In a previous blog post we wrote about the requirements for shared facility managers to be licenced where one or more of the parties to the shared facility agreement is a condominium corporation. This is a new requirement recently introduced when the Condominium Management Services Act, 2015 (“CMSA”) came into effect.
This is just one issue that has come up recently concerning shared facilities however, condominium corporations continue to face challenges working with other parties, in governing and operating shared facilities. Each party, whether it is a condominium corporation, a retail/commercial owner or the developer, may have different objectives and this often leads to very lengthy and costly disputes.
It is important that board members and management take the time to understand the terms of shared facility agreements (also referred to as reciprocal or cost sharing agreements) and know what items are covered in the agreement and how decisions are made. Many board members are surprised to learn that decisions may be made by unanimous agreement, that there is no shared facility management provided for or/and no reserve fund for shared facilities.
It is usually when disputes arise, that board members and management, look to legal counsel to review the agreement and soon discover what the issues are.
Here are a list of 8 top issues with Shared Facility Agreements:
- Unanimous decision making. If parties don’t agree, how can decisions be made?
- Agreement does not provide for a shared facilities manager. Who manages the shared facilities?
- Agreement provides for a shared facilities manager who was appointed by the developer and one or more parties want to terminate that management company. Unanimous decision making prevents termination of management if one party objects.
- Missing shared facility items. An item clearly being shared is not listed as a shared item. Who pays for the cost and what portion of those costs?
- Proportionate shares of contribution are not equitable. The shared facilities agreement provided by the developer, will set out each parties respective proportionate share of costs relating to the shared facilities. It is down the road when the shared facilities are in operation, that it becomes evident that the split between the parties clearly favours one over the other.
- Shared facilities reserve fund is not in the agreement nor is a shared facilities reserve fund study required. If there is no shared facilities reserve fund referred to in the agreement, then each party will contribute to their own reserve fund which will cover that portion of the shared facilities located within their property. Commercial/retail owners, if a party to the agreement, would not require that a reserve fund be maintained for any shared facilities located within the boundaries of their property. This gives less control to the other parties over reserve fund repairs to the shared facilities.
- No shared facility committee. Yes, there are agreements in which one party will manage the shared facilities and just report to the other. Decision making is made by one with the others only able to dispute decisions through mediation/arbitration proceedings.
- Quorum for shared facility meetings. All parties must show up to make quorum. What do you do when one party fails to attend?
If possible, the best solution to all these issues is to amend the shared facilities agreement, otherwise, condominium corporations will be faced with long drawn out legal proceedings. Unfortunately, as is most often the case, it is only when proceedings are commenced that parties soon realize that the amendments are clearly the only way forward.