Major Changes to Condo Insurance and Repair Obligations

by: Rod Escayola | April 4, 2017

The province of Ontario is in the process of adopting sweeping changes to the Condominium Act. In this post we discuss how the new provisions will drastically change who is responsible to repair (and therefore who is responsible to insure) condominium units. Corporations should consider acting quickly to put in place various protections which may no longer be available as of July 1st, 2017.

[Please note that the changes to the Condo Act discussed below have not yet been implemented. As with all changes to the Act, you may want to consult your condo lawyer to ensure you are following the current version.]

Help us get an accurate picture of how the condo world is coping with insurance challenges by taking our short survey. It may be best (but not entirely necessary) for you to have in hand your most recent insurance certificate if you want to be able to answer all questions.

Under the “old” Condominium Act

The “old” act (which is still in force at the time of publication of this post) allocated between owners and corporations the responsibility to repair and maintain the common elements and the units:

The corporation was responsible to repair and maintain the common elements;
Owners were responsible to maintain their unit but the corporation was responsible to repair it after damage. This obligation to repair a unit after damage did not include the obligation to repair after normal wear and tear. It also did not include the obligation to repair any “improvements” to the unit. Owners were responsible for that. “Improvements to units” were determined by reference to the “standard unit”, usually in the context of an Standard Unit by-law. More on this further below.

Since the corporation was responsible to repair both common elements and units after damage, they were mandated to secure insurance coverage to repair these in case of damage caused by major perils (such as fire, lightning, smoke, windstorm, hail, explosion, water escape….).

Typically, when a unit was damaged, say by water escape, the corporation would then turn to its insurer to repair it. The owner would turn to their own insurer to repair damage to any content and to any “improvements” to the unit in certain cases.

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Protection under the “old” Act

To minimize the number of claim (and therefore the corporation’s insurance cost), corporations could rely on the following two mechanisms:

They could adopt a Standard Unit by-law: This would allow the Corporation to define what is included in a “standard unit”. The Corporation would only be responsible to insure and repair the “standard unit”. Each owner would be responsible to insure and repair anything beyond the “standard unit”. If for instance the standard unit only included basic carpets but the owner had installed hardwood floor, the corporation would only have to cover the repair cost of the basic carpets. The owner would have to turn to its own insurer for the balance if they wanted hardwood floor to be re-installed. Corporations were granted a lot of flexibility in creating their Standard Unit by-law. The more comprehensive was the “standard unit”, the more costly it was to insure and repair.

Corporations could also adopt an Insurance deductible by-law. This would allow the corporation to expand the circumstances under which it could turn to the owner to cover the cost of the corporation’s insurance deductible. As is the case with most personal insurance policy, the insured is usually responsible to pay the first portion of the claim, called the “deductible”. Think of your own car insurance. In case of damage, you may be responsible to pay the first $500 and your insurer covers the rest. The same applied to condominium corporations. Except the deductible for a condominium corporation can be quite high. Depending on the Corporation’s history, the deductible can be $10,000 or $50,000 or even more. Without an Insurance deductible by-law, the corporation had to pay, in most cases, the deductible out of their operating budget. It was added to the common expenses paid by all owners. Under the “old” Act, the corporation could shift the cost of the deductible onto an owner only if the damage was limited to the unit and if the damage was caused through an act or omission of the owner (or their guests). This would leave corporations quite vulnerable to the unforeseen expense of a deductible in case of an insurance claim. By adopting an Insurance deductible by-law, the corporation was able to extend the circumstances under which it could shift to an owner the responsibility to pay the deductible. Such circumstances could include situations where the damage was not limited to the unit and even circumstances where the damage did not originate from the unit – so long as the damage was not caused by an act or omission of the corporation or its directors, officers, agents or employees. In all of the cases covered by such a by-law, owners would typically turn to their own insurer to cover the deductible.

These two by-laws allowed corporations to protect themselves against the unforeseen cost of a deductible following a claim and would also allow them to lower the frequency and cost of any insurance claim. Basically, through these by-laws, the corporation could re-assign the role and responsibility of insuring and repairing a unit after damage.

Please keep in mind that the above is strictly an overview of the regime in place and that all of it is subject to the precise language of the legislation and of your corporation’s governing documents.

Owners must repair their unit under the new Act

The “new” Condominium Act will implement significant changes to the above “insurance regime”.

The most important change is the fact that, under the new Act, the owner is now responsible to maintain and repair the unit. The Corporation continues to be responsible to repair and maintain the common elements. This is subject to multiple provisions under the Act and to the corporation’s governing documents.

This is, in my view, great news as it normalizes who is responsible to repair (and insure) what. Each owner is responsible for their unit, just like they would with a stand-alone home or a single dwelling. The corporation is responsible for common elements. This would theoretically allow corporations to reduce the required insurance coverage and/or to benefit from a reduction in insurance cost. The less you insure, the less it should cost.

Unfortunately, corporations are not automatically brought into this new insurance regime as this provision under the new Act is subject to what is provided in each declaration. This is unfortunate as most declaration simply repeat the statutory language in place at the time of incorporation. Therefore, in most cases, declarations continue to state that the corporations are responsible to repair the unit after damage (since it repeats the language of prior versions of the Act). To step into the new more beneficial regime, corporations therefore need to amend their declaration, which requires 80% of the owners to agree. A difficult task in most cases.

The new Act also introduces changes to a corporation’s ability to adopt a Standard unit by-law and implements changes to Insurance deductible by-laws.

Insurance deductible under the new Act

The ability to extend the circumstances under which a corporation can turn to the owners to pay the deductible, will no longer be available through the adoption of a by-law. From as early as July 1st, 2017, a corporation wishing to benefit from this protection will only be able to do so through a modification of their declaration. This is quite problematic in that you will need 80% of the owners to agree to this, whereas, under the “old” Act, you could do so through a by-law with “only” 50% + 1 of the owners agreeing to it. It is making the adoption of such a protective mechanism much more difficult.

For a while, there was uncertainty as to whether existing Insurance deductible by-law would survive the implementation of the “new” Act. Thankfully, existing Insurance deductible by-law appear to be grandfathered under the proposed regulations. This grandfathering provision is “hidden” in the draft regulation being circulated by the province, under the section providing for what to include in the corporation’s Periodic Information Certificates. A corporation having an existing Insurance deductible by-law must advise the owners of this and of the maximum amount they may have to pay towards the deductible. This seems to indicate that existing Insurance deductible by-laws will continue to apply.

Corporations must act quickly

The fact that the existing Insurance deductible by-laws appear to be grandfathered is great news for those having them. More importantly, the proposed regulation provides existing corporations without such by-laws with a unique and time-limited opportunity to adopt one before the implementation of the new “insurance regime”. Indeed, corporations wishing to benefit from this protection will need to adopt (or amend) their Insurance deductible by-law before July 1st, 2017. After that date, corporations will only be able to benefit from this through a modification to their declaration – which is more difficult to obtain.

We recommend that you consult with the corporation’s lawyer without delay if you want to clarify your needs and options on this front. Time is ticking! Keep in mind that this exercise will be useful not only to those without such a by-law but also to those with a by-law which would benefit from some improvement. Newer corporations often don’t have an Insurance deductible by-law or don’t have very good ones (only having the standard one provided by a developers).

[ctt template=”9″ link=”P_LAa” via=”no” ]Condos may only have until July 1st to adopt an Insurance Deductible by-law. Time is ticking![/ctt]

Standard Unit by-law under the new Act

Finally, the “new” Act also slightly modifies the concepts surrounding the “Standard units” and the by-laws pertaining to them.

The “old” act did not specifically defined what was a “Standard unit”. The new Act does. A standard unit will either be the unit as defined by a corporation through a by-law or will be what will be prescribed by regulation. We do not yet know what will be described in the regulation but it is safe to assume that existing Standard Unit by-law will be grandfathered under the new act/regulation. More to come on this.

There is therefore, in my view, no rush to adopt a Standard Unit by-law before July 1st – other than the benefit of having the protection of such a by-law. I mean by this that the adoption mechanism will be the same under the new and the old Act. It may be beneficial to wait and see what “Standard Unit” is being proposed by the province before rushing and adopting one of your own.

Lesson learned

Now is the time to review your declaration and existing by-laws to determine how the implementation of the “new” Condo Act will affect your day to day operations and in particular your insurance needs and cost;
Corporations without an Insurance deductible by-law should seriously consider adopting one without delay to benefit from this protection. After July 1st, 2017, this protection will no longer be available through a by-law but only through an amendment to your declaration;
Many corporation would benefit from amending their declaration to fully fall into the new “insurance regime”;
It is always a good idea to regularly remind owners of the requirement to be properly insured. Owners seldom understand their obligations and responsibilities when it comes to repair and insurance of their unit.

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[Updated April 18, 2019]

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