Section 98 of the Condominium Act, 1998 allows owners to make alterations to the exclusive use common element areas allocated to their unit as well as the other common element areas. Section 98 requires that for a unit owner to make any addition, alteration or improvement to the common elements, the improvement must be approved by the condominium’s Board of Directors and consistent with the provisions of the Condominium Act and the Declaration of the condominium. In addition, the unit owner must enter into an agreement with the Condominium Corporation and the agreement must be registered on title to the owner’s unit. Once the agreement is registered on title, it becomes binding not only on the current unit owner but on all future owners of the unit. Failure to comply with the provisions of the agreement may result in additional common expenses being owed to the Condominium Corporation by the unit owner. Failure to pay common expenses could result in a lien being registered on title to the property in favor of the condominium Corporation.
The section 98 agreement will set out relevant information with respect to the improvement or alteration. This will include maintenance, insurance and repairs to the improvement and it will specify who actually owns the improvement. The section 98 agreement allows unit owners to alter the common areas for the benefit of the unit owner while at the same time protecting the interests of the Condominium Corporation and other unit owners.
So why is section 98 of the Condominium Act relevant to buyers and sellers of condominiums? If you are considering the purchase of a resale residential condominium, it is advisable to make your offer conditional on the lawyer’s review of the status certificate and related condominium documentation. This will allow your lawyer to have an opportunity to review these documents to ensure that there are no serious problems disclosed in them. The status certificate will provide a statement from the Condominium Corporation confirming whether or not the unit is subject to a section 98 agreement. In most cases, the unit will not be subject to a section 98 agreement. However, this does not mean that the owner or a previous owner did not make unauthorized repairs or improvements to the unit or the common element areas.
The problem for a buyer can arise in the following situation: The buyer makes an offer to purchase the unit with the offer being conditional on a review of the status certificate. The lawyer reviews the status certificate which indicates that the unit is not subject to a section 98 agreement. The transaction closes and the buyer receives a complaint from another owner or the property manager relating to an improvement or alteration to the unit for the common elements allocated to the unit. The complaint arises from the fact that the owner or a previous owner installed hardwood floors or made some other improvement without obtaining the consent of the Condominium Corporation or obtaining a section 98 agreement. The Condominium Corporation is now forcing the buyer to remove and/or repair the unauthorized improvement at the owner’s expense. Failure to do so could result in the Condominium Corporation registering a lien on title to the owner’s property. In this situation, the owner is confused and upset and wonders how this could happen.
The buyer can avoid this risk by doing a physical inspection of the unit and the common elements during the conditional period and making inquiries with the property manager to determine if the Condominium Corporation has a record of the improvement or alteration to the unit and/or the common elements. Another way that the buyer can protect itself is by having its realtor insert an appropriate clause into the Agreement of Purchase and Sale. This clause will be a covenant, warranty or representation wherein the Seller states that the unit or the common elements have not had any alterations, improvements or repairs which require the consent of the Condominium Corporation. I always recommend that the buyer’s realtor include this clause in the Agreement of Purchase and Sale. Such covenant/warranty or representation will provide a limited form of protection to a buyer in the situation set out above. Although the buyer would likely be responsible for complying with the requirement of the Condominium Corporation to remove or repair the item in question. The buyer could make a claim for damages or out of pocket costs against the seller for breach of its covenant/warranty and or representation.
Buying a resale condominium is not a straight forward process and contains many complexities. Proper advice from an experienced realtor and lawyer is essential.