Condo corporations must tread carefully on status certificates

Bob Aaron in Legal, Condo Buying

Toronto Condo Pic-Dec 2 2013

A major decision of the Ontario Court of Appeal last week has raised the bar on the level of due diligence required by condominium corporations in preparing status certificates.

The origins of the case go back to September 1997, when Kelly Jean Rainville bought one of 39 condominium townhouses on the Toronto waterfront in the Grand Harbour development on Lake Shore Blvd. W.

The prior owner of the unit was Richard Weldon, who had bought the townhouse from the court-appointed receiver when the developer had financial problems. The unit was a two-storey townhouse with a common-element attic above the second floor.

After his purchase, Weldon improperly expanded the unit into the attic. He built new stairs, windows and skylights, a bathroom, sitting area and bedroom. The additional space totalled 862.2 square feet (80.1 square metres).

When the condominium was created in 1993, the area above the second floor ceiling in Weldon’s unit was shown on the plans as common area, and no steps were ever taken to convert the legal designation of the space into part of the unit below.

Weldon sold the unit to Rainville in 1997 for $975,000. No mention was made of the illegal construction and the estoppel certificate (now called a status certificate) provided by the property manager at the time incorrectly stated that there were no continuing violations of the condominium declaration, bylaws or rules.

Rainville went to her lawyer’s office in January 1998 and met with a clerk to sign the closing documents. She was never shown any condominium plans and was under the impression that she was buying everything from the ceiling of the third floor down to the basement parking space.

Before moving in, Rainville began a $700,000 renovation during which it became apparent that the third floor had been built into attic space which she did not own.

In 2001, Rainville sued her lawyer, the condominium corporation, the property manager and a number of individuals who were on the board or who were employees of the property manager. It wasn’t long before everybody was suing everybody else.

Rainville asked the court to legalize the third floor and award her significant damages for her losses. The trial in 2009 took 43 days and involved nine lawyers. My guess is the total legal fees were in the millions of dollars.

I was called as an expert witness at trial and testified that Rainville’s lawyers were negligent in failing to show her both the horizontal and vertical condominium plans, which would have shown that the third floor was not part of the townhouse. The court accepted my evidence.

The trial judge awarded Rainville $300,000 in damages, plus costs to close up and vacate the third floor and the lost renovation costs.

This month’s 57-page decision of a three-judge panel of the court of appeal held the condominium corporation responsible for negligent misstatement in the estoppel certificate for saying that there were no violations of the condominium declaration.

The law firm and condominium were ruled jointly responsible for the difference between the current value of a two-storey unit and a three-storey unit. In addition, the court granted an order allowing Rainville to retain the unit in its three-storey configuration without amending the condominium declaration. This was perhaps the biggest win of all.

Rainville was also awarded damages of $41,681 against the condominium corporation and $28,379 in refunds of legal fees by her lawyer.

At trial, the law firm was hit with almost $900,000 in court costs and Rainville was ordered to pay $150,000 in court costs. In light of its decision, the court of appeal will rule on the court costs at a later date.

Following the Rainville case, condominium corporations will now have to be even more careful in providing status certificates. In addition, lawyers who close purchase transactions without showing their clients the condominium plans do so at their own risk.

Bob Aaron is Toronto real estate lawyer. His Title Page column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website Email Bob

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