City and condo developer suggest amending Condo Act for green reasons
By Chris Jaglowitz on April 8, 2009
Posted in Condominium Act, 1998, The Environment
The proposed Green Energy Act ("GEA") is moving forward quickly and will be considered in committee later this month. As it now reads, nothing in the GEA contemplates any amendment to the Condominium Act, 1998 ("the Condo Act").
That may change, but not in a way we would like.
The Toronto Atmospheric Fund ("TAF"), together with a local condo developer and their respective lawyers, made a written submission to the Minister of Energy and Infrastructure on the implementation of the GEA. A copy of the submission is available here. [Hat tip to environmental law blogger Dianne Saxe.]
Recommendation #1: Exempt developer-made agreements and loans from statutory rescission
The first part of the submission calls for the amendment of section 112 of the Condo Act to disallow a post-turnover condominium board from using that section to terminate agreements, easements or leases related to the financing, development, supply and installation of green energy systems.
It is easy to understand that third-party suppliers and lenders would be hesitant to finance, supply or install green energy systems to a new building when there is risk that the post-turnover board will terminate the arrangement. The problem, however, is that the wording proposed by TAF is far too broad and open to significant abuse by developers. The amendment to section 112 that is proposed in item #1(a) on page 3 of the submission is that:
a loan to a condominium corporation which has been fully advanced to the corporation (or to whomsoever it may direct) is not within the purview of subsection (1) [and therefore the loan cannot be terminated or rescinded by the post-turnover condominium corporation]
This clause does not limit or restrict the type of loans that are exempt from termination or rescission under section 112 to those made for the supply/installation of green energy projects. If accepted, this proposal could result in post-turnover condominium corporations starting life with a significant debt but with no ability to terminate or rescind arrangements that were made by the corporation while under the developer's control. Such loans could be made for any purpose, including the purchase of developer-owned units or assets (including green energy equipment), and could contain improvident terms and unfavourable interest rates.
The most likely outcome of this proposal, if accepted, is developers downloading to new condo corporations the cost of energy-efficient equipment, which may or may not be "green energy projects" as defined in the GEA. This outcome seems to be contemplated by the proposed amendment to section 112 set out in item #1(b) on page 3 of the submission, which provides that:
any agreement, easement or lease involving the development of a green energy system for a condominium corporation (including the provision of any equipment, labour, materials, supplies and/or services in connection therewith) that is entered into by or on behalf of the condominium corporation with one or more third parties (e.g., geothermal, solar photovoltaic, wind turbine or other types of systems, where the third party will have to invest significant funds prior to registration in order to ensure that the system is installed, operative, and functioning properly when people move in) is not within the purview of subsection (1) [and therefore such an agreement, easement or lease cannot be terminated or rescinded by the post-turnover condominium corporation]
While this amendment is nicely couched in the environmental lingo, its underlying purpose is clear – to permit developers to download the cost of equipment or require the condo corporation to purchase that equipment from the developer. The justification for the amendment, however, is flawed. If a developer provides a building component, such as an elevator or a greenhouse as part of a building, what agreement might there be for a post-turnover board to terminate or rescind? How about an equipment/asset purchase or finance agreement? How about an agreement for division of the profits from electricity sales? If the developer wants to provide a fancy green power project as part of its project, it can do that, but it ought to be bearing the cost and passing it along as part of the purchase price.
Moreover, just because a green energy project is green doesn't necessarily make it desirable, wise or prudent, or worthy of stripping condo corporations of the statutory right to rescind agreements that they entered into while under the control of their developer. The legislature would be doing a great disservice to unit owners by giving effect to this recommendation and watering down the consumer protection afforded by the Condo Act.
Recommendation #2: Give creditors access to special condo remedies
The second part of TAF's submission (item #2 on page 3) is considerably more problematic. It calls for amendments to Part IX of the Condo Act that would entitle "creditors" to apply to the Superior Court of Justice for remedies under sections 130 (appoint inspector), 131 (appoint administrator) and 134 (obtain compliance order), presumably to help enforce creditors' rights over loans in default. There are several serious problems with this proposal:
First: The proposed wording will include all creditors, rather than just lenders for green energy projects. Any lender, as well as trade creditors, unsecured creditors, judgment creditors, etc., would be included by this wording and would be given the same standing and rights as unit owners and mortgagees to obtain special condominium remedies to wrestle control away from the democratically-elected board of directors. Granting these special rights to this group is both unprecedented and unjustified and could open the floodgates to a whole host of evils.
Second: Whether intentional or not, TAF's proposal seems to exempt creditors from the mandatory requirement to submit a disagreement to the mediation and arbitration mechanism under section 132 of the Condo Act, which applies to agreements between condo corporations and their unit owners, sister condo corporations, managers and declarants/developers. Seeing as how the legislature has made mediation and arbitration mandatory in a wide variety of circumstances, giving "creditors" the ability to side-step mediation/arbitration and to fast-track their cases into court is inequitable.
Third: Giving creditors the right to seek the appointment of inspectors, administrators or to obtain compliance orders is unnecessary overkill. At present, private and public lenders alike routinely advance loans to condominium corporations for sums from $100,000 to multiple millions of dollars to finance major repair and replacement of common elements and other projects. All of those creditors have contractual protections that provide the lender with security and rights, and creditors always have the right to go to court for a suitable remedy or an order for the payment of money.
Fourth: On obtaining a money judgment, a creditor can examine a representative of a judgment debtor condo corporation in aid of execution. In addition, section 23(6) of the Condo Act states that a judgment for the payment of money against the corporation is a judgment against each owner. In other words, even if the condo corporation becomes insolvent, an aggrieved creditor can pick the pockets of each of the unit owners. Creditors and lenders, regardless of the purpose of their loans, do not require the ability to appoint administrators, inspectors or obtain compliance order to collect a money debt against a condo corporation. This proposal simply allows unfriendly creditors to (ab)use these special remedies as a sledgehammer against a condo corporation. Why give a front door key to the barbarians at the gates?
Fifth: It is hardly plain or obvious that giving creditors access to these remedies is reasonably required to encourage lenders to finance green energy projects, given that there is already a booming finance market for condominium corporations and their special projects. TAF's submission offers nothing other than a bald statement that the current wording of sections 130, 131 and 134 are "barriers in the Condo Act that deter or restrict the supply of financing for green energy projects to new or existing condominium projects." That is a gross overstatement and is misleading.
Because of the many evils that would be created in exchange for no appreciable benefit to lenders, the legislature would be wise to reject item #2 in the TAF submission. The fact that TAF and the condo developers would put forth this recommendation is highly surprising, and needlessly (and fatally) taints what might otherwise have been a fairly reasonable and positive submission.
The role of TAF
The fact that this developer-slanted pitch was made under TAF's letterhead bears some comment. As an agency of the City of Toronto, it is surprising that TAF is championing the developer's side to such a great extent and appears to have given little or no thought to the consequences to post-turnover condominium corporations and their unit owners. The fact that there appears to have been no consultation with the rest of the condominium industry (i.e., ACMO and CCI) further gives the strong impression that TAF's focus and priorities are less than ideally balanced. In order to maintain its credibility with the rest of the condominium industry and the public, TAF must be careful to be attentive to the needs of the other players in the field, namely the unit owners, and to be more inclusive. We will be watching.
Don't miss the forest for the trees!
Both TAF and the Ontario Government must remember that, in this quest to become greener, it is paramount that we do not weaken effective consumer protection (such as the Condo Act) and create problems that did not previously exist. Being green is important, but defending consumer protection is more important. The condominium marketplace is complicated enough for consumers without further tipping the balance in favour of developers. While legislative change may be necessary to help allow for greener development, the potential negative impacts on consumer protection must be closely examined, considered and discussed by all stakeholders before changes are legislated.
Update (May 8, 2009): Harry Herskowitz, who was involved in preparing TAF's submission, responded to most of these issues. His response is posted on the Saxe Envirolaw blog. Check it out here.
Tags: Condominium Act 1998, Green Energy Act, law reform, The Environment
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