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CONDOS CAN’T WAIT 10 YEARS TO ENFORCE “SINGLE FAMILY” PROVISION

One of the political dynamics at play within condominium corporations is the sometimes differing interests of resident owners and non-resident owners. On the one hand, resident owners tend to be portrayed as having pride of ownership, seeking to protect their property from the additional wear and tear of high tenant turnover, and favouring communities where residents are invested in the long-term growth of the community. Non-resident owners may favour a corporate governance which allows them more flexibility in who they can lease their unit to. With this flexibility comes a greater market of tenants, and therefore a greater likelihood of a return on investment.

In any condominium community, there will be a mix of these two groups, and condominium board members find themselves (sometimes) balancing these interests while determining the overall best interests of the community. Each community is different, so there is no hard and fast rule on how to correctly balance these two interests.

One of the key pieces of this debate is how to interpret a “single family” restriction that might be found in a condominium Declaration. In 2009, court decisions in the condominium context shifted the law on the definition of “single family.” Although formerly it was permissible for unrelated tenants to live together, the current view is that a “single family” provision in a Declaration will require that the occupants of a unit be “a social unit consisting of parents and their children, whether natural or adopted, and includes their relatives if living with the primary group” as opposed to a unit of convenience (e.g. students sharing a unit).[1]

This has left condominium corporations wondering how to enforce their single family provisions in light of this change in law. Fortunately, a recent court decision provides us with some guidance on this.

Ballingal v Carleton Condominium Corporation No 111 , 2015 ONSC 2484 (CanLII), involved a mix of resident and non-resident owners. The Corporation had at various times taken measures to promote long- term occupancy of units. It also sought advice from its legal counsel on whether the change in law required them to enforce compliance with the single-family provision, and how to do this.

Following legal counsel’s advice, the Corporation attempted to pass a rule to broaden the definition of family to include other groups of persons living together. The proposed rule also grandfathered all existing occupancies, but did not to grandfather owners. So, as tenants moved out, the new occupants would have to comply with the rule. However, the owners who had purchased the unit thinking that they could lease the unit to unrelated tenants, would not be grandfathered after their current tenants moved out.

At an annual general meeting in June 2013, the owners voted against the proposed rule. At this meeting, the ownership also elected board members who were more aligned with the non-resident owner interests. The Corporation did not take any steps to enforce the single-family provision further to the 2013 AGM.

In April 2014, a group of resident owners, including a former Board member, started an application against the Corporation requiring it to enforce the single-family provision. In response, the Board proposed a new rule which was very similar to the previous one, except that it grandfathered all owners for a period of 10 years. This meant that any owner, even those who are not currently leasing their units, would be able to lease their units until 2025. The parties agreed not to put the new proposed rule to an owner vote until after the application was resolved.

In its decision, the Court addressed seven issues, though for simplicity, I will group these into four categories:

Did CCC 111 have to enforce the single family provision in its Declaration?

The provisions of a Declaration are binding on all the owners. This includes in CCC 111’s case the single-family provision. The fact that the owners did not receive actual notice of the single-family provision does not relieve them of their obligation to comply. This is because the other owners may have purchased their unit relying on those provisions and on the belief that the Corporation would enforce them. The Corporation’s Board therefore has a positive duty to take all reasonable steps to ensure compliance.

A related issue was whether CCC 111 had waited too long to enforce the single-family provision. The court recognized that the recent attempt to enforce the single-family provision was a result of the recent change in law.[2] Accordingly, this was not a situation of “massive non-enforcement” followed by a “sudden crack-down.” Additionally, the Corporation’s Declaration contained a non-waiver clause, which courts have recognized to be a complete answer to this type of argument advanced by a non-compliant owners.

Was CCC 111’s 10-year grandfathering provision for owners reasonable?

The parties agreed that a grandfathering provision was required. The question was: how generous should this provision be?

Recognizing that it should not substitute its own opinion on the propriety of a rule enacted by the Board,[3] the court examined whether the proposed grandfathering provisions were clearly unreasonable or contrary to the Condominium Act, 1998 (“the Act”).

On the one hand, if the grandfathering period was too short, it would be unfair to those owners who purchased the unit relying on the possibility that they could lease the unit to unrelated tenants. Moreover, if many owners sold their units at the same time, this might decrease the value of all the units and this was not in the interest of the ownership.

On the other hand, if the grandfathering provision was too lengthy, it would essentially be an attempt to avoid the requirements of the Declaration, and would be a permanent rather than short term change.

The court held that the proposed 10-year grandfathering provision for owners was unreasonable, and was inconsistent with the Declaration. The Court proposed that a reasonable grandfathering provision could include the following terms:

1) existing occupancies and existing landlord owners would be grandfathered for a maximum period of 3 to 5 years;

2) only owners purchasing their units prior to January 2012 (when the Corporation’s legal counsel recommended passing a rule to define single family) would be grandfathered; and,

3) use of units as rooming houses or leasing a unit under more than one lease would not be permitted or grandfathered because this was not in compliance with the declaration to begin with.

However, it was ultimately up to the Board to determine the appropriate grandfathering provision within the confines of the Act.

Although the Court found that the grandfathering provisions were not reasonable, it also found that there was not enough evidence to establish that the provisions were oppressive pursuant to section 135 of the Act.

Board member duties

There was also an additional layer of politics at play within CCC 111. As with the resident and non-resident owners, there was tension between the resident and non-resident Board members. One of the Board members was a non-resident owner and the court found that he single-mindedly pursued his goal to have existing landlord owners grandfathered. In doing so, he did not act in the best interest of the Corporation. He used his position as director to influence and spread misinformation to the owners. He promoted antagonism and dissent on the Board and disclosed information discussed the Board level with owners without the consent of the other Board members. The court held that the director had breached his obligations under section 137 of the Act and his obligation to act in good faith to enforce the single-family restriction in the Declaration. [4]

This confirms an important corporate law principle that Board members may butt heads within a meeting, it is important that these lively discussions be kept confidential. The Board should speak with a single voice outside of the board room. This is to allow the Corporation to carry out its obligation to enforce compliance, without the opinion of any dissenting Board members compromising the Corporation’s ability to do so.

Is there a unifying theme or principal behind all of these issues? In cases like this one, a condominium community may develop a certain “culture” around the enforcement or non-enforcement of a particular provision in its Declaration, By-laws or Rules. There may be enough momentum to sustain this practice without actually amending those documents. However, this case is an important reminder that if a community does really wish to change the standards by which they are governed, they must follow the amendment procedures in the Act. Otherwise, an owner who purchased her or his unit relying on that provision may seek to have it enforced by a court order. In this respect, legal counsel may be a helpful resource for condominium corporations who are considering amending their Declarations, By-laws and Rules.



[1] Nipissing Condominium Corporation No 4 v Kilfoyl , 2009 CanLII 46654 (ONSC), aff’d 2010 ONSC 217.

[2] See Kilfoyl, ibid, and Chan v Toronto Standard Condominium Corporation No 1834, 2011 ONSC 108, aff’d 2012 ONSC 312 (CanLII).

[3] See York Condominium Corp No 382 v Dvorchik, 1997 CanLII 1074 (ONCA).

[4] We note that the Court does not address the consequence of this breach in its analysis.

 


By Eric Pelot - July 2015
B.A., LL.B.

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Email:  epelot@elia.org 
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