Making Changes: Considerations under Section 97 of the Act

Is your condominium planning on making an addition, alteration, or improvement to the common elements, a change in the assets of the condominium, or a change in a service provided?

Prior to making changes to the common elements or entering into a contract for the work, unit owners, Boards, and property managers should be aware of the obligations under Section 97 of the Condominium Act, 1998, S. O. 1998, c. 19 (the “Act”).

In this article, we do a deep dive into a four-step process to determine how to proceed.

STEP 1: SECTION 97(1) OF THE ACT – IS THIS A CHANGE?

Before engaging in the process detailed in the remaining subsections of Section 97 of the Act, the first step is to determine whether or not the work being completed is indeed a “change”.

Section 97(1) of the Act speaks to the condominium’s ability to carry out its obligations to repair and maintain the common elements using materials that are reasonably close in quality to the original as is appropriate in accordance with current construction standards.

This allows for changes that aren’t necessarily like-for-like but are in line with modern construction standards. In a 2006 decision, the Court noted that Section 97(1) of the Act is not “intended to be a cultural straightjacket”.[1]

Under such conditions, the work will not be deemed a change, addition, alteration, or improvement to the common elements or assets, meaning that costs can be paid from the reserve fund.

In a 2013 Superior Court decision, the Court looked at several incidental questions to assist in determining whether the work was within the ambit of Section 97(1) of the Act:

1. Does the Change form part of the common elements?
2. Does the condominium have the obligation to repair the common elements after damage or to maintain them?
3. Does the installation of Change constitute “repair” or “maintenance”?
4. Was the installation of the Change carried out using materials reasonably close in quality to the original?^[2]

Based on a review of the work being done and the answers to the above questions, if the work would be considered a “change” to the common elements, then condominiums must comply with the remainder of Section 97 of the Act.

Section 97 of the Act provides three options regarding the process that is required to be followed. The process will depend on the cost of the change, addition, alteration, or improvement (the “Change”) and whether same is necessary to ensure the safety and security of persons using the property or assets of the Corporation.

STEP 2 – SECTION 97(2) OF THE ACT – NO NOTICE OF CHANGE REQUIRED

Pursuant to Section 97(2) of the Act, if the Change is

1. necessary to comply with an agreement under Section 113 of the Act or the requirements imposed by the law or by-laws,
2. necessary to ensure the safety and security of persons using the property or the assets of the Corporation, or
3. if the estimated cost, in any given month, of making the Change is no more than the greater of $1,000.00 or 1% of the annual budgeted common expenses for the current year,

then the Corporation can proceed without notice to the owners.

The intention behind Section 97(2) of the Act is to give the Board the ability to make alterations to the common elements without notice to the owners, as long as the above conditions can be met. When the Change is small, necessary to comply with the law, or to ensure safety, Section 97(2) of the Act allows Boards to move fast and without input from the community.

In conjunction with Section 37 of the Act, the Board must act honestly, in good faith, and exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.

For example, the Courts have confirmed that the replacement of a security system with a more modern version, lobby renovations to permit secure handicapped access, and the replacement of garage roof decks, would fall under Section 97(2)(b) of the Act ensuring the safety of those using the property. 

STEP 3 – SECTION 97(3) OF THE ACT – NOTICE OF CHANGE REQUIRED

If none of the exceptions noted above apply and the Change is not considered substantial (we explain more below), condominiums must provide notice to the owners.

However, depending on its nature, if the Change is expected to be controversial (think removing a pool, installing bulk cable, etcetera) but otherwise complies with Section 97(2) of the Act where legally no notice is required, we tend to recommend that Boards provide notice to their owners. This allows for active participation from the owners in their community.

The notice is required to:

1. describe the proposed Change,
2. contain a statement of the estimated cost of the proposed Change and the manner in which the corporation proposes to pay the cost,*
3. specify that owners have the right to requisition a meeting of owners within 30 days of receiving the notice, and
4. contain a copy of the wording of Section 46 of the Act which speaks to requisitioning a meeting.

If owners do not requisition a meeting within 30 days of receiving the notice or if they requisition a meeting and have not voted against the proposed Change, the Board can proceed with the work.  

*We note that Sections 1, 93, and 95 of the Act restrict the use of the Reserve Fund for major repairs and replacements of the common elements and assets of the condominium. Should a repair fail to meet these requirements, reserve funds cannot be used to pay for the work.

Therefore, if the Change falls under Section 97(2) of the Act, the condominium cannot use the reserve fund to finance the Change, as it would not be considered a repair to the existing common elements.

STEP 4 – SECTION 97(4)(6) OF THE ACT – IS THE CHANGE SUBSTANTIAL? VOTE REQUIRED

Subsection 97(4) of the Act only applies if the work being completed is deemed “substantial”.

“Substantial change” is defined in Section 97(6) of the Act as a change where the estimated total costs (regardless of when the cost is incurred) exceeds the lesser of 10% of the annual budgeted common expenses for the current fiscal year or if the Board elects to treat the change as substantial.

If the word is “substantial” then the Corporation cannot make the Change unless at least 66 2/3% of the owners vote in favour of approving the change at a duly called meeting for that purpose.

Note the nuance between a requisition vote under Section 97(3) of the Act (voting against the change) and the substantial change vote under Section 97(4) of the Act which requires owners to vote in favour of the change. The substantial change vote being substantially more difficult to achieve.

Understanding how to proceed under Section 97 of the Act can be overwhelming. This article provides guidance with respect to the process, but we recommend Boards reach out to their legal counsel to ensure that the proper mechanisms are being followed prior to commencing the work or engaging professionals.