As the second part of our series of posts on new home warranty claims by condo corporations, we discuss why condos are better off seeking proper legal advice before making warranty claims for construction deficiencies.
Dealing with construction deficiencies is one of the largest and most critical tasks that the board of any new condominium must face in the first few years. It is therefore surprising to find that when it comes to dealing with construction deficiencies in the common elements of new condominiums, most condo boards simply start and follow the claims process under the Ontario New Home Warranty Plan (“Tarion”), a program that is notoriously ineffective, unresponsive and unsatisfactory when it comes to so many common issues faced by new condominiums.
Even more surprising is that condo boards often embark on the Tarion claims process without first asking the corporation’s lawyer to outline the pros and cons of proceeding with a claim to Tarion rather than commencing a lawsuit in court to recover damages for construction deficiencies. In fact, many corporations pursue much of the Tarion warranty claims process without the help of a lawyer at all, simply because it is not mandatory to use a lawyer for such cases.
The decision to reduce or avoid using lawyers in pursuing claims for construction deficiencies is typically made in order to save money. This is often a poor choice and can lead to a host of unfortunate scenarios, including the following:
1. Unsuccessfully pursuing claims clearly not covered by the Tarion warranty;
2. Pursuing claims of a value greater than the new monetary cap;
3. Missing the limitation period for commencing appeals of Tarion decisions;
4. Missing the new deadlines to request conciliation, resulting in unintentional withdrawals of warranty claims;
5. Missing the limitation period within which to commence an action in court;
6. Allowing the developer to divest itself of assets and fade away without making good on its financial obligations;
7. Being “outgunned” by the developer’s legal team;
8. Settling for far too little money or pushing too far for too much;
9. Unknowingly releasing the developer from other viable claims without receiving adequate value;
10. Getting bogged down in procedural quagmires; and (as a bonus reason),
11. Almost any combination of any of the above.
Any of these situations will likely cost the corporation many times more than the possible cost savings of embarking on the construction deficiencies claims process without the help of a suitably qualified lawyer. This is a classic example of condo boards being “penny wise, pound foolish.”
Experienced property managers recommend that their condominium boards obtain legal advice about pursuing construction deficiencies claims at an early stage. In addition to having too little time to properly address the important issues that arise in a construction deficiency claim, property managers are neither trained nor insured to advise boards on the different legal ramifications of proceeding by way of Tarion rather than pursuing a claim in court. As a result, property managers are generally not in a position to give proper advice on these important issues and they typically recognize the limits of their ability when it comes to these complex legal areas. A lawyer with expertise in condominium and construction law can provide the necessary advice and help devise an effective plan to guide boards and their managers through the construction deficiency maze.
In addition, an inherent conflict arises when a property manager appointed by the developer (while in control of the condo corporation before turnover) is asked to advise the post-turnover board as to whether or how to pursue a claim against the developer for construction deficiencies. It is arguable that a manager appointed by a developer-controlled board may be tempted to give advice to the owner-controlled board that favours the developer’s position, to the detriment of the corporation and its owners. For this reason alone, it is essential that the board engage a lawyer to obtain an objective, impartial opinion to consider and act upon. Managers should (and generally do) encourage this approach, as it effectively cleanses any appearance of possible impropriety or undue preference and ensures that the board receives good advice. Good managers focus on “managing” life for a new condo corporation and can readily spot situations that require the involvement of another professional or specialist. Conversely, managers that do not recommend that the board seek the involvement of legal counsel or who provide legal advice might find themselves the subject of a lawsuit for negligence if the warranty claims process unfolds badly and results in a high value claim being lost.
This is not to say that the property manager does not play a pivotal role in the entire process. The manager is key in supporting the entire effort and coordinating between the board, the engineers and counsel and in helping to move the claim forward. Perhaps even more important is the fact that the manager will help the board budget for a legal battle with the developer and rejuggle the financial plan where necessary so that the war chest doesn’t run dry at a critical juncture.
Finding costs savings is important too, and managers play an important part here as well. It is not strictly necessary for lawyers to have complete control over the construction deficiency claims process (especially the Tarion process) or be involved at every small step. In some situations, it is appropriate for the manager to step in to fill the void. Counsel should, however, be consulted early to help devise a workable strategy for the entire process and, subsequently, as and when needed throughout the process to keep the case on the rails. A close and effective working relationship between counsel and the property manager is essential to achieving a good result in any type of legal scenario.
Whether through the Tarion procedure or a lawsuit in court, pursuing claims for construction deficiencies is a process in which the condo directors, managers and owners invest substantial time, effort and money. The outcome of the process will play a large role in the condominium’s finances and its esthetic appearance and practical function for years to come. Embarking on the journey without the help of the corporation’s lawyer can put that investment at risk, cause delay and extra cost, and reduce the likelihood of a successful outcome. This, in turn, reflects poorly on the building and impacts the financial status and standing of the community. It may also demoralize the board, the manager and the owners alike and increase the chance of a dispute or conflict between those players. An unfavourable outcome of a long and hard-fought claim over construction deficiencies often gives rise to additional issues that distract everyone from the other important business that needs to be addressed in the condo’s early years. With so much at stake, responsible condo boards and property managers get their corporation’s lawyer involved before starting any warranty claim process.