Termination of Management Contracts

A recent decision by the Ontario Small Claims Court has some important lessons for condominium boards and property management companies when it comes to terminating management agreements.

In Win2 Management Inc. v. Metropolitan Toronto Condominium Corp. No. 1049 a condominium corporation and property management company entered into a written property management contract. The contract provided that the condominium corporation could terminate the agreement without cause by giving 60 days’ written notice and by paying the outstanding amount owed to the property management company to the date of termination.

Several months after entering into the agreement, the condominium corporation instructed the property manager to stop working and to vacate the premises immediately. As a result of this termination, the property management company brought a claim against the condominium corporation for damages for the amount payable to the property management company to the end of the 60 day notice period.

In response, the condominium corporation argued that it was not obligated to pay the property management company because the termination was for cause. In particular, the condominium corporation claimed it had terminated the property management company due to its use of unlicensed contractors. In support of this argument, it called one witness at trial, a security guard, who claimed that the property manager had hired unlicensed contractors. It was the property management company’s evidence that all contractors were licensed.

The Court found that the condominium corporation had failed to establish that the property management company had fundamentally breached the contract. By reference to the Supreme Court of Canada, the Court clarified that a fundamental breach occurs only where the very thing bargained for in the contract has not been provided. The Court determined that based on the evidence provided, the condominium corporation had failed to establish that the management services were flawed or that there was a fundamental breach. The Court granted judgment in favour of the property management company, awarding it the full amount claimed to the end of the 60 day period.

This decision demonstrates the importance of understanding and complying with termination clauses and notice requirements contained in property management contracts. Property management companies and condominium corporations should be aware of and consider any such terms in their property management agreements prior to terminating a contract in order to avoid potential liability that may follow the termination.