Ontario Condo Law Blog : Toronto Condominium Lawyer & Attorney : Gardiner Miller Arnold Law Firm : Ontario, Ottawa, Hamilton, Kitchener

An Ombudsman For Everyone? Apparently Not – Colorado HOA lawyer Mark Payne reports on that state’s trials and tribulations in passing law to appoint an HOA information officer.

Overhauled Ombudsman Bill Passed by the Senate – Molly Healy-Jones of Colorado’s HOA Legi-Slate blog gives more details about their new ombud law.

Skype and ROC Board Meetings – Florida resident-owned community lawyer Scott Gordon extols the virtues of using Skype as an inexpensive and efficient way for board members to hold meetings. Good stuff.

Thoughts Regarding the 2010 CAI Conference – In the recently-launched Condominium Insurance Law Blog by Merlin Law Group in Florida, Corey Harris reflects on the successes and continuing importance of the Community Associations Institute.  

CAI Soars At 30,000 – Over at CAI’s own blog, president Tom Skiba sums up his organization’s past year of growth and successes, capped by a very successful annual conference. Congratulations to CAI.

What Generation are Your State’s Common Interest Laws? – American condo/HOA law buffs will value Lincoln Hobbs’ observations about how to date or classify the community association laws of each state.

What were they thinking? Going without insurance is not an option – Donna Berger leads the head-shaking about the story of the Florida condo that cancelled its insurance policies to save money and was subsequently destroyed by fire.

5 Things Every Buyer Should Know about Model Suites -- Toronto realtor Andrew la Fleur shares some suggestions to help prospective new condo buyers avoid being flabbergasted by developers’ model suites.

Board Members: Making the Difficult Decisions – Oregon lawyer Michael Montag correctly points out that “as an HOA board member, you’re constantly between a rock and a hard place.”   He then offers some strategies for getting out from under the rock.

10 questions to demand of your board candidates – New York realtor Malcolm Carter suggests 10 questions to help unit owners decide whether to re-elect board members. Hopeful incumbents would be wise to answer these questions in their campaign speech.

Honesty & Transparency in Association Governance – Michigan condo and HOA lawyer Robert Meisner shares a tale of a condo board passing budgets and making decisions with a clearly apparent lack of process and procedure.   This kind of situation occurs all too often and creates mistrust and suspicion among owners, leading to serious divisions in the community.

 The property manager: Dean McCabe, Regional Manager at Brookfield Residential

• Social media can enhance communication and transparency at your condo
• Condo concierges must now comply with security guard regulations
• Revision to Toronto waste levy may allow for better price comparison with private providers 
• Hiring staff vs. contractors: pros and cons to each

The lawyer: Chris Jaglowitz, Lawyer at Gardiner Miller Arnold

• Proposed changes to Tarion claim process includes new time limits and monetary caps
• Workplace violence and harassment law comes into force June 15, 2010. Get ready!

The engineer: Sally Thompson, Group Leader at Halsall Associates

• The real impact of HST: Average 5% increase for reserve fund, about 5-7% for operating
• Consider including copper pipes as a deficiency item in condo performance audits

The insurance broker: Mark Shedden, VP at Atrens-Counsel Insurance Brokers:

• Past year was bad for claims and capacity - Premiums/deductibles are on the rise
• $2,500 is now standard deductible for most claims. $5K on the horizon
• $75,000 deductible for water claims in large buildings now coming to the scene
• Look into “condo providers liability insurance” as a low cost way to cover off potential risks from social events or activities

A PDF copy of our entire PowerPoint presentation is available for download here.

Cheers to Pam Boyce at Brookfield for moderating this panel and thanks to everyone who came to our presentation.   If you weren't able to join us, make it a point to attend PM Expo on December 1-3, 2010 and plan to visit Springfest next year!

Calgary condo built in 2008 condemned to demolition after major fire - (via CTV Calgary): http://bit.ly/9KtVOP

Burned-out condo likely to be rebuilt, but not all owners/occupants insured their possessions - (via @calgaryherald) http://bit.ly/9lQ1KZ

Cigarette in balcony flower pot started blaze destroying 159-unit wooden condo bldg; 300 homeless - (via @Calgarysun) http://bit.ly/blILwN

No plans to rebuild yet, but unit owners at burned-out Calgary condo must still pay their mortgages (via CTV Calgary) - http://bit.ly/cTRIo7

Owners at fire-gutted Calgary condo to hear reports then vote on rebuilding; work will take a year (via @660News) - http://bit.ly/9HcYuj

The Millrise condo was built a year before Alberta’s Building Code was amended to require installation of sprinklers in the attics and balconies of similar buildings. The building was built to the standards in the 2008 Building Code. As such, it did not contain sprinklers in the attics and balconies which, according to Calgary’s Chief Building Official, would have made a big difference in extinguishing this fire before it could get out of hand. 

The news articles also revealed that many of the 300 owners and occupants lost their worldly possessions and many people didn’t have proper insurance. All of them lost their homes and now face the unusual situation of deciding whether to rebuild the condo or terminate the corporation, divvy up the insurance money and walk away.   Unless the owners are of the same mind, a court application is probable, which will add to the cost, delay and frustration.

In Ontario, a condominium corporation that suffers massive damage must follow the procedure set out in section 123 of the Condominium Act, 1998.    Thankfully, the section is not needed often since there have been few or no cases where it has come into play. Since it’s not a well-known section, here is the full text:

Termination upon substantial damage

123.  (1)  The registration of a notice under subsection (7) terminates the government of the property by this Act.

Definition

(2)  In this section,

“substantial damage” means damage for which the cost of repair is estimated to equal or exceed 25 per cent of the replacement cost of all the buildings and structures located on the property.

Estimates of damage

(3)  If damage occurs to a building or a structure located on the property that, in the opinion of the board, may constitute substantial damage, the board shall have at least two persons, who shall have no affiliation with the board and who, in the opinion of the board, are qualified, make estimates of the damage within 30 days after the occurrence of the damage.

Determination by board

(4)  The board shall determine whether, based on the estimates, there has been substantial damage.

Notice of determination

(5)  If the board determines that there has been substantial damage, it shall give notice of its determination to the owners.

Contents of notice

(6)  The notice shall specify that,

(a) the owners have the right, in accordance with section 46 and within 30 days of receiving the notice, to requisition a meeting of owners; and

(b) the board is required to register a notice terminating the government of the property by this Act if the condition described in subsection (7) is met.

Vote for termination

(7)  The board shall register a notice terminating the government of the property by this Act if the owners of at least 80 per cent of the units, at the date of the vote, vote in favour of termination.

Form of notice

(8)  The notice shall be in the form prescribed by the Minister and shall be signed by the authorized officers of the corporation.

Time of registration

(9)  The board shall register the notice within 30 days of a vote in favour of termination under subsection (7).

Repairs if no termination

(10)  If there is no vote in favour of termination under subsection (7), the corporation shall, within a reasonable time, repair the damage to the building or structure located on the property.

Note that the threshold for terminating a condominium is a tough one – the owners of 80% of all of the units must vote in favour of termination.   If that threshold is not met in a case where a condo suffers substantial damage, then the corporation must repair the damage “within a reasonable time.”    Owners could be out of their units for a long time.

Consider also whether there may be difficulty serving notice of the board’s determination under section 123(5) in a case where residents are forced to live away from the building.   How could you practically serve the requisite notice so as to get a high level of participation at a special meeting for a termination vote when the owners of a large condo are out of their home due to a fire or catastrophe?   In such a case, management would need to think quickly and devise a special register to collect owners’ contact details.

One of the major factors that would likely decide the vote about whether to terminate a condo corporation is whether there is sufficient insurance money to repair or rebuild the place.  If the insurance is inadequate, the unit owners would need to pay the shortfall to repair or replace the building. This would create an even greater burden on owners who would already be paying for temporary lodging and still paying their mortgages.  Most owners in this situation would probably prefer to terminate the condo and take their share of the corporation’s assets, as per section 129 of the Act.   Owners would likely be even more inclined to terminate if it would take several months to restore the building to move-in condition. At the Millrise condo in Calgary, it’s expected to take a year to complete the necessary work for condo residents to return home. A year!

Here are five lessons that we can take from the Millrise condo fire story:

1. Owners: Check whether you have properly insured yourself for the loss of use of your home and to repair/replace your unit improvements and personal possessions. We talked about this issue in detail in a previous blog entry here.

2. Boards: Get an updated insurance appraisal for your building, particularly if it’s been a while since the last update. Remember that the HST is going to increase the cost to replace your building after July 1, 2010, so this year is a perfect time to get an updated appraisal. 

3. Boards: Devise a disaster recovery plan so that the condo board and management can get back to work quickly after a catastrophe. Have off-site electronic backups of the critical information such as condo documents and drawings, contact lists, insurance policies and common expense collection ledgers. 

4. Smokers: Use your brains -- extinguish cigarettes completely and safely.   You would probably prefer to avoid the guilt of putting all your neighbours into the street like the guy in the news story.

5. Boards and Owners:   Make sure your fire prevention systems and measures are up to date and in compliance with the provincial and municipal codes. The Board should make sure that common elements are sufficiently protected and that such devices are routinely maintained and owners, if it is their responsibility, should ensure that their in suite alarms/extinguishers are properly maintained.  

Organizations such as condo corporations need to be even more vigilant for deception and fraud in the wake of the recent economic downturn. A Google search for “condo fraud” returns an almost endless list of fraud instances in condo communities, many of which could have been prevented by simple due diligence and good corporate governance. The fraud instances listed range from fabricating invoices for maintenance and repair work to illegally selling parking spaces and misappropriating trust funds. Frauds were committed by employees, members of the board of directors as well as vendors taking advantage of an opportunity to defraud the condo corporation.

It is important to remember that the cost of protecting against fraud seldom often outweighs the potential damage resulting from it. For example, it typically costs less than $100 to obtain a background check (with consent) on a potential employee, member of the board of directors or vendor, whereas the damage done by a fraudulent employee, director or vendor may far exceed that amount.

The following simple, cost-effective internal controls can go a long way in protecting your condo community from fraud.

Accounting and Finance

1.  Use a secure, password-protected accounting system to track transactions. This type of software can be purchased off the shelf at any retail office supply store. The corporate auditor should be the only one with the “accountant” password.

2.  Set up all corporate financial accounts to require two signatures for all transactions including cheques. Often it is wise to have one of the signing authorities be a board member and the other the property manager.

3.  Cheques used by the corporation should be of the pre-numbered variety. Cheques should be locked away when not in use.

4.  Wherever possible expenses should be paid for by cheque.

5.  Avoid issuing corporate credit cards. If corporate credit cards are in use, carefully scrutinize each transaction on credit card statements.

6.  Depending on how active your condo corporation is, set up a policy that all cash transactions (no matter how small) must be recorded daily and deposited either daily or weekly.

7.  Keep a petty cash amount on hand for emergencies. Often less than $50 is sufficient. Track all usage of these funds through “petty cash slips”.

8.  Any investments of corporate funds should be made through a reputable and licensed broker. All investments should be purchased in the name and address of the condo corporation only and no other names should appear on the instrument.

9.  Financial statements should be presented to the board of directors on a monthly basis. It is the responsibility of the board to satisfy themselves that the statements accurately reflect the condo corporation’s financial status.

Hiring and Contracting Process

Ensure that you have a competitive hiring process in place. Interview or invite bids from at least three separate people or corporations. Once you have narrowed down the selection process to the three top candidates, get their consent (in writing) to perform a due diligence check, which may include any or all of the following:

• Criminal background check
• Credit check
• Previous work experience
• Reference(s)
• Driver’s License Verification
• Any other type of due diligence that may be required.

Insurance

The condo corporation and its manager should have adequate fidelity insurance policies in place that cover all employees, management and the board of directors. What counts as adequate insurance may be debatable, but a good rule of thumb is to insure at least up to the value of all funds and assets that could be at risk. Obtain legal and financial advice to make sure the condo corporation has proper coverage.

Be Proactive

Adequate measures to prevent and protect against fraud are essential for every organization, including condo corporations. Failure to have such measures in place can lead to disastrous consequences and potentially huge losses for your condo community. The benefits of adequate protection against fraud far outweigh the costs.

Use Prepaid Credit Cards for Online Purchases -- Canadian Capitalist suggests using prepaid credit cards to minimize risk when shopping online. My thought:  Condos that provide their superintendents with a corporate credit card for emergencies or purchasing supplies could use prepaid cards instead to help lessen the chance of a huge unauthorized bill and to protect against theft. These cards might also be a good gift idea.   Compare the costs and features of the most popular pre-paid cards at Million Dollar Journey's entry on Prepaid Mastercard and Visa Credit Card Comparison.

HOA Boards Often Approach Me with a Plan and a Question – The lawyers at northwestern US law firm Vial Fotheringham lament the fact that too many HOA boards enact a plan first, and then ask their lawyer “can we do this?”  Good discussion on the scope of a board's authority.

Before Buying Into a HOA or Condo Association... – What due diligence would “The Donald” conduct before buying a condo? Find out by reading this entry on the Trump University Blog.

Mold and Water Damages Often Expensive to Repair – Lisa Magill at the Florida Condo & HOA Law Blog offers practical suggestions to avoid commonly encountered mould problems when owners leave their units for prolonged periods (or for good).

Directors and Officers Coverage is Not the Same as Fidelity Coverage – Lincoln Hobbs of the Utah Condo Law Blog speaks the truth.

1. Make sure that your welcome booklet for new residents contains detailed information about the owners’ obligation to obtain their own insurance and how to get it;
2. Insert information about owners’ insurance on the backside of the condo’s insurance certificate that is circulated to the owners each year – some insurers provide this service;
3. Discuss insurance at the annual general meeting every year – there are always people who want to learn more;
4. Circulate brochures from your broker or insurer, and keep some literature handy in the office to pass out on request;
5. Place a link to your broker or insurer’s website on the condo’s website or blog;
6. Ask your broker or insurer to submit an advertisement or helpful article for publication in the condo’s newsletter or website;
7. Hold periodic information meetings to discuss insurance issues and consider inviting a representative from your broker/insurer;
8. Ensure that information is available in other languages and formats to serve the specific demographics of your complex.

These very simple and inexpensive steps can help prevent disasters for members of your condo community.   Implement these steps today.