Auditor General’s Report on the Ontario Condominium Industry

The Auditor General’s overall criticism is that Ontario is failing to take adequate steps to protect condominium owners and boards. I summarize the criticisms as follows:

The Auditor General’s Criticisms

1. Required amendments to the Condominium Act and Regulations, passed years ago by the legislature, have not been proclaimed in force. 

As a result:

• Many condominium corporations are not making sufficient contributions to their reserve funds.
• Many developers are not budgeting for sufficient initial contributions to the reserve funds of new condominiums.

2. The Condominium Authority of Ontario (CAO) and the Condominium Management Regulatory Authority of Ontario (CMRAO) need to step up their investigation and enforcement efforts. 

As a result:

• There are still quite a large number of unlicensed condominium managers in Ontario.
• CMRAO is often too quick to dismiss complaints without adequate investigation.
• Many condominium Directors have not completed the mandatory Directors’ Training (and accordingly are not legally permitted to continue as Directors).
• Some condominium Directors complete the mandatory training without reading the on-line training materials.
• Some Boards do not have sufficient Directors to achieve quorum.
• CAO and CMRAO are not sufficiently proactive in their investigations of Ontario condominium activities.  Instead, they mainly only react to complaints.

3. The CAO and CMRAO also do not have sufficient authority to adequately ensure consumer protection in Ontario’s condominium industry.

4. The jurisdiction of the Condominium Authority Tribunal (CAT) is too narrow and its procedures are also unfair to condominium owners.

• CAT’s jurisdiction needs to be increased to cover many more types of condominium disputes.
• There isn’t a “level playing field” (in CAT disputes) as between condominium owners and condominium corporations, because condominium corporations are often represented by legal counsel whereas owners are not.

5. The public does not have sufficient access to information about condominium corporations and condominium directors.

As a result:

• The province and the public don’t have access to information about numbers of residential, commercial and mixed-use condominiums in the province.
• The public doesn’t have easy access to information about condominium units that are wholly owned by investors operating rental businesses.
• The public doesn’t have easy access to information about condominium directors serving on multiple boards.

6. Condominium corporations are not currently required to keep sufficient records.

As a result:

• Condominium corporations are not required under the law to maintain (and owners therefore can’t necessarily access) information such as lists of permanent, temporary and contract staff employed by the corporation and the Board’s reasons for approval of contract renewals.

Again, the Auditor General made twenty specific recommendations (some of which included sub-recommendations). I summarize the Auditor General’s recommendations as follows:

The Auditor General’s Recommendations

I. The previous legislative amendments should be proclaimed in force.

[For ease of reference, here’s a list of some of the key amendments that are “still to come”:

• No Fines can be charged to Owners
• Unit Entry without notice (in an emergency) only permitted if the Declaration or By-laws say so
• It is possible to charge an owner for actual expenses, and to add those amounts to the owner’s common expenses, if permitted by the Declaration
• Shared Facilities Agreements are to be mandatory in many cases
• Limits are to be placed on the legal rights of Declarants
• New Procurement Processes (tendering) to be required for certain contracts (to be prescribed)
• Various amendments respecting first year performance audits
• New procedures for Requisitioned Meetings
• Significant Changes respecting Directors to be elected by “non-leased owners”
• Enhanced Disclosure Obligations for Declarants – including specifics about first year Reserve Fund budgeting.  New Declarations also to say how the Declarant arrived at common expense sharing
• More detail in relation to claims for First-Year budget deficits (including detail respecting calculations for phases of Phased Condominiums)
• Owners to be notified of budgets and certain budget overages
• Owner to be notified of specific additions to the owner’s common expenses; Owner then to have a prescribed procedure to challenge this (if desired)
• Changes relating to Repair and Maintenance obligations, including new Definitions of Repair and Maintenance
• Reserve Funds:  Additional permitted purposes; Specific Definition of “Adequate”; Expert opinion required if Reserve Fund balance falls below a certain prescribed amount
• Common Element Modifications:  Revisions to “minor changes” that fall within Board’s authority; Also details about calculating the “cost” of a change
• Insurance Deductibles:  Insurance Deductibles By-laws to be ineffective; Will require an amendment to the Declaration – Existing By-laws might be grandfathered.
• New prescribed Standard Unit Description (for condominiums that have no description)
• Clarification respecting permitted investments (CDIC requirement)
• Unreasonable noise to be prohibited (by the Act).  Other unreasonable disturbances may also be prohibited by regulation
• New prescribed mediation and arbitration procedures (where corporation has not established procedures by by-law)
• Arbitration awards to be made public
• Court orders (for compliance):  Clarification of rights of winning party to costs
• Increased penalties for Offences under the Act]

II. Increased obligations should be imposed upon condominium developers, including enhanced disclosure to purchasers, standardized purchase agreements, and increased obligations in relation to first-year budgeting.

III. Developers should be specifically required to carry out better first-year reserve fund planning.

• The Auditor General said:  “We recommend that the Ministry of Government and Consumer Services look into removing the option of developers basing reserve fund contributions on 10% of operating expenses and replacing this option with a requirement to have the contributions be supported by a third-party reserve fund study.”

IV. The CAO should take more proactive measures to ensure that condominium Directors fulfill their mandatory training, including regular upgrading of the training materials, more careful review of the training efforts of Directors, publishing the names of non-compliant Directors, and ensuring that non-compliant Directors do not continue on their Boards.

V. The CAO and CMRAO should have enhanced responsibilities and enhanced enforcement authorities, to address the concerns noted above.

VI. The CMRAO should more carefully track the complaints that it receives, and the outcomes of those complaints.

VII. The information available to the public (respecting condominiums and their Directors) should be enhanced in order to meet the concerns noted above.

VIII. The province should consider expanding the jurisdiction of the CAT to cover more types of disputes, including “key areas relating to condo fees, repairs to common areas, board misconduct, reserve funds, commercial units or other areas considered appropriate within the Condominium Authority Tribunal’s jurisdiction”.

IX. There should be a “level playing field” for CAT disputes, “such as requiring equal legal representation by parties to the dispute”.

X. The record-keeping obligations of condominium corporations should be clarified and enhanced.

XI. The province should consider the cost-effectiveness of combining CAO and CMRAO into a single regulatory authority… and making CAT a separate, stand-alone authority.

XII. Performance measures / targets should be established for both CAO and CMRAO.

Some Observations

Condominiums unquestionably have a huge future role to play in our society. Many of us are tending to live and work in greater density. As a result, sharing of land – meaning condominiums and other forms of co-ownership – will no doubt continue to grow in importance.

So, it’s not at all surprising to see Ontario’s Auditor General offering oversight of the condominium industry. The criticisms and recommendations from the Auditor General are no doubt welcome.

That said, I’d like to offer my own view that we’ve come an awful long way in the past five years.  And my own perspective is that CAO, CMRAO and CAT are working hard to improve their processes. Have there been causes for concern?   Is there room for improvement?  Certainly. But again:  We’ve come an awful long way in a pretty short time – and we’re all still adjusting.

I very much like the recommendation that the province finalize the pending legislative amendments – by proclaiming those amendments in force (after first preparing any required Regulations). Those amendments will, I believe, address some of the concerns of the Auditor General (particularly concerns about reserve fund planning and about the obligations of developers). 

One small “pitch” that I offer is as follows:  I wholeheartedly support the idea of consumer protection. I also recognize that the particular consumers who need protecting are the owners of condominium units. But I also feel that it’s important that we not lose sight of the fact that condominiums throughout Ontario “work” (and generally work fantastically well) because of the tireless and often thankless efforts of dedicated (and largely volunteer) Board members throughout the province (and also because of the support that most Boards receive from committed, professional property managers). In my view, there is a silent majority of condominium owners in every condominium who fully support their Boards and managers… and who know that “strong Boards make for strong condominium communities”, to the benefit of all owners. I just hope that we don’t forget that we also need to protect the Boards if we are ultimately going to protect condominium ownership as a whole.

Stay tuned to Condo Law News to keep up to date on the latest developments on condominium law!