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EXPROPRIATION "PROFITS" FOR NOT-FOR-PROFIT CONDOS?

Does making money from expropriation of condominium property mean losing not-for-profit status?

At the recent CCI-Eastern Ontario Director’s course in Ottawa, one of the concerns that participants raised is the possibility of expropriation of their condominium’s common elements to accommodate the construction of Ottawa’s new light rail transit system (“LRT”). This question was raised in the context of a discussion on protecting the not-for-profit status of condominium corporations.

Our offices have dealt with expropriation matters on behalf of condominiums across the province, including expropriations related to SmartTrack and Metrolinx in the Greater Toronto Area. We have assisted corporations in structuring favourable settlements in these matters. The development of the LRT in Ottawa has many similarities to the development of other transit systems in the province.

What happens to expropriation money?

Section 126 of the Condominium Act, 1998 governs income generated from expropriation of condominium property. In simple terms, when general common elements are expropriated, the income is paid directly to owners based on their proportionate interests in the property as set out in their Declaration. This percentage may be different than the contribution percentages which are used to calculate monthly common expenses. Payment for expropriation of exclusive use common elements are is paid to the affected owners.

Where there is an expropriation, the income should flow through the condominium corporation to the affected owners. This therefore does not jeopardize the corporation’s not-for-profit status, and resident home owners may also be able to claim the principle residence exemption for income tax purposes.

What happens to settlement money?

Practically, in most cases, the expropriation authority will approach the affected property owners and attempt to agree on a sale of the property without engaging the formal expropriation process. If so, the condominium corporation may be collecting settlement amounts on behalf of unit owners. Further, section 84 of the Act may prevent a condominium corporation from paying out common expense surpluses, so the corporation may be left holding a bag of settlement money.

In light of this possibility, it is helpful to think about how to structure such a settlement in a way that protects the not-for-profit status of the condominium corporation and allows it to carry out its goals and responsibilities under the Act. Some practical examples include using the funds:

· To carry out the corporation’s duties, including major repair and replacements on the property,

· To improve the services provided by the corporation with the involvement of the ownership in a “change of service,” and

· To redistribute the funds received through an expropriation settlement to the owners by involving the ownership in a decision of “change of assets.”

Of course, each condominium corporation and each expropriation settlement will have its own circumstances to consider in crafting a practical solution. So getting legal counsel involved early in the process can provide value by structuring the settlement in a way that makes sense in light of the condominium community’s circumstances and goals.

Further, when dealing with an Expropriation Authority under the Expropriation Act, all reasonable legal costs and appraisal costs are recoverable as part of the expropriation process. If any Expropriation Authority approaches your condominium corporation, we suggest contacting your legal counsel immediately. Our firm is available to assist condominium corporations in expropriation matters across the province.

 


By Eric Pelot - June 2016
B.A., LL.B.

Ext:  803
Email:  epelot@elia.org 
Toll-Free:  1-866-446-0811

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All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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