Can developers enter the Section 98 agreements that must be in place for owners to alter common elements?
Interestingly, the Condominium Act does not prohibit a developer from entering into a section 98 agreement with the condo while it still owns the units. In fact, many developers now include section 98 agreements as a standard part of the disclosure package that they provide to potential purchasers.
Shortly after the declaration and description are registered creating the condo, and before any of the units are sold to the purchasers, the developer registers the agreement against all of the units. The board of directors appointed by the developer will sign the agreement on behalf of the condo and a representative of the developer will sign as owner of the units. In many cases the person signing on behalf of the condo is the same person signing for units. There is nothing improper in this arrangement as long as it is done in accordance with the requirements of the Act.
A section 98 agreement from the developer can save the condo a significant amount of time, effort, and money as it eliminates the need for the condo to enter into individual agreements with each owner looking to change the common elements. (Note: those owners would still require board approval.) Group section 98 agreements, which are an improvement over individual agreements, still require a significant amount of work compared to agreements put in place by the developer because the signature of each owner must be collected with a group agreement.
Notwithstanding the benefits, developers and their lawyers must be careful when proposing these agreements. As mentioned above, the agreement should be disclosed to purchasers in the disclosure package so they are aware of it before they purchase the unit, especially where the agreement shifts responsibilities for maintenance, repairs, and insurance to the owners of the units. Disclosing the agreement will protect the developer, but it will also make it easier for the condo to enforce the agreement against any owner who chose not to follow the terms of the agreement.
It is fairly common for developers to offer upgrades or extra features to purchasers. Sometimes these are constructed before registration, sometimes after. Sometimes there are items installed by the purchasers with approval from the developer while it controls the board of directors. Regardless of the situation, the developer should keep a list of improvements made by it or the purchasers to the common elements during the time that it controls the board of directors. The list, or minutes evidencing approval for the improvements, should be provided to the condo at the turn-over meeting or shortly thereafter. Without a list of improvements, costly disputes may arise between the condo and subsequent owners when it comes time to maintain or repair certain components in the future.
Like all section 98 agreements, proper record keeping is vital for agreements provided by the developer.
Michelle Kelly is a condo lawyer at Robson Carpenter LLP, a firm that specializes in the development of condos and subdivisions. She leads the firm’s condo management practice providing legal assistance to condos, directors, and managers throughout Ontario.
