Navigating Year One in a New Condo Building

Transition here looks more like a sliding scale, with a developer’s total control on one side and full owners’ control on the other, a process that may take years. After occupancy begins, but before turnover occurs, purchasers of the units have little say. This is the most vulnerable point in the evolution of a condominium community, as the builder has full command of all condominium resources. If something goes wrong at this stage — the builder failing to enforce noise rules or repair a broken chiller — an owner would potentially have to go as far as to hire a lawyer and pay an engineer to prove his point in court.

Owners may pin their hopes on the due diligence of the declarant-appointed board directors, who are often owners of the development company, and pray that they will act in the best interests of the condominium corporation. However, it is highly recommended that owners strike a steering committee to act as their collective voice. Three to seven owners should sit on the steering committee, collecting owners’ concerns and bringing them to property management and/or the builder to resolve them.

The steering committee also has the right to access corporation records and review how the first-year budget is being carried out. The committee should have regular meetings, provide information to owners via social media and bridge the gap between the owners’ and declarant’s board of directors and management. Active involvement with the steering committee may come in handy for future board members.

Upon registration of its declaration and description, a condominium corporation is born. Normally, registration occurs after more than 50 per cent of a development’s units have been sold. The next step is for the builder-appointed board to call and prepare for a turnover meeting. The declarant-appointed board must give notice of a turnover meeting to owners within 21 days of the declarant ceasing to be the registered owner of a majority of the units, per Section 43 (1) of the Condominium Act. The turnover meeting must then be held within 21 days of notice being given, per Section 43 (3) of the Act.

If the builder-appointed board fails to call the turnover meeting, as required, any owner or mortgagee has the right to call the meeting, per Section 43 (2) of the Act. Whomever calls the turnover meeting has the right to access the list of owners for the purpose of sending the notice of meeting to those who are entitled to receive it. Notice must be sent 18 days before the meeting date.

If other rules around calling an owners’ meeting aren’t followed, decisions made at such meeting may be found null and void. For that reason, it’s recommended that an owner or mortgagee calling a turnover meeting consult a condominium lawyer or management company.

The turnover meeting has two major goals: to get the owners’ board elected and to hand off the corporation’s documents. After turnover, the board will elect the officers of the corporation, including the president, vice president, secretary and treasurer, as well as hire professionals, such as a lawyer, engineer and auditor.

Within 60 days of the turnover meeting, the newly elected board needs to obtain and review audited financial statements and compare them with the first-year budget. The board should also review condominium contracts signed by the builder. The Condominium Act gives the board the right to terminate any contract (except for contracts with telecommunication providers), with at least 60 days’ written notice, within one year of the turnover meeting.

To this end, putting a contract out to tender is a great way to save money for a condominium corporation and find the optimum balance between quality and contract price. Even if the board is satisfied with the contractor’s performance and cost, it can be worthwhile to renegotiate the terms of contracts.

Naturally, contractors’ agreements are made by their lawyers to protect the contractors’ best interests (e.g. 90 days’ termination notice for a security contractor). A prudent management company will ensure contracts protect the interests of the condominium corporation, such as terms giving the management company or condominium corporation the right to terminate a contract for cause, before its expiry date, if the contractor fails his duty.

Should the newly elected board terminate the contract with the property management company hired by the builder? There is no one-size-fits-all solution. The condo board should ask itself: Is the company prepared to fight for the corporation’s best interests, or is it dependent on the developer for that great next project? Does the company have the expertise to manage this particular corporation? How did the declarant choose the management company? Was there any tender? Does the on-site manager have the required experience and possess relevant professional designations?

Going forward, newly elected directors have five major time-sensitive tasks to accomplish:

1. Carry out a performance audit on the building and file it with the builder and the Tarion Warranty Corporation within the first year after registration.
2. In the second year after registration, if it is a Tarion-covered building, have the performance audit updated to take advantage of the corporation’s two-year building envelope and mechanical-electrical warranty.
3. In the first year after registration, perform a reserve fund study and deliver a plan for contributions to the unit owners.
4. Before the end of the first year, but after the turnover meeting, review all contracts to which the corporation is a party and determine which of them the corporation wishes to continue and which of them the corporation wishes to terminate.
5. When the financial audit is done after the end of the corporation’s first year, determine the amount of the deficit, if any that there was in relation to the developer’s disclosure budget, and seek its recovery.

After completing these immediate tasks, the condo board and property management company need to develop a strategic plan for the future.

Turnover can be challenging and confrontational or calm and routine, depending on how all of the parties approach it. A successful transition requires communication, common sense, perseverance, and smart, energetic people who aren’t afraid of hard work.