Termination of Developer Agreements: Exploring Sections 112 and 113 of the Condominium Act

Over the past decade, condominiums have become the cornerstone of Ontario's housing landscape, particularly in urban areas like the Greater Toronto Area (GTA). Since 2020, condominiums accounted for approximately 41% of new residential builds, surpassing single-detached homes in popularity. This shift reflects not only affordability challenges but also the growing demand for higher-density housing solutions in urban centers.

Yet, behind the scenes, the rise of condominiums brings its own complexities. One significant challenge facing new condominium boards after turnover meetings is the evaluation of agreements entered into by the developers. These contracts can have far-reaching implications for a corporation’s financial and operational health, and they require careful scrutiny to ensure alignment with the board’s and owners’ best interests. Fortunately, Sections 112 and 113 of the Condominium Act offer essential tools to address and, where necessary, amend or terminate agreements that may be prejudicial to the corporation. This blog dives into the scope of these sections, their limitations and the valuable lessons they provide through key case law precedents. 

Section 112: Terminating Developer Agreements

Section 112 of the Condominium Act grants newly elected boards the authority to terminate certain agreements made by the condominium corporation prior to turnover. This safeguard is designed to protect condominium corporations from being locked into "sweetheart deals" that primarily benefit developers rather than the condominium community.

(a)   Scope of Section 112:

Under subsection 112(1), the board may terminate the following agreements within 12 months of the turnover meeting:

1. Agreements for the provision of goods or services on a continuing basis.
2. Agreements for the provision of facilities to the corporation on a for-profit basis.
3. Leases of common elements for business purposes.

Exclusions: Section 112 does not apply to telecommunications agreements, reciprocal/shared facilities agreements, or obligations embedded within the condominium’s declaration. Importantly, Section 112 does not absolve the corporation of any termination costs specified in the agreement.

(b)   Notice Requirements:

To terminate an agreement under Section 112, the board must provide at least 60 days' written notice to the contracting party being terminated.

(c)   Case law: Lexington on the Green Inc. v. Toronto Standard Condominium Corporation No. 1930

This landmark 2010 Ontario Court of Appeal decision underscores the limitations of Section 112. In this case, the court reviewed whether a condominium corporation could terminate an agreement to purchase a superintendent’s unit from the developer. The corporation argued that Section 112 provided grounds to terminate the agreement. However, the developer successfully countered that Section 112 was inapplicable because the obligation stemmed directly from the condominium’s declaration, not from a separate agreement.

This case underscores the limitations of Section 112 by confirming that contractual obligations set out in the corporation’s declaration are not subject to Section 112. The case also serves as a reminder to all condominium purchasers to review declarations meticulously during the purchasing process. Obligations originating from declarations can impose significant, binding financial duties that are not easily undone.  

Section 113: Amending or Terminating Shared Facilities Agreements

Shared facilities agreements (SFAs) outline cost-sharing and mutual use arrangements between condominium corporations and other entities. Section 113 allows new boards to seek judicial intervention in amending or terminating these agreements within 12 months of the turnover meeting, but only under specific circumstances.

(a)   Grounds for Court Intervention

The Superior Court may amend or terminate the SFA if:

1. The disclosure statement did not adequately and clearly disclose the provisions of the agreement.
2. The agreement or its provisions are oppressive or unconscionably prejudicial to the corporation or its owners.

(b)   Case law: Leeds Standard Condominium Corporation No. 41 v. Tall Ships Landing Developments

In this 2023 decision, the Ontario Superior Court clarified the criteria for successfully challenging SFAs under Section 113. The court highlighted that both inadequate disclosure and oppressive or prejudicial terms must be established. In this case, the court found that the Shared Amenities Agreement had been adequately disclosed to unit owners and its terms were neither oppressive nor prejudicial. The court dismissed the application, reinforcing the high evidentiary bar for invoking Section 113.

Practical Insights for Boards Post-Turnover

Taking the reins of a new condominium board can be overwhelming, but early, proactive action is critical to long-term success. To effectively navigate Sections 112 and 113:

• Act Swiftly – Within six months of turnover, boards should conduct a legal review of all developer agreements. Identifying potentially prejudicial agreements early ensures boards can act within statutory deadlines
• Build Partnerships – Collaboration with legal and management professionals is crucial. Prioritizing tasks like performance audits, reserve fund studies, and declarant agreement reviews sets a strong foundation for a condominium corporation’s governance.
  

Conclusions

Sections 112 and 113 of the Condominium Act offer powerful mechanisms for condominium boards to navigate complex developer agreements and safeguard the interests of their corporations. However, successfully leveraging these tools requires more than ticking boxes—it calls for strategic action, informed decision-making, and collaboration with legal professionals. By taking proactive steps, carefully reviewing agreements, and understanding the lessons from case law, new boards can confidently protect their corporation’s future while fostering a strong, transparent foundation for governance.