Condominium corporations are permitted under sections 93(2) and 95(2) of the Condominium Act, 1998 (the “Act”) to use reserve funds for the major repair and replacement of common elements without requiring the consent of the owners.
The line is less clear where a project could instead be characterized as an addition, alteration or improvement to the common elements, which may require notice to owners or an owner vote under section 97 of the Act. Section 97(1) helps draw that line. Where the corporation is carrying out its obligation to repair or maintain the common elements, the work is deemed not to be an addition, alteration or improvement (and can therefore proceed using reserve funds without owner approval) if the materials used are as reasonably close in quality to the original as is appropriate in accordance with current construction standards.
97 (1) If the corporation has an obligation to repair the units or common elements after damage or to maintain them and the corporation carries out the obligation using materials that are as reasonably close in quality to the original as is appropriate in accordance with current construction standards, the work shall be deemed not to be an addition, alteration or improvement to the common elements or a change in the assets of the corporation for the purpose of this section.
When a project falls outside section 97(1) and amounts to an addition, alteration or improvement, then the work must comply with the notice and/or voting requirements under section 97.
Drawing on prior cases, the recent Superior Court decision in Pegoraro et al. v. Toronto Standard Condominium Corporation No. 2138 (“Pegoraro”) provides needed clarity and direction for Boards to rely upon going forward.
The Facts
A group of unit owners (the “Applicants”) challenged the board’s plan to fund a roughly $2 million refurbishment of the building’s lobby and hallways using reserve funds. They argued, first, that no repair or replacement was actually needed, and second, that the scope of the work went beyond repair and replacement and constituted an “improvement”, requiring a vote of owners under section 97 of the Act. The Applicants pointed to planned changes, including tile replacing carpet, relocated lighting, and new signage, as evidence the project was an improvement rather than a repair and argued that a current inspection was required to determine the necessity of the project.
The Decision
The Court ruled in favour of the condominium corporation and determined that the work was properly funded from the reserve fund and did not require owner approval. The Court gave significant weight to the condominium corporation’s reserve fund engineer, who opined that corridor and lobby finishes typically have a 15-to-20-year service life consistent with the project’s timing, and whose on-site inspections in 2020 and 2024 did not change that conclusion. It also relied on the condominium corporation’s design consultant, who concluded the proposed materials were not materially different in quality from the existing ones when assessed against current construction standards, making the work a “like for like” replacement notwithstanding its different appearance.
Importantly, the Court noted that a change in aesthetics and a change in materials do not necessarily mean that a project is an improvement requiring owner approval under section 97, and that materials of similar quality, assessed against current construction standards, may differ from the originals.
The one element of the work that was not contemplated in the reserve fund study, and that was considered an improvement under section 97 of the Act, still did not require a vote, as there was no cost to the condominium corporation, which meant the board could authorize the work under section 97(2)(c).
The Court also granted deference to the board’s decision under the business judgment rule, noting that the board’s decision to proceed, informed by years of consistent reserve fund studies, fell within a reasonable range of outcomes.
Takeaway for boards
Pegoraro confirms that courts will give boards considerable deference when they use reserve funds for repair and replacement projects, even where the finished product looks noticeably different from the original. Before relying on the reserve fund, a board should obtain advice from qualified professionals confirming that the work is needed and that the proposed materials are comparable in quality to the existing ones and should confirm that the project is consistent with its reserve fund study. Any element of the work that goes beyond repair and replacement should be identified early so the board can determine whether owner notice or a vote is required under section 97. Although owner approval is not required to use reserve funds for repair or replacement, and the decision ultimately rests with the board, best practice is to keep owners informed throughout the process.
