eCaseNote 2012 No. 03

The New Condominium Act – What Developers Need to Know

Condominium Act, RSNL 2009, c.C-29.1

The present growth in popularity of condominium ownership in Newfoundland makes timely the newly updated Condominium Act, which came into force on December 1, 2011. It replaces the original 1975 legislation. All condominiums regardless of age are now governed by the new Act.

This first in a two-part series focuses on what condominium developers need to know about the new Act.

The highlights of the new Act are twofold:

  1. Its consumer protection provisions – such as, detailed disclosure statements for purchasers, secured reserve fund, and dispute resolution provisions.
  2. Its provisions for versatility in condominium ownership, permitting:
    1. a phased development, whereby a new building upon completion may be absorbed into an existing condominium;
    2. a common elements condominium corporation, where the Units are not within the condominium corporation but the common elements are (common areas, elevator, garage and other amenities – a parking garage could be an example);
    3. a vacant land condominium, providing a means whereby investors could hold vacant land adopting the structure and administrative provisions of the Act; and
    4. amalgamation of two or more condominiums, with the consent of 80% of the Unit owners.

Disclosure Statement

Where the seller of a Unit is the Declarant (usually the developer), a sale agreement is not enforceable until the expiration of a “cooling off” period of 10 days from the date the Declarant has delivered to the purchaser a disclosure statement and a package of documentation which includes the Declaration and By-laws of, and a budget statement for, the Condo Corporation. During the marketing phase of a new condominium (12 months following the first unit sale) the contents of the budget statement must include the cost of the common expense contribution for each Unit, including the costs of the reserve fund study and audited financial statements. Note as well that during this marketing phase the Declarant’s lawyer must hold back 10% of the budget statement from the proceeds of the sale of the first Unit. The Declarant also must make contributions to the Condo Corporation attributable to unsold units during the marketing phase.

Audited Financial Statements

For condominiums with more than 10 units, the new Act requires the appointment of an auditor who is licensed as a public accountant under the Public Accountancy Act to prepare financial statements.

Records to be produced on Turnover to Condominium Board

Within 30 days of no longer owning a majority of the Units, the Declarant is required to turn over to the Condo Corporation an extensive list of documentation which would be best accumulated by the developer throughout the development and construction stages of the project. The list includes, for example, as-built plans, original specifications and material change orders and warranties on equipment.

Three Directors

The act now requires that there be 3 directors of a Condo Corporation from the date of registration of the condominium.

Reserve Funds and Reserve Fund Studies

The new Act requires that, within 2 years of December 1, 2011, a Reserve Fund Study be conducted of all condominiums, regardless of age, by qualified persons designated in the Act. The Study is to be the basis for the establishment of a Reserve Fund for major repair and replacement of the common elements (roofs, building envelopes, elevators, parking facilities, etc.). The requirements applicable to the Reserve Fund Study are extensive and reference should be had to Regulation 4 of the Condominium Regulations, 2011. The amount of the Reserve Fund is to be fully funded within the time determined by the Study. The Study is to be updated every 10 years. The requirements for a Study for a condominium containing less than 10 Units are somewhat less stringent.

Standard Unit

The Act requires that there be spelled out in the documentation what will be taken as a “standard Unit” – that is, the specifications of the basic surfaces, finishes and fixtures within a Unit. This concept is perhaps best understood by reference to its insurance application. The Condo Corporation insures all the Units as “standard Units”. If the Unit owner installs premium wall and floor coverings, custom cabinetry, granite and high end electrical and plumbing fixtures, etc., the owner is responsible to responsible to insure these “up-grades”. Otherwise, following a loss, the owner will be compensated by the condominium insurer as if the Unit was a “standard Unit” only.

The comments contained in this eCaseNote provide general information only and should not be construed as legal advice or opinion. For more information or specific advice on matters of interest, please call our offices at (709) 579-2081.