contributing monthly fees for the maintenance and upkeep of the common elements and the condominium corporation has the right to register a lien against the POTLs.
The POTLs are generally not whole lots on a plan of subdivision, nor are they units in a condominium, therefore, you need to be concerned about Section 50 of the Planning Act. The POTLs themselves are generally created through the deposit of a reference plan and registration of a part lot control exemption bylaw, which allow for the registration of builder to builder transfers to establish the individual POTL lots and maintenance easements. As a result, you need to be mindful of the expiration of the part lot control exemption bylaw. For smaller CECC projects, the builder may obtain the consent to sever and create each POTL lot rather than obtain a part lot control exemption bylaw.
Prior to the registration of the CECC, each POTL will have its own Parcel Identification Number (“PIN”) and must be capable of being a separately conveyable parcel of land. Upon the registration of the declaration, the POTLs will not get a new PIN. The only new PIN that will be created is for the common elements.
When searching title, you will need to search your client’s POTL, as well as the adjoining lands in order to make sure there has not been any violation of the Planning Act. You will also be required to search the common elements PIN. Often, the developer’s lender’s mortgage will remain on the common elements PIN until discharged. You do not register the purchaser’s lender’s mortgage on the common elements PIN. Registration of the mortgage on the POTL lot is sufficient as the POTL cannot be conveyed separate and apart from the common elements.
Because your client will be acquiring the freehold title to the POTL, the interim occupancy rules and provisions in the Act will not apply. It is possible for your purchaser to take title to the POTL prior to the registration of the declaration, in which case the purchaser would become a party to the declaration acknowledging his/her consent to the attachment of the POTL to the common elements.
The Tarion Freehold Addendum is to be attached to the Agreement of Purchase and Sale for a new home and will apply with respect to the statutory warranty provisions and the delayed closing warranty.
Purchasers are obtaining a freehold title to the lands, and therefore are responsible for insuring the structures on the POTL. The CECC will obtain insurance for the common elements only.
Vacant Land Condominium Corporations (“VLCC”)
Of all of the forms of condominium ownership, this one most resembles purchasing a lot in a registered plan of subdivision. The main difference is that, rather than the municipality assuming the roads and services within the subdivision, the unit owners will share in the ownership of the roads and services as part of their common elements.
Like a plan of subdivision, the declaration for a VLCC may contain construction restrictions with respect to the size and location of the buildings to be constructed on the units, as well as with respect to materials, architectural and construction standards, and maintenance requirements. Such restrictions will last into perpetuity unless the Declaration states otherwise, meaning future construction or renovations could require an amendment to the Declaration.
In a VLCC, the condominium is generally registered prior to buildings being constructed on the lands and can be registered prior to the common elements being completed.
These types of condominiums cannot be a high rise building (in that the subdivision is horizontal only although a unit can technically be created above another condominium or freehold parcel). In addition, no buildings or structures can straddle the unit line. Therefore, this form of condominium ownership cannot be used for the development of townhomes, semi-detached or shared wall structures. A multi-dwelling building could exist on one unit, but it would have to be a rental building, with one (1) owner, and would have to be in compliance with construction requirements as provided for in the declaration.
In the event the common elements have not been created at the time of the registration of the declaration, the declarant is required to post a bond or other security satisfactory to the municipality in order to ensure that the common elements will be completed. The common elements constructed at the time of the registration of the declaration or due to be constructed will be set out in the Engineers/Architect’s Certificate.
Marketing and sales of the units in a VLCC is prohibited until draft plan approval is obtained, and therefore any agreement of purchase and sale entered into prior to draft plan approval being obtained is voidable at the option of the purchaser.
The insurance for any buildings constructed upon the vacant land units must be obtained by the owners although the VLCC will carry insurance with respect to the common elements.
Where the purchaser buys the construction of a new home from the vendor at the same time as the purchase of the unit in the VLCC, the Tarion Freehold Addendum is to be attached to the Agreement of Purchase and Sale. Where the purchaser only purchases the unit from the vendor and hires a builder or contractor to construct the home, the Tarion warranty will be applied in the same manner as a home being built in a regular construction lot.
As published in the Hamilton Law Association Newsletter in August, 2012 by Catherine Buntain Jeske
