Can a Condominium Corporation Lease Common Areas to Unit Owners?
February 16, 2018
The Short Answer
We wrote about the trial decision in Cheung v. YRCC 759 in the January edition of our newsletter. The appeal was recently decided and in a split 2-1 decision, the Ontario Court of Appeal upheld the trial judge's decision that the commercial condominium's bylaw leasing four parking spaces to each unit to attempt to manage the parking situation was reasonable and not oppressive. In this newsletter, we'll be examining the dissenting decision which although not binding provides guidance with respect to analyzing the legality of the actions of condominium corporations.
The appellant, Ms. Cheung, leased her 3 units in the 34 unit condominium to a very popular Chinese restaurant. The success of the restaurant meant that there were not enough parking spaces available for its patrons and the neighbouring businesses. The shortage of parking spaces led to disputes between business owners, customers, and staff. In 2009, the Condominium Corporation attempted to control the situation by passing a bylaw allowing itself to lease two parking spaces to each unit on a permanent basis. This bylaw was never registered and was not valid. In 2015, the Condominium Corporation, perhaps realising the 2009 bylaw was not effective, registered a new bylaw that allowed it to lease up to 4 parking spaces to each unit on terms and conditions acceptable to the Board of Directors.
The Court's Decision
The majority decided that the 2015 bylaw does not create leases of a permanent nature nor does it convey rights permanently to unit holders. Accordingly, the bylaw was not in violation of the Condominium Act and the Declaration. Further, as to the reasonableness of the bylaw, the majority found this to be a question of fact and law and deferred to the decision of the trial judge. Accordingly, the majority upheld the trial judge's decision.
The dissenting justice opined that the historical background of the 2015 bylaw should be analyzed to determine if it was in violation of the Condominium Act, the Declaration and to determine whether it was reasonable. The Condominium Act states that exclusive use common areas can only exist if it is in the Declaration. An alteration to the Declaration requires 90% of the owners to agree. The Condominium Act also states that the Condominium Corporation is allowed to lease common areas as it sees fit by way of passing a bylaw. A bylaw only requires the approval of 50% of the condominium's owners.
From the dissenting justice's point of view, the 2009 bylaw informs the motive behind the 2015 bylaw which was to create leases of a permanent nature. The 2015 bylaw was vague in that exclusive use common elements could in effect be created as it did not specify any terms and conditions of the leases. Accordingly, the dissenting judge found that the 2015 bylaw was void on the grounds that it violated the Condominium Act and the Declaration. With respect to reasonableness, the dissenting judge heavily criticized the lack of evidence indicating that the bylaw (and specifically the increase in leased parking spaces from 2 to 4) was necessary and the lack of any actual leases having been entered into between the condominium corporation and the unit owners. Accordingly, the dissenting judge found the bylaw to also be unreasonable.
Although not binding, the dissenting justice's decision provides some very valuable guidelines for owners and condominium corporations. Some key items that parties should keep in mind in the future include:
1) Any lease purporting to lease common elements to a unit owner cannot be of a permanent nature and the rights cannot automatically pass with transfers of title.
2) Terms and conditions of leases should be carefully drafted to avoid the appearance of the granting of common elements to parties on a permanent basis
3) All parties should obey the bylaw once passed in that if common elements are to be leased to parties, then actual leases must be entered into between the condominium corporation and the parties.
4) All action by a condominium corporation still cannot be unreasonable and whether conduct is unreasonable will still be subject to judicial review.
With respect to s.135 dealing with the oppression remedy, all three justices found that the bylaw was not oppressive and upheld the trial judge's decision on this issue.
We had the pleasure of being interviewed by Ming Pao daily news about this case.