Raise your hand if you were affected by last week’s flood, and if your property was damaged?

Wait.  I can’t see your hands.

You must be submerged in eight feet of water…

As soon as that rain started pouring down, all I could think of was, “Sooooo many people are going to wake up unhappy tomorrow.”

It happens more than you might think.  And no matter what your own personal pet peeve is, regarding houses or condos, I can tell you unequivocally that water does more damage to homes than anything else out there.  A tree falling on your house sucks, but it’s rare.  A raccoon tearing up your backyard is frustrating, but it’s not quantifiable damage.  A ghost haunting your house is nightmare-inducing, but it’s make-believe, and unless you pay for therapy, water is still numero-uno on this list.

I received a call last week from a client who had sold her condo about six weeks ago, which is scheduled to close this week.

Low and behold, she told me that there was a leak in the unit above her, the water has come down into her unit, and while the insurance company is going to pay for it, she needs to know what we should do before the upcoming closing.

First and foremost: disclose.

Disclose this to the buyer and his or her agent at the earliest opportunity, which I did, immediately after speaking to my client.

There is a clause in the standard Agreement of Purchase & Sale that deals with what we in the industry refer to as “catastrophic events,” but as is often the case, our verbiage is different from the verbiage actually in the clause.

The Standard Agreement of Purchase & sale contains this section:

14.  INSURANCE: All buildings on the property and all other things being purchased shall remain until completion at the risk of the Seller.  Pending completion, Seller shall hold all insurance policies, if any, and the proceeds thereof in trust for the parties as their interests may appear and in the event of substantial damage, Buyer may either terminate this Agreement and have all monies paid returned without interest or deduction or else take the proceeds of any insurance and complete the purchase.

Note the term “substantial damage.”

Over the years, the courts have worked to determine, in cases that obviously can’t be resolved between the buyer and seller, what “substantial damage” is.  As with most of the law, this is a massive grey area.  I have always told clients that the damage need be “catastrophic,” since any seller would have a hard time relinquishing a a pending completion of a transaction, in the event that, say, a window broke, or a tree fell on a shed in the backyard.

If a buyer paid $1,500,000 for a detached house in Bloor West Village, there was a fire, and the house burned to the ground, I think even the seller would agree that this damage is catastrophic, and meets the criteria of “substantial damage” as per the APS.

Where things get murky is when the buyer and seller disagree, but the cost and fear of litigation usually allows parties to come to an agreement.

In the case of my seller-client with a few damaged hardwood floorboards, the good news is – the insurance is paying for all new flooring!  The buyer just won a small lottery, albeit one he has to wait a couple of weeks for.  But provided the terms of the insurance claim, timing, and promise of workmanship and specific performance are agreeable to both buyer and seller, there’s no issue here.

Where I did find an issue was with respect to another condo owner who had damage not in her own unit, but the units below her.

Her condo comes with a much-sought-after 220 square foot terrace, which is open air, with nothing above it.

Somehow or another, the substantial rain last week didn’t drain properly on the terrace, and leaked down into the unit below her.

But get this: the condominium corporation told her that it’s covered under her insurance policy, and if it’s not, the damage is up to her to remedy.

This is when I just about blew my lid.

We can debate this later on if you’d like, but my initial reaction, and my follow-up research, tells me that this is incorrect.

First and foremost, consider that a terrace isn’t owned, but rather is, by definition, “exclusive use, common elements.”

Whether you realize it or not, you don’t own your balcony, patio, or terrace.  You own what’s inside your unit, and every condominium corporation has a Declaration that specifies the exact boundaries of every single unit.  No outdoor space is owned.

So if the outdoor space isn’t owned, then how can it be insured by the unit-owner?

More to the point, how can the condominium corporation claim that the space is exclusive use common elements, but then claim that the unit owner has a responsibility and/or liability over that space?

I suppose what that responsibility is, would ultimately determine who is liable in this case: the unit owner or the condominium corporation.

I have a copy of the Status Certificate, and the Declaration for this building.

Note the following section pertaining to common elements:

ARTICLE V – COMMON ELEMENTS

No alteration, work, repairs, decoration, painting, maintenance, structure, fence, screen, hedge or erection of any kind shall be performed, done, erected or planted within or in relation to the common elements (including any part thereof over which any owner has exclusive use), except by the Corporation or with its prior written consent.

So the unit owners are not allowed to conduct “repairs” on the common elements, including exclusive use common elements, except with the Corporation’s prior written consent.

It seems to me, the Corporation doesn’t want, and isn’t permitting owners to, work on the common elements space.

To claim that an owner can’t make “repairs” or conduct “maintenance” on the space on the one hand, but then call them liable for flood damage on the other hand, is somewhat hypocritical.

Thankfully for us, the very next article in the Declaration refers to exactly that – maintenance and repairs!

ARTICLE VI – MAINTENANCE AND REPAIRS

Save and except for the Commercial Units, the Corporation shall repair and maintain the common elements and shall repair and maintain all doors which provide means of ingress to and egress from a unit, and all windows, save for and except maintenance of interior surfaces of windows and doors providing ingress to and egress from a unit, whether such doors and windows are part of a unit or part of the common elements.

So except for doors and windows, the Condominium Corporation is responsible for repairs and maintenance.

Got it.

Now wherein the Declaration would it state something about the unit owner being liable for anything pertaining to the common elements?

The only mention I can find is this:

Each owner from time to time shall forthwith reimburse the Corporation for repairs and replacements to windows and doors serving his unit, and to exclusive use common elements areas and for repairs to any part of the common elements caused by his neglect or intentional misconduct.

“Neglect or misconduct.”

Here’s where things get interesting.

This flood that took place last week, with water not properly draining from the exclusive use common elements “terrace,” and dripping down into the units below, is not the first flood.

In fact, it’s apparently the third.

So what we clearly have here is an ongoing issue on the common elements, perhaps due to a construction defect or a breakdown over time.  The fact that multiple terraces leaked tells me this is the former – an issue with the construction of the terraces, and something that would fall upon the Corporation to remedy.

And by the way – the Corporation does have insurance for the common elements.

ARTICLE VIII – INSURANCE

Section 1 (a) (i) common elements;

So after reading through about forty pages worth of the Declaration, and understanding what happened out on my client’s terrace, I’m utterly confused as to how the Condominium Corporation can not only claim that the unit owner has to go through their own insurance (for which they’re not insured), but that the damage is the liability of the unit owner.

I told my client to go on the offensive.

Not only should she demand that the Corporation pay for the damage, but she, and the other unit owners on this floor, should demand that the Corporation assess, and fix the problem that clearly exists out on the terrace.

I’m not a real estate lawyer, but I think this one is cut and dry.

Of course, I asked a friend of mine who is a lawyer, and she said, “You have a real big grey area there.”

No kidding.

What else is new…