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Condos Must Act Reasonably When Imposing a Section-98 Agreement

As we have posted time and time again, it is very important for condo corporations to treat owners reasonably and fairly. This is true even when the condo is acting to fulfill its requirements under the Condominium Act. The Court of Appeal recently released a decision that reflects on this important aspect of corporate governance, Noguera v MCC No 22.

The Facts

As a backdrop to the facts of this case, we need to keep in mind section 98 of the Condo Act. This section requires condos to enter into, and register on title, an agreement with respect to any addition, alteration or improvement made by owners to the common elements.

In Noguera, the owners of unit 210 wanted to purchase the neighbouring unit (unit 211) on the condition that they could make an opening between the two units. Interestingly enough, the owners of both 210 and 211 were on the board of directors. The board of directors met, and agreed to allow this modification, with some conditions as to how the opening would be constructed. This work required some modification to the common elements. As this corporation had a long-standing history of not entering into section 98 agreements with its owners, this case was no exception.

Based on the board’s approval, the Nogueras bought unit 211 and completed the renovations. After this, membership on the board changed, and the new board’s relationship with the Nogueras became tumultuous.

The new board immediately sought to undo the agreement regarding the renovations on the basis that there was no section 98 agreement in place. In addition, the board advised the Nogueras that they were no longer allowed to use the Corporation’s lakeside path, based on unproven allegations of window peeping. In addition, several board meetings were held without having given notice to Mr. Noguera, despite him still being a director.

The Corporation’s new board quickly began trying to remedy all of the past board’s failures to enter into section 98 agreements with various owners. These retroactive “blanket” agreements were all identical, except for the Nogueras’ version, which required the Nogueras to get rid of the opening between the units before they could sell it.

Following this, the Nogueras brought an application for an oppression remedy on the basis that they were “targeted” after their relationship with the new board broke down. They were successful in this application, and at the Court of Appeal.

The Courts’ Decisions

Ultimately, the Court of Appeal upheld the Superior Court’s decision to award the Nogueras $10,000 in damages and additional legal costs for oppression. Interestingly, despite having awarded damages against the Corporation, the Court upheld the Corporation’s version of the section 98 agreement, which required the Nogueras to get rid of the opening between the units before they could sell their unit(s).

So, if the Corporation’s version of the agreement ended up being upheld by the Court, why did it have to pay damages?

The Court commented on the oppression remedy, and its ultimate purpose of ensuring a just and equitable outcome. That being the statutory backdrop, the Court noted that the Corporation was largely responsible for the entire situation by having failed to enter into section 98 agreements in the first place. Then, when remedying this, the Corporation treated the Nogueras as if the Corporation had little or no role in prior events, which was found to be both harsh and unfair. The Corporation was found to have wrongly disparaged the Nogueras, wrongly excluded them from the use of common elements, and wrongly fostered an atmosphere that made the Nogueras uncomfortable. Ultimately, the Court held that the Corporation had shown “targeting and ill will” towards the Nogueras. This all contributed to the damages award for oppression.

There is a lot more to be found in this case, including a useful and concise restatement of the test for oppression, and some helpful comments on when a director does (or does not) have a conflict of interests. To read the whole decision, check out this link.

Moral of the Story

There are a few important takeaways that this case provides.

For one, had the Corporation simply been properly entering into section 98 agreements from the start, this entire situation may have been avoided. This case is a textbook example of why it is so important to ensure that your Corporation is in compliance with the requirements of the Act.

However, the other very important takeaway of this story is that compliance with the Act cannot give the Corporation a licence to bulldoze and target particular owners. In fact, in this case, the Court agreed that the Corporation’s proposed section 98 agreement should be adopted. Accordingly, it was not just the destination, but also the journey there, that factored into the decision.

In summary: Condo corporations must of course comply with the Act, and so must owners. However achieving this compliance cannot come at the cost of targeting, disparaging or alienating single owners.

Obviously this is a tough balance to achieve, so make sure to consult with your legal counsel if you find yourself in muddy waters such as this case.

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