All About Section 98 Agreements

Section 98 Agreements (also known as “indemnification agreements” or “alteration agreements”) govern the relationship between the unit owner and the condominium corporation when an owner makes a change, alteration, or improvement to the common elements. 

In this article, we explore when Section 98 Agreements arise, how they arise, their legislative requirements, their importance, and various options available to condominium corporations in creating these agreements.

Repair and Maintenance Obligations at Your Condo:

Prior to entering into a Section 98 Agreement, it is important to understand the respective repair and maintenance obligations of the unit owners and the condominium corporation. These will be condominium-specific, however, below we address some guiding principles.

The respective obligations of a condominium corporation and the unit owners to repair and/or maintain the common elements and the units are set out in each respective condominium corporation’s declaration. The Condominium Act, 1998, S.O. 1998, c. 19 (the “Act”) allocates the default rights and duties between a condominium corporation and the owners, but it also provides, in Section 91 of the Act, that these may be altered by the declaration.

Section 89(1) of the Act provides that a condominium corporation shall repair the units and the common elements after damage. Section 91 of the Act permits such an obligation to be altered. In order to fully understand the repair and maintenance obligations of your particular condominium corporation, we recommend that you consult with your condominium corporation’s legal counsel.

Once the respective repair and maintenance obligations have been established, it must be determined whether there are any enforceable Section 98 agreements that alter these repair and maintenance obligations due to additions, alterations, or improvements made to the common elements (including exclusive use common elements).

Positive Covenants Do Not Run with the Land

A “positive covenant” is a promise to perform an act or expend money. At common law, covenants that are positive in nature cannot bind successors in title, absent a contractual agreement between the parties. This means that a positive covenant can bind the landowner which grants the positive covenant, being a contract between the landowner and covenant holder, but it cannot bind subsequent owners of the same land.

There are a number of statutory exceptions to the rule that positive covenants do not bind freehold successors in title. Such an exception would be Section 98 of the Act which speaks to agreements made further to an addition, alteration, or improvement to the common elements. However, a Section 98 Agreement must meet the requirements set out in the Act to qualify as an exception. If they do not meet these requirements, they cannot bind successive owners of the land.

As a result, if an agreement (other than a Section 98 agreement made according to the requirements of the Act) placing the maintenance and repair obligations onto an owner was entered into, the successor in title to a unit would have needed to sign onto the obligation if it was to be binding.

An Exception: Agreements Made Pursuant to Section 98 of the Act

Pursuant to Section 98 of the Act, an owner may make an addition, alteration, or improvement to the common elements that is not contrary to the Act or the Declaration of the Corporation.

If an owner wishes to make an addition, alteration, or improvement to the exclusive use common elements appurtenant to the owner’s unit, the requirement to comply with the provisions set out in Section 97 of the Act (notice to other owners) does not need to be complied with.

In addition to the matters that must be contained in the owner’s alteration agreement, Section 25 of the Regulation confirms that the agreement must specify who will have ownership of the proposed addition, alteration, or improvement. An addition, alteration, or improvement to exclusive use common elements must not contravene the by-laws or rules of the condominium corporation and cannot have an adverse effect on the rest of the common elements.

As per Section 98(3) of the Act, an owners’ alterations agreement does not take effect until each of the applicable conditions has been met and the condominium corporation has registered the agreement against the title to the owner’s unit. The agreement binds the owner’s unit and is enforceable against the owner’s successors and assigns (s. 98(5) of the Act).

Accordingly, an agreement made pursuant to Section 98 of the Act comes into effect only when:

1. the Board has approved the proposed addition, alteration, or improvement by resolution;
2. the Board is satisfied that the proposed addition, alteration, or improvement will not have an adverse effect on the units owned by other owners, will not give rise to any expense to the corporation, will not detract from the appearance of buildings on the property, will not affect the structural integrity of buildings on the property according to a certificate of an engineer, and will not contravene the declaration or prescribed requirements; and
3. the condominium corporation has registered the agreement against the title to the owner’s unit.

Condominium corporations are given a lot of licence in creating the Section 98 Agreements. However, there is an obligation to act reasonably in imposing these agreements upon unit owners.

There are many ways to do a Section 98 Agreement, each carrying its benefits and drawbacks:

1. via Individual Section 98 Agreements
2. via Bulk Section 98 Agreements
3. via By-law

An individual Section 98 Agreement is often created when a unit owner has a specific change it would like to make to a portion of the common elements or to that owner’s specific common elements. These are tailored to the individual unit owner and detail the specific changes made to the common elements.

A bulk Section 98 Agreement is often used for certain modifications that are (or are expected) to be common for multiple owners. Instead of entering into individual agreements which each unit owner, all affected unit owners sign onto the same agreement, which is then registered on title. They are more cost-effective, as the cost of preparing such an agreement can be divided among unit owners and can lead to more consistency in the treatment of unit owners.

Should the condominium corporation wish to proceed via by-law, it is important that it be done so that it meets the criteria espoused in the Act, mainly that the Board approve the change by resolution and that the Section 98 Agreement be registered on title to the affected unit.

Accordingly, while the by-law may set out the proposed terms of the agreement, each owner having made a change would still need to sign onto the agreement themselves and have it registered on title. There are questions that arise with this method: what happens if the by-law that contained the terms of the agreement is replaced, or amended? A major benefit to the proceeding via individual agreement or bulk agreement is the certainty owners (and successors in title) have over what they agreed to and are bound to.

We note that condominium corporations cannot unilaterally adopt a by-law setting out changes they believe to have been made to specific units and expect the by-law to serve as a replacement for a registered Section 98 Agreement. Such a by-law, in our opinion, could be deemed unreasonable, prejudicial, and oppressive, which could cost the condominium corporation heavily.

Status Certificates:

Status certificates are intended to ensure that prospective purchasers and mortgagees of units are given sufficient information regarding the property to make an informed buying decision. As per Section 76 of the Act, the status certificate binds the condominium corporation against a purchaser who relies on the status certificate as of the date that it is signed. If a status certificate omits material information that it is required to contain, it shall be deemed to include a statement that no such information exists.

Therefore, a status certificate should contain sufficient information so that a reasonably prudent purchaser would know to make further inquiries. If a status certificate is silent regarding a Section 98 Agreement and unauthorized alterations, the purchaser will be able to rely on the understanding that there have been no alterations to the common elements.

Occupier’s Liability and the Importance of Section 98 Agreements for the Condo

Once the Section 98 Agreement comes into effect, it binds the owner’s unit and is enforceable against the owner’s successors and assigns (i.e., the next purchaser). As such, once the conditions have been met, Section 98(5) of the Act confirms that it is an exception to positive covenants not running with the land.

Consistent with the condominium corporation’s responsibility, at first instance, to maintain and repair the common elements (including the exclusive use common elements), Section 26 of the Act states that the Corporation is deemed to be the occupier for liability purposes of the common elements.

As such, without a valid and enforceable Section 98 Agreement, should an incident occur due to a condominium corporation’s failure to repair and maintain the exclusive use common elements, a condominium corporation risks attracting liability. If the Board is aware of this and continues to ignore it, personal liability could attach to individual members.

A registered Section 98 Agreement is the only legal way a unit owner can make a change to the common elements (including exclusive use); however, in reality, a condominium corporation will often be faced with a unit owner having made changes to the common elements without the necessary approval and Section 98 Agreement. In these cases, although not preferred, Section 98 Agreements can still be done retroactively and be applicable as of the date the change was made.

However, if a unit owner refuses to enter into the appropriate Section 98 Agreement, the condominium corporation may be entitled to request that the unit owner remove the alterations. If this is not done in a reasonable time, the condominium corporation may be able to proceed with the removal of the unauthorized changes and charge back the costs to the unit owner. Prior to proceeding, we recommend that you check with the corporation’s legal counsel to ensure all legislative requirements have been met.