New Disclosure Requirements
Amongst the many changes brought in by Bill 106 are changes to the disclosure requirements for developers of proposed and newly registered condominiums. The following is a summary of the key changes.
(Note that in addition to these, Bill 106 revises some provisions relating to disclosure statements for particular types of condominium, but not in ways that substantially alter current requirements. Therefore, these are not discussed here.)
1. Condominium Guide
Bill 106 mandates that the government will prepare (or may require the new Condominium Authority to prepare) one or more condominium guides to provide information for purchasers of proposed or registered condominium units. It is possible that a different version of the guide will be prepared for each type of condominium plan (i.e., Standard, Phased, Vacant Land, Common Elements, and Leasehold).
Once these are prepared, the declarant will be required to provide the applicable guide to every purchaser along with the disclosure statement. Just as an agreement to purchase and unit or proposed unit from a declarant cannot be considered firm before the disclosure statement is given, neither can it be firm till the proper guide has also been delivered.
2. Disclosure Statement
While declarants are still require to provide disclosure statements, there may be new requirements for their form and/or contents set out by regulation. Since regulations can be revised by the government without the usual legislative approval process, it will be necessary for declarants (or, more particularly, their legal counsel) to review updates to ensure they know all new requirements as they are published.
Bill 106 itself also adds some of its own new requirements, some of which are common practice already (such as including the date of the document, or including a statement as to whether the condominium is a phased condominium), while others introduce new matters (such as an explanation of warranties and the pre-existing elements fund study if the condominium is a residential condominium conversion project).
Other key changes that affect all developments relate to the budget for the proposed condominium. While a first-year budget must still be provided, the disclosure must also now indicate if the declarant is aware of anything that might cause the common expenses to increase after the first year, and the amount of such increase. If the disclosure statement is being issued after the first year, it must contain a copy of the current budget of the condominium (this is not new) and all amendments, if any, that have been made to that budget (this is).
3. Table of Contents
Currently, every disclosure statement is accompanied by a Table of Contents, which is a statutory form. This form will be eliminated, and the disclosure statement will need to include a “summary”, the requirements for which will be set out in forthcoming regulations. There are no further details about this at this time, but we should presume it will (like the Table of Contents now does) provide short-statements about key features of the project and document/page references indicating where the details can be found in the disclosure package.
4. First-Year Budget
The declarant is still required to prepare a budget statement that projects what the costs of operating the condominium are to be in the first year following registration.
The revisions to Bill 106 do not tell us much about the specific content of the budget statement to be included with the disclosure, but direct us to the yet-to-be-drafted regulations. It appears that the regulations may set out some basic requirements for the form and content of the statements, over-and-above what the Act already provides, and will also set out a formula or method for determining what portion of the common expenses should be allocated to the reserve fund of the condominium.
Also, consistent with the requirement that the disclosure statement state whether there will be increases to common expenses after the first year, the budget statement will need to set out the amounts and particulars of any such projected increases.
5. Pre-Closing Copy of Budget
An entirely new requirement is that, ten days prior to closing the sale of a unit, declarants will have to provide purchasers with a copy of the condominium’s actual first-year budget (not just the declarant’s projected budget, even though this will likely be the same). It is possible this requirement will be relaxed, or exceptions may be specified, in the regulations, but, failing this, it is a step that lawyers handling closings for declarants will need to ensure is met in order not to delay closings.
6. Material Changes
Where changes to existing disclosure statements are required to conform to changes in the legislation, Bill 106 deems them not to be material changes that would open up new rescission periods for any purchasers. The bill also adds the following to the list of changes to disclosure that are not to be treated as material:
- A substantial modification to the common elements under section 97(9) of the Act (see this entry regarding section 97 modifications), made after a turn-over meeting has been held;
- (unless otherwise prescribed in the regulations), an increase in the common expenses that is less than 10 percent; and
- an increase in the common expenses that is the result of prescribed taxes, levies or charges, provided such taxes, etc., have been applied in a manner prescribed in the regulations.
More details about these changes and related new requirements will be set out in future blog entries, particularly once the relevant regulations are published.