Condominium Construction Deficiencies and the Tarion Process

On December 4, 2012, the Ontario Court of Appeal rendered its decision in Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. ¹2012 ONCA 850 [1352 v. Newport]. This case is of practical import to condominium boards facing construction defects that may be covered under the Ontario New Home Warranties Plan Act.²R.S.O. 1990, c. 0.31 [ONHWPA].

Newport Beach Development Inc. (“Newport”) was the declarant and vendor of a luxury condominium project in Toronto, Metropolitan Toronto Condominium Corporation No. 1352 (“MTCC 1352”).  Shortly after construction, two defects became evident: the sewage system was not properly constructed and the exterior cladding of the buildings was allowing water to penetrate into the condominium units.  MTCC 1352 filed a claim with Tarion under the ONHWPA. Tarion subsequently denied warranty coverage.³1352 v. Newport at para. 3. MTCC 1352 appealed to the Licence Appeal Tribunal (the “Tribunal”), the impartial body created by the Ontario government to adjudicate disputed warranty claims. However, before the matter came up for hearing, MTCC 1352 withdrew the appeal and began a claim in Superior Court against Tarion, Newport and others.  MTCC 1352 claimed for breach of statutory warranty, negligence, breach of fiduciary duty and breach of contract.⁴Ibid. at para. 24.⁵Ibid. at para. 69.

Newport argued that since Tarion had already determined the warranty claims, the claims could not be re-litigated in court. That is, MTCC 1352 was barred (or estopped) from raising the same issue in a different forum. The Court of Appeal disagreed, finding that applying the legal principle of “issue estoppel” in this fashion would work an injustice against MTCC 1352.⁶Ibid. at para. 76. Among other factors, the Court considered that the ONHWPA is consumer protection legislationvi and that it  permits, but does not mandate, that a claimant appeal Tarion decisions to the Licence Appeal Tribunal.⁷Ibid. at para. 67.

Newport further argued that MTCC 1352’s claims were barred by the Purchase Agreement between MTCC 1352 and Newport. The Agreement read that “[t]he Purchaser shall not have any claim or cause of action (as a result of any matter or thing arising under or in connection with this Agreement) against any person or other legal entity, other than the person or entity named as the Vendor in this Agreement.” The Court held that this did not bar a claim against Tarion since it was unclear that a claim against Tarion arose “under or in connection with this Agreement”.⁸Ibid. at paras. 84-85.

Secondarily, Newport argued that the Agreement restricted claims to those warranties provided by the ONHWPA. Again, the Court disagreed. While the Agreement might restrict warranty claims to those in the ONHWPA, nothing in the wording of the Agreement precluded the other claims against Newport and Tarion — namely, breach of contract, negligence and breach of fiduciary duty.⁹Ibid. at paras. 95-97.

Who can bring a claim where there are structural defects in the common elements?

Once the condominium is registered, the condominium corporation is the proper claimant where defects exist in the common elements.¹⁰ONHWPA, s. 15(a). However, if the Board’s Turnover Meeting has not yet occurred, a unit owner may notify Tarion of a common elements problem. After the Turnover Meeting, if a unit owner is concerned that there may be a problem with the common elements, he or she should notify the Board and the property manager as soon as possible.  The Board is responsible for bringing common element problems to the attention of the builder and Tarion, if necessary.

The Claims Process

Pursuant to the Condominium Act, a residential condominium corporation must submit a Performance Audit to Tarion within the first 6-10 months following the registration of its Declaration and Description. The Performance Audit sets out any discovered construction issues or defects relating to the building since registration. Following the builders review and response to the Performance Audit, a meeting will take place between all parties to discuss and attempt resolution of the disclosed issues and defects.¹¹“Condominium Common Elements Warranty: A Guide for Residential Condominium Corporations”, Tarion (online: Link). Should the meeting between all parties not end in agreement, the condominium corporation can request a conciliation inspection, wherein a representative from Tarion conducts an on-site inspection of the issues listed in the Performance Audit and prepares a warranty assessment report for same. The vendor of the building will be given a deadline to resolve those issues identified and covered under the warranty. Outside the 6-10 month window of the Performance Audit, a corporation may initiate a claim by submitting a Statutory Warranty Form to Tarion.

Be aware that initiating a claim through Tarion does not preserve your right to initiate a civil claim through Superior Court; the limitation period continues to run throughout this process. Generally, the condominium corporation must bring its claim within two years of discovery of the defect irrespective of whether a Tarion claim has been filed.

In event the corporation is unsatisfied with Tarion’s final report, it may appeal the decision to the Tribunal or initiate a claim in Superior Court. However, we recommend that condominium boards consult a lawyer before making this decision. Among other issues, the condominium corporation may be faced with expiry of the limitation period. To initiate a claim with the Tribunal, the corporation must request a Decision Letter from Tarion, from which to base their appeal.  A decision rendered from this Tribunal may be further appealed to the Divisional Court.

What does this mean for condominium corporation Boards?

• Make timely reports to Tarion of all possible claims under the ONHWPA.  TheONHWPA sets out specific timelines for making a claim to Tarion.
• Once a claim is made under the ONHWPA, Tarion will give the builder a certain time frame to respond to the claim. If the builder does not repair the defect, Tarion will provide you with a time frame for applying for “conciliation”. Pay careful attention to this time frame; if you do not apply for conciliation in time, Tarion will consider the matter closed.
• You should also be aware of the limitation period for bringing a civil action established by Ontario’s Limitations Act.  Generally, in order to preserve the condominium’s right to bring a civil claim in Superior Court, you must bring your claim within two years of discovery of the defect.  Claiming through Tarion will not preserve your right of action in Superior Court.
• Do not rely on Tarion to drive the process. Monitor progress with the builder and Tarion regularly to ensure that neither the condominium corporation nor the builder miss important deadlines.
• If conciliation fails and Tarion denies your claim, consult a lawyer to determine whether you should proceed by way of an appeal to the Licence Appeal Tribunal or a civil claim in Superior Court. If you elect to appeal a Tarion decision to the Licence Appeal Tribunal, and the Tribunal dismisses the appeal, it is likely that you will be prevented from bringing a Superior Court action seeking the same relief.
• Keep in mind that the maximum amount that can be awarded for costs to remediate a defect claimed under the ONHWPA is the lesser of $50,000 per unit and $2.5 million.  However, amounts in excess of that amount may be recoverable in Superior Court.
• Pay careful attention to the Purchase Agreement and do not sign without benefit of legal advice. The Court of Appeal’s comments in MTCC 1352 v. Newport indicate that claims in Superior Court may be barred if the language of the Agreement is stronger and less ambiguous than that used by Newport.

Cohen Highley LLP provides development, administrative, risk management, regulatory compliance advice and litigation services to Developers, Condominium Corporations, and Property Management Companies, including Management of Fire Code, Building Code Issues; Redevelopment and Land Use Planning; Accessibility Training and compliance; Human Rights Training; and all aspects of Condominium Law.

Jaime Bell practices in corporate/commercial, real estate and condominium law. Jaime’s practice includes residential and commercial real estate transactions, incorporations and corporate transactions.

For more information about your options in dealing with construction defects in your condominium complex, contact Laura McKeen, Jaime Bell or Ben Blay at Cohen Highley LLP: (519) 672-9330 or www.cohenhighley.com.