Chargebacks and the Courts’ Definition of an “Act or Omission”



Condominium living boasts many benefits, including, among other things, a wide array of physical amenities, provision of various services (i.e. security, concierge etc.) and having ownership of a financially growing and profitable real estate asset. However, condominium living also carries a degree of responsibility on the unit owners in respect to their units. Of these responsibilities, perhaps one of the most prominent, is an owner’s responsibility to ensure that their unit is well maintained and is not the source of property damage to any other units or the common elements of a corporation.

Subsection 105(2) of the Condominium Act, 1998 (the “Act”) provides that if an owner, a resident or guest (collectively, the “Owner”) of a unit (the “Origin Unit”), causes damages to the Origin Unit, through an act or omission, the amount that is lesser of the cost of repairing the damage to the Origin Unit and the deductible limit of the corporation’s insurance policy, shall be added to the Origin Unit as a common expense.

Thus, subsection 105(2) of the Act, has two qualifications:

(1)   The chargeback can only be applied to the cost of repairing the Origin Unit and cannot be applied to the cost of repairing any other affected units and/or common elements which were damaged from a cause that originated in the Origin Unit; and,

(2)   The chargeback can only be applied if the corporation can establish “an act or omission” on the part of the Owner of the Origin Unit that has caused and/or resulted in the damage.

Most Ontario condominium corporations have a deductible by-law which eliminates the first qualification of subsection 105(2) and, thereby, allows a corporation to chargeback the Origin Unit not only the costs of repairing the Origin Unit but also the costs of repairing any other affected units and common elements, up to the corporation’s insurance deductible. Significantly, however, standard deductible by-laws commonly preserve the second qualification of subsection 105(2), requiring a corporation to establish “an act or omission” on behalf of the Owner of the Origin Unit that had caused and/or resulted in the damage, before being able to impose a chargeback against the Origin Unit[1].

But what is an “act or omission”? And how is this broad term interpreted and applied by our courts?

Until recently, a debate ensued between opposing lawyers, with those representing condominium corporations insisting that the term “act or omission” imposed a strict liability standard on owners, while those representing unit owners insisted that the term “act or omission” is to be defined as negligence.

In the leading decision of Lozano v. TSCC 1765, 2020 ONSC 4583 (“Lozano”), subsequently upheld on appeal, J.E. Ferguson J. dispelled much of this confusion and provided some clarify to an otherwise ambiguous term. The Lozano decision was in respect to a toilet leak that originated in the Lozanos’ unit (the “Origin Unit”) and leaked into the unit below and the adjacent common elements, resulting in damage. The pertinent facts of the case, can be summarized as follows:

  1. In April 2018 (about a year prior to the toilet leak in issue) the float in the toilet tank of the Lozanos’ ensuite bathroom developed a crack. The Lozanos replaced the float themselves. They did not encounter any other issues with the toilet thereafter;
  2. In November 2018, the Lozanos travelled to the Philippines where they remained for approximately five months. During their absence, the Lozanos had a family member visit their unit every 2 weeks. They were scheduled to return to the unit in April 2019;
  3. A few days before the Lozanos’ return, the toilet leaked. The leak occurred as a result of a broken ballock at the base of the stem which caused water to continuously fill and overflow the toilet;
  4. The leak caused damage to the Lozanos’ unit, the ceiling of the unit below and the 3rd and 4th floor hallways.  TSCC 1765 sought a chargeback of the corporation’s insurance deductible against the Lozanos in respect to the repairs. The Lozanos, however, challenged the validity of the chargeback on the basis that there was no “act or omission” on their part that either caused or resulted in the toilet leak; and,
  5. At the application hearing, the Lozanos argued that the term “act or omission” suggests that there must have been negligence on their part causing or resulting in the leak. Counsel for TSCC 1765 disputed this interpretation and submitted that the term “act or omission” is to be interpreted as a strict liability standard.

    After providing a detailed review of the policy considerations for the chargeback provisions in the Act, Justice Ferguson concluded that the term “act or omission” imputes a standard that is in between negligence and strict liability, and is closer to the latter.

    In the case of the Lozanos, Justice Ferguson concluded that their act or omission, consisted of the following:

  6. The Lozanos’ failure to retain a plumber in April 2018 when the float of the toilet tank cracked instead of replacing the float themselves; and,
  7. The Lozanos’ failure to shut off the water to their unit before departing on their prolonged trip.

    Justice Ferguson concluded that the corporation’s chargeback was appropriate and valid and ruled in favour of TSCC 1765 in the application hearing. On Appeal, the Divisional Court disagreed with some of Justice Ferguson’s factual findings[2], however, it upheld the Justice’s legal conclusion that the term “act or omission” does not imply a standard of negligence or a standard of strict liability but, a standard in between negligence and strict liability, and is closer to the latter.

    The Divisional Court, held in part:

    [17] The application judge added that the reason for not imputing any notion of owner fault or negligence into the interpretation of s.105 was a matter of practicality pertaining to the nature of condominium living where the close proximity of units virtually ensures that physical problems in one unit can adversely affect the units of others as well. Placing too high an onus on the corporation to claim reimbursement for these deductible expenses would permit individual owners to offload the financial consequences of damage caused by their actions (or inactions) onto the corporation and thus to all the unit holders as a whole.

    [21] … the test proposed by the Appellants seeks to import a negligence test into the s.105 analysis. Their proposed test finds no support in the text, context or purpose of s.105…

    [22] Section 105 does not import, on a plain reading, any concept or requirement of unit owner negligence.  The reasonableness of the unit owner’s conduct is, in fact, not mentioned or alluded to at all…s.105 represents a policy decision made by the Legislature to place the burden of paying the insurance deductible on the person (unit owner) that caused the loss, without consideration of whether that unit owner’s actions were negligent or otherwise… 

    [23] There is a suggestion, however… that the standard under s.105 is one of “strict liability”… I do not accept this view. The introduction of this idea is my view, confuses and complicates the nature of the analysis and is, again, not warranted by the straightforward language and policy of s.105… the reasonableness of the owner’s act or omission is not part of the analysis under s.105 at all; it is sufficient, to invoke liability, that the damage be “caused” by the owner’s “act or omission”….

    Thus, in order to enforce a chargeback for repairs against a unit, up to a corporation’s insurance deductible amount, the corporation has to be able to identify an act or omission by the Owner that caused the damage. A chargeback can be enforced as long as the corporation is able to establish a causal link between an Owner’s act or omission and the damage that occurred. The Owner’s act or omission does not have to be reasonable nor does the damage have to be foreseeable in order to make the Owner liable for the cost of repairs (up to the corporation’s insurance deductible amount). For instance, in the Lozano decision, the Lozanos’ act of travelling outside of the country for five months while having a family member attend at the unit every 2 weeks was reasonable. Further, the Lozanos’ omission of not turning off the water supply to the unit, during their absence, was not unreasonable. Nonetheless, the Lozanos were found liable for the chargeback strictly on the basis of there being a causal link between their omission (i.e. failure to turn the water supply off) and the subsequent water leak.

    The Lozano decision provides much needed clarity to an otherwise ambiguous term, that is referenced in the Act and in most deductible by-laws. The decision crystalizes how the term an “act or omission” is to be interpreted and, in turn, streamlines the circumstances under which a corporation can chargeback the cost of repairs, up to its insurance deductible. 

    However, because there was a causal link between the owners’ omission to turn off the water supply (irrespective of the reasonableness of that omission) and the subsequent water leak that occurred (essentially, the “but-for test”), the owners were liable for the chargeback.

    [1] Not all deductible by-laws preserve the requirement for the corporation to establish an act or omission on the part of an Owner before a chargeback, up to the corporation’s insurance deductible amount, can be imposed. The analysis discussed in this blog does not apply to those corporations that have a deductible by-law that does not contain the “act or omission” qualification.

    [2] The Divisional Court disagreed with the Justice Ferguson’s factual finding that failure to have a professional plumber repair the float of the toilet tank in April 2018 constituted an “act or omission” that caused the April 2019 toilet leak. This was a factual finding grounded in the legal principles of remoteness and causation. The April 2018 toilet repair by the Lozanos was with respect to a cracked float of the toilet tank. The April 2019 toilet leak that resulted in the subject damages was caused by a defect or failure in the ballcock mechanism of the toilet, which needed to be replaced. The Divisional Court found that there was no evidence that the Lozanos’ DIY replacement of the cracked float in April 2018, was the cause of the failed ballock mechanism in 2019 resulting in the leak. Likewise, there was no evidence to establish that had a plumber attended at the unit in April 2018, he/she would have found a defect or failure in the ballock mechanism and replaced this entire mechanism with a new one, thus avoiding the leak.