Joint Use Agreements: Who Pays for the Share of a Condominium Which Never Gets Developed?
Condominium projects are often built in phases, with a single developer dividing a parcel of land between various corporations, some of them only to be created in the future. In these kinds of developments, the corporations-to-be will often be expected to share various facilities (such as roadways, garages, gardens, pools and other facilities). In such projects, the developer often draft Joint Use Agreements to provide for the sharing of the cost and responsibilities associated with the use, maintenance and repairs of these shared facilities. These Joint Use Agreements are drafted by the developer, without input from the condominiums who will eventually be bound by them for decades to come. While cohabitation between these condominiums can unfold without a hitch, it is not always the case.
In a recent Ottawa decision, a judge had to determine how to apportion the cost of shared facilities in a case where the third and final condominium corporation was never developed.
Background
In 1988, a developer divided a parcel of land on which it anticipated developing 3 commercial/industrial condominium corporations. The 3 corporations-to-be were to share the use and cost of a common interior roadway. To this end, the developer registered a Joint Use Agreement on title. The Agreement provided that the cost of the maintenance and repairs of the roadway would be apportioned between the 3 phases, based on the square footage of the commercial/industrial condominiums to be built. At the time the Agreement was drafted, the developer anticipated developing a 65,000 sq.ft. industrial warehouse on Phase 3 of the land. This resulted in Phase 3 being responsible for 38.45% of the cost associated with the common roadway.
However, the third phase was never developed as anticipated. Instead, the developer eventually used this third phase as a municipal snow dump (much to the unhappiness of the other two corporations, who were faced with the disruption, traffic, noise and slush associated with this line of business).
Having never developed the anticipated 65,000 sq.ft. complex, and the land remaining “vacant”, the owner of Phase 3 argued that it should not have to pay anything towards the maintenance of the roadway, despite its heavy use of it by snow trucks. This went to court a first time in 1999. At the time, Justice MacKinnon declared that the third phase was responsible to continue to pay its 38.45% despite the absence of any building, subject to any future variation of this obligation should the building(s) to be eventually developed on the land vary from what was originally anticipated. Indeed, the Joint Use Agreement contained a reapportionment clause, which would be triggered should the ultimate square footage of the buildings vary from the original plans.
The owner of Phase 3 eventually erected two seasonal sheds on the land, to be used as toll booths. The two structures sat on cinder block foundations, had no running water, were not connected to the hydro grid or gas and were heated with propane furnaces. These two sheds had a square footage of 28 and 98 sq ft, respectively. A far cry from the 65,000 sq.ft. initially anticipated. Based on the existence of these seasonal sheds, the owner of Phase 3 refused to pay its share of the common expenses and demanded a reduction of its share of the common expenses, based on this new square footage.
What’s in a building?
The main question submitted to the judge was to determine whether these structures amounted to bona fide buildings capable of triggering the re-apportionment clause. Stated otherwise, was Phase 3 obliged to continue to pay a percentage established on the square footage of a building the owner no longer intended to ever build.
The language of the Joint Use Agreement provided that Phase 3 was to pay its proportionate share until “the Phase II and Phase III condominium Corporations are registered, if ever”. The judge concluded that the agreement did not contemplated that Phase 3 would be excused from paying its share in the event the condominium was never developed. She concluded that, on the contrary, the parties expected that the 3 phases would share the cost associated with the common roadway whether or not the commercial warehouse was ever built.
The parties, according to the judge, did not intend that an owner would be entitled to avoid its obligations by building a structure representing 0.2% of the building originally contemplated by the parties.
In reaching this conclusion, the judge read the contract as a whole in order to determine the true intentions of the parties. She concluded that it would lead to a “commercially absurd” result if Phase 3 was entitled to rely on structures so qualitatively different from that contemplated by the parties to avoid its obligations. The judge concluded that these structures were “little more than no buildings at all”.
Lessons learned
Common sense must prevail when interpreting a Joint Use Agreement (or any agreement). An overly technical reading of the document, which leads to a commercial absurdity, will likely not be retained by the courts.
Drafters of Joint Use Agreements must be extra vigilant as such agreements are drafted without the input of the parties who will be bound by them for decades to come.