DOES THE LONG-AWAITED REFORM MEET EXPECTATIONS?

Divided co-ownership, part 2

DOES THE LONG-AWAITED REFORM MEET EXPECTATIONS?

You may not be aware, but the government of Quebec has undergone a thorough overhaul of the rules surrounding divided co-ownership; some changes have been in effect since January 2020, others since April 2021, and more are still expected.

It is to prevent unpleasant surprises for future condo buyers and current co-owners that the legislator deemed it necessary to better regulate the divided co-ownership system, adding a series of new rules. When all these rules come into effect, they will impose a strict, complex, and possibly more costly regime for developers and condominium associations. Consequently, this means more fees but also greater protection desired for co-owners.

To address the problems of condominium associations with an insufficient contingency fund to cope with exorbitant expenses due to the discovery of defects or negligence in building maintenance, the legislator enhances the current regime so that the association can respond to the building’s needs promptly.

Contingency fund and self-insurance

“Since January 1994, we know that the Condominium Association is required to establish a contingency fund to cover anticipated repair costs,” explains Me Dani Ann Robichaud. “But with the reform, the Association will have to revise its method of determining the required amount, and there is reason to believe that this amount will necessarily be revised upwards.”

Moreover, since April 2021, the fund must now provide for reconstruction in accordance with the standards, practices, and rules of the art applicable at that time, and the amount of insurance taken out must be evaluated at least every 5 years by an accredited appraiser to ensure that the held insurance is sufficient.

“Furthermore, starting in April 2022, a self-insurance fund must be established for the payment of the highest deductibles provided by the insurance policies and for the repair of damage to the insured property (the building and its components); moreover, it must take out insurance covering liability to third parties as well as that of its board members,” says the lawyer.

The new legislation that will come into effect later will establish the keeping of a maintenance and repair log for the building, outlining forecasts for upcoming work. Since most members of the Condominium Association’s Board are condo owners, it is highly likely that legal expertise and other assistance will be required to help them carry out their duties.

“But that’s not all: the developer will also have to open his wallet. Among other obligations, he will have to commission a study of the contingency fund, which must be given to future condo owners. While waiting to receive the study, he must place 0.5% of the rebuilding value of the building in trust. For a $10 million project, we’re talking about committing $50,000,” emphasizes Me Robichaud.

The alternatives?

Clearly, the legislator’s desire is to improve the situation for condo owners, but the adjustment may be harsh. Although some provisions of the reform are already in effect, they do not seem to be systematically applied in real estate transactions conducted since January 2020. They may be poorly understood by those responsible for ensuring their compliance.

It should be noted that buyers of a single-family home or a semi-detached house are obviously not targeted. Owners of condominiums held in indivision will also be exempt (see part 1 of our column in September).

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.