I recently found some time to blog. This was also motivated by my being retained by
a number of condominium corporations to deal with water issues. The specific issue which compels me to write
is what is commonly referred to as a chargeback. A chargeback occurs when a condominium
corporation incurs an expense as a consequence of an owner’s (or an owner’s
tenant’s) breach of the condominium corporations bylaws or in some cases based
on conduct of an owner which is not a breach of the bylaws (this is less
common). The condominium corporation is
permitted pursuant to its bylaws to charge back the sum expended to the owner
of a subject unit.
Based on the authority of the decision in Condo Plan 8210034 v King, 2012 ABQB 127
(“King”) as affirmed in Bank of Montreal v Bala, 2015 ABQB 166 the
amounts expended by a condominium corporation may be collected as if they were
a condominium contribution (that is in priority to other charges against the
title to an owner’s unit) so long as the language in the bylaws supports this. Many condominium corporation’s bylaws have bylaws
to this effect. It is important to
recognize that this principal from King
may be impacted by the amendments to the Condominium
Property Act (Alberta) [the “CPA”]
once they have been proclaimed. More
particularly the amendments state that any monetary sanction, any costs incurred
as a result of damages caused by an act or omission of an owner, tenant or
occupant, and any other amount specific in the regulations, shall not be
permitted to be treated as a condominium contribution.
If this provision is proclaimed condominium corporations
claim for expenses incurred as a consequence of a breach of the bylaws may be
more difficult to recover. The
Conservative Provincial Government gave assent to the amendments in December of
2014 but the NDP Provincial Government has not as at the date of this blog proclaimed
the amendments. It will be essential for
all condominium corporations to review their bylaws once the amendments have
been proclaimed and take steps to amend their bylaws to fortify them in the
face of the amendments and also to bring them into compliance with the
amendments.
However, this blog is written from the perspective of the
law in effect today; that is based on the application of the principles in the King decision. One of the more common instances of
chargeback arises when there has been a release of water from a condominium
unit into either another unit or into the common property of the condominium
corporation. Once the incident occurs
the condominium corporation must follow a detailed path prescribed by the CPA before being able to claim any
expenses incurred against the owner of the subject unit. Moreover, the condominium corporation must comply
with all requirements imposed by its bylaws (including without limitation additional obligations to insure perils other than prescribed by the CPA Regulations) and the bylaws of the condominium
corporation must have the requisite language to comply with the King decision (the bylaws must allow for
the amounts expended by the condominium corporation to be treated as a
contribution and then the amounts expended by the condominium corporation may be
charged back to an owner).
The first step in this process is practical; the condominium
corporation must gather its evidence. It
is unfortunate in many circumstances where there has been a release of water that
neither the owner nor the contractor who attends at the subject unit takes
pictures of the release of water or creates a detailed summary of the cause of the
release of water. It is behooves all condominium
corporations, their property managers, and their contractors to take pictures
when they first arrive at the subject unit and make the time to analyse and detail
what caused the release of water. Without this information it becomes a proverbial
“crapshoot” whether a Court will conclude that the release of water was anything
other than a “sudden and accidental escape” and/or that the responsibility for
the damages caused by the release of water was the owner’s.
The importance of this evidentiary focus can be understood
by looking at section 61(1)(i) of the CPA
Regulations:
61(1) For the purposes
of section 47(1)(a), (b) and (c) of the Act, a corporation must place and
maintain insurance against the following perils:
(i) water damage
caused by sewer back-up or the sudden and accidental escape of water or steam
from within a plumbing, heating, sprinkler or air conditioning system or a
domestic appliance that is located within an insured building;
This section obliges condominium corporations to insure
against the sudden and accidental escape of water from within a plumbing system
or a domestic appliance. If a release of
water occurs that is “sudden and accidental” then the damages caused by such a
release must be subject of the insurance of the condominium corporation. I must comment that it seems increasingly
common that the response of an owner to communication by a property manager to an
owner is from the owner’s insurance company. It is not uncommon that the insurer dogmatically
states that the responsibility for the damages caused by the release of water is
not the owners because the damages should be covered by the insurance of the condominium
corporation. However, the determination
of whether a release of water was “sudden and accidental” has not been well
canvassed by Alberta Courts nor is it something that appears to be contemplated
by Boards of Directors of condominium corporations or their contractors who
attend at a unit to rectify situations where water has been released. If the water which has been released was
caused by a sudden and accidental escape it is clear that it is the
responsibility of the condominium corporation to insure for this peril. However the analysis is not this simple. The amount of damages caused by the release
of water may be less than the amount of deductible required to be paid under
the insurance policy; in this case the bylaws may address whose obligation it
is to pay the deductible. An issue has
recently arisen in a recent decision of the Provincial Court - Civil Division
relating to what a reasonable deductible is. As a consequence of the flooding that occurred
in Calgary in 2013 it is not uncommon for corporations to have deductibles of
$25,000 or more. The Board of Directors should
be able to justify the reasonableness of the deductible and this be reflected
in a resolution of the Board of Directors. Perhaps the release of water was not a sudden
and accidental escape. In either
circumstance a review of the bylaws of the condominium corporation must be
undertaken and, if the release was not “sudden and accidental”, the insurance
policy should also be reviewed.
Notwithstanding a conclusion that the release was not a sudden
and accidental escape of water, the insurance policy of the condominium corporation
may provide insurance for the peril which occurred. In this circumstance, even if the bylaws
suggest that the peril is the responsibility of the subject owner, the
condominium corporation may be obliged to treat the release of water as an
insured peril. Also, there are many
different bylaws which relate to establishing liability for the damages caused
by a release of water and who is liable for the payment of the deductible. The bylaws may also address if the damages
are less than the amount of the deductible who is liable for the damages caused
by the release of water. Many lawyers
recommend that it is best if condominium corporations have clear-cut provisions
in their bylaws which state that in all circumstances that the deductible is the
responsibility of the owner whose unit the release of water occurred from or if
the damages are less than the amount of the deductible that the owner is liable
for the entirety of the damages regardless of fault.
Continuing the analysis, the condominium corporation should review
its bylaws to determine whether there is a positive obligation on an owner to
maintain, repair, replace etc. the unit and, without limitation, the plumbing systems,
plumbing fixtures and appliances within the unit. Similarly the condominium corporation should review
their bylaws to determine whether the responsibility to maintain plumbing
fixtures within a unit is that of the corporation. The interplay between these
two obligations is not always clear. Once
these obligations have been assessed a determination can be made on the basis
of the evidence and analysis whether the conduct of the owner was sufficient to
satisfy the obligations of the owner and a determination can be made if the
owner is liable for the damages caused by the release of water based on the
owner’s conduct. Upon a determination
that the owner is liable, the condominium corporation must comply with its
bylaws in context of the King
decision to collect the damages caused as part of the owner’s condominium
contribution.
In conclusion, from discussions which I have had with
insurance agents and property managers there is a growing concern relating to insurance
claims based on the release of water. From
a political perspective it is just not reasonable for the owners and owner’s insurers
to insist that all damages caused by a release of water of any kind be covered
by the condominium corporation. It is
more reasonable that owners conduct reasonable due diligence with respect to
their units. This includes inspecting
plumbing fixtures and appliances to make sure that they are in good working
order. To dump this responsibility on to
the condominium corporation is not workable or reasonable. Owners should be responsible for their errant
behavior and their failure to conduct due diligence. Moreover if more preventable water claims are
made it could lead to a crisis in the condominium insurance industry. It is not unimaginable that condominium
corporations will be required to agree to larger deductibles and be required to
pay insurance premiums which will continue to increase.
In light of the dilemma of water claims, the impending
proclamation of the amendments to the CPA,
among other reasons, condominium corporations should review and revise their
bylaws. The office of Bridgeland Law offers
to review the bylaws of condominium corporations and Bridgeland Law has created
a revised set of bylaws which contemplate the amendments and are ideal for townhouse and multi-unit
condominium complexes and offers these to Boards of Directors of condominium
corporations.
