The case for better consumer protection for condominium owners
Fine and Deo’s website
27 September 2012
Mario Deo

Preventing Condominiums From Sliding into a State of Disrepair

Mario Deo is calling on the Government of Ontario to amend the Condominium Act to provide for condominium building classes and the procedures by which a condominium corporation may downgrade to a lower condominium building class.

a slow death by a thousand blows

He argues that too many condominium corporations suffer a slow death by a thousand blows, which go unnoticed from year-to-year, until it is too late. This problem, which is becoming far more predominant, is unacceptable. It encourages the creation of slum-like communities at worst, and serious injustice to owners at best.

All unit owners have a right to expect that their condominium will be maintained at the same standard as it was built. There are no protections in place for owners when a building catastrophically declines in value over time through bad governance.

pressure to keep common expense increases very low

Mr. Deo gives an example of a condo whose history can be split into two clear segments.  In the first ten-years, the boards were meticulous about the building’s maintenance and repair standards. However, as more investors and younger families moved in, the pressure to keep common expense increases very low was intense and the subject always took over the board meetings and AGMs.

The original purchasers vehemently disagreed with the declining standards accepted by each subsequent board, but as they were in the minority, they were unsuccessful in convincing the board members to retain the building’s standards. Many of owners who did not like the building’s decline, and who could afford to move, did so.

this race to the bottom

From a legal standpoint, there is no clear breach of the Act by the condo’s successive boards.  Is this race to the bottom really acceptable?  Unfortunately, this story is repeated over and over again in Ontario.

The lack of clear building class standards is detrimental to many retirees who purchase condominium units to live out their golden years.  Retirees are less likely to move every few years and they will therefore bear the brunt of declining building standards more so than any other segment of the population.  This is simply unfair and will become more and more of a problem as our population ages.

Commercial standards
There are classification standards for commercial properties, which have proven to be effective for determining value for many years. There are also classification standards for hotels, ranging from one star to five stars, depending on a list of criteria developed by convention and consumer expectations.

Should a condominium board be able to change a condominium from an A to a D building without approval of a super majority of owners (let’s say 65-85%)?  Clearly, this should not be allowed because it runs contrary to the philosophy of a change in services or assets without the express consent of owners, which presently exists in the Act.

Classification system
For condominiums, the classification system will likely be based on three categories or criteria:
The physical state of the common elements;
The financial health of the condominium corporation; and,
The quality of the building and the common elements.

Auditors will be the best professionals to judge and determine the financial criteria while engineers or architects will be the likely candidates to judge and determine the physical state and quality of buildings.

Developers need to adopt standards
When a condominium is being developed, a developer also creates an image or a vision of a certain type or class of condominium living, which is marketed to potential purchasers. Once the criteria are established, translating a developer’s vision into a standard is simple – perhaps just as simple as choosing a meal from a Chinese menu.

It is in developer’s interest to create a standard.  Why?
A developer may ensure that any unsold units will remain marketable, since the board of directors will have a positive obligation to maintain the building at the standard established by the developer.
The classification standards and its enforcement will ensure that the building does not decline in any of the three categories or criteria (financial health, physical maintenance, and physical quality).  This is of the utmost importance for a developer’s branding and reputation over the long term.
Condominium classification can be used as a marketing tool, particularly for the larger developers.

The first developers to embrace this concept will be the leaders in the field and indeed on the market.

Will Owners Want a Classification Standard?
Most condominiums will want to have the classification, because it will create an expectation among all owners and potential buyers in the resale market that a board of directors will not let the condominium’s standard decline. Owners will likely drive existing condominiums to establish and maintain a classification standard, since buyers and realtors will ultimately demand it.

Accountability and Enforcement
Accountability and enforcement are essential in order to make a classification standard system work. Everyone in the industry knows that one of the most frustrating and difficult things about condominium governance is holding boards of directors accountable for good governance practices and proper financial and physical building maintenance.

In order to achieve an effective and efficient process for accountability and enforcement it will be imperative that developers establish the classification standards and impose a duty on the board of directors, through the Declaration, to maintain that standard.

The declaration must impose a duty on directors to produce, at each annual general meeting, an independent report prepared by an engineer and a chartered accountant assessing the physical and financial health of the building, and confirming whether the classification standards for the building has increased, declined or remained the same.

an administrator will be appointed

If the board obtains a report indicating that the classification standard has not been attained, then an administrator will be appointed to step into the shoes of the board of directors to manage the condominium.

There can be little doubt that legislation will go a long way to stop the race to the bottom of many condominiums and prevent more condominiums in Ontario from falling into a state of disrepair.

Malaysia’s rating system
Every year, the Urban Wellbeing, Housing and Local Government Ministry conducts its Strata Scheme Management Quality Evaluation, or “Star Rating”, which ranks the standards of joint management bodies (JMBs) or management corporations (MCs) of apartments and condominiums.

These bodies are ranked based on how they do in seven areas (see graphic below for details); five stars is the highest rank.

At least one country has adopted a rating system which should lead to better informed purchasers for re-sale condos.

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