An Ontario Court of Appeal decision regarding condominium status certificates should be of interest for anyone who is evaluating a status certificate during their purchase or sale of a condominium. In this post, we will take a look at the decision in Metropolitan Toronto Condominium Corporation No. 723 v Reino, 2018 ONCA 223, what role status certificates play during a condominium purchase and sale, and what can happen if a "clean" status certificate is issued when it should not have been.
What is a condominium status certificate?
When purchasing a condominium, your real estate lawyer will usually request a status certificate from the condominium corporation prior to closing. Generally speaking, the status certificate provides details regarding important issues that the buyer should be aware of, including possible defaults by the present owner. This document will also include information regarding the amount of monthly common expenses, whether there are any anticipated special assessments or common expense increases, the status of the reserve fund, and if the corporation is involved in any litigation.
A "clean" status certificate is one that does not disclose any problems in these areas. A "clean" status certificate is valuable to a seller because it helps support the value of the unit, and is valuable to potential buyers because it provides peace of mind that the condominium corporation is not aware of the violation of any rules.
Can a "clean" status certificate be restated after it is issued?
According to section 76(6) of the Condominium Act, 1998, S.O. 1998, c.19, once a status certificate is issued, it is binding on the condominium corporation with respect to its contents with regards to the prospective purchaser who has requested it. This section of the legislation does not address what happens when a "clean" status certificate is issued in respect of a unit, and then the condominium corporation subsequently discovers issues that ought to have been disclosed previously. The Ontario Court of Appeal's decision in the Reino case provides the answer to this question.
The facts of the case are relatively straightforward. Dante Reino purchased a condominium unit from his mother in 2013 at which time the condominium corporation issued a "clean" status certificate which noted no issues with the unit. A "clean" status certificate was also issued by the corporation when Mr. Reino's mother originally purchased the unit in 2004.
However, when Mr. Reino decided to sell the unit in 2016, the status certificate issued by the corporation at that time now made reference to certain issues that had not been referred to in the 2013 and 2004 status certificates related to unauthorized alterations made to the layout of the unit. Neither Mr. Reino, nor his mother, had made any such alterations during their respective periods of ownership.
On this basis, Mr. Reino brought a court application seeking a declaration that the references to the unauthorized alterations would no longer bind the unit, an order directing the corporation to remove the paragraphs in question from the status certificate, and an order directing the corporation to issue a "clean" status certificate.
The paragraph on the status certificate at issue provided as follows:
12. The Corporation has no knowledge of any circumstances that may result in an increase in the common expenses for the unit except: (1) the unit is in breach of s. 18(6) of corporations declaration amended, which provides that no dwelling unit owner shall make any change or alteration to the layout or configuration of any dwelling unit without the prior written consent of the Board of Directors. In this regard the unit configuration has been altered so as to add a second bedroom and the kitchen has been relocated without the consent of the Board of Directors. The policy of the Board of Directors is generally not to approve any changes that tend to add to the occupant load factor within the building. This circumstance may result in the corporation taking steps to remove the alteration and restore the unit to its original layout and the costs of the corporation's actions in this regard being added to the common expenses attributable to the unit.
The application judge accepted Mr. Reino's evidence that neither he nor his mother had carried out the alterations referred to in paragraph 12 of the status certificate and that the configuration of the unit was unchanged during both periods of occupancy. This meant that the unit was renovated prior to Mr. Reino's mother purchasing the unit in 2004, however this renovation was not noted in the status certificates issued in 2004 and 2013 because it was unknown to the condominium corporation. The application judge agreed with Mr. Reino and ordered the condominium corporation to issue a "clean" status certificate. However, the condominium corporation appealed.
The issues on appeal were whether a condominium corporation, having issued a prior "clean" status certificate in relation to a unit, will in the event it subsequently discovers matters it believes should be disclosed, be estopped or prevented from noting such matters in a subsequent status certificate requested by the owners of the unit.
The appeal was allowed as the court decided that the corporation is not estopped from referring to subsequently discovered issues in a status certificate after having issued a "clean" certificate in the past.
This decision means that while Mr. Reino would not be required to fix the issues with the unit (i.e. renovating to remove alterations to return the unit to its original state), a subsequent purchaser may be required to do so at their own expense as referred to in section 12 of the status certificate. Undoubtedly, this would lower the value of the unit due to the financial exposure to potential buyers and decrease the unit's marketability.
What does this case mean for condominium owners?
The Court of Appeal determined that while the corporation was bound by the "clean" certificate issued in 2013 vis-à-vis Mr. Reino, in the new status certificate the corporation was obligated to include information related to its discovery that the layout had been altered. If the condominium corporation acquires new information, it is not required to issue a "clean" certificate simply because it had issued one in the past, because to do so would be misleading to a prospective purchaser.