No More ‘Sweetheart Deals’: Ontario Court Hands Big Win to Condo Corp
By: Nasrudin Mumin
A recent successful appeal by Shibley Righton’s own Megan Mackey and Nasrudin Mumin has sent a clear message to newly constructed condominiums across Ontario: when a turnover board terminates a developer‑signed property management contract under section 111 of the Condominium Act, 1998 (the “Act”), the contract is terminated, full stop. No lingering penalties. No damages for termination.
The Key Question Under Section 111 of the Act
Section 111 of the Act allows an owner-elected board to terminate a property management contract entered into by the developer, provided the board gives the management company 60 days’ written notice.
But what happens when the management agreement includes a clause requiring the condominium corporation to pay damages for early termination? Does that clause survive contracts terminated under section 111 of the Act? This is the key question the Ontario Court addressed in Lee Management Solutions Inc. v. Waterloo Standard Condominium Corporation No. 744 (“LMS v WSCC 744”).
Summary of LMS v. WSCC 744
In LMS v WSCC 744, the dispute arose when WSCC 744 terminated its property management agreement with LMS (the “Agreement”). The Agreement had been signed by the developer-controlled board of WSCC 744 before its turnover meeting.
Within a year after the turnover meeting, the owner-elected board terminated the Agreement under section 111 of the Act. In response, LMS relied on a “liquidated damages” clause of the Agreement to demand payment from WSCC 744 in the amount of $151,000 for early termination.
The matter first proceeded to arbitration. The arbitrator agreed with LMS and ordered WSCC 744 to pay $151,000 in damages to LMS for early termination of the Agreement. WSCC 744 appealed the arbitrator’s decision to the Ontario Court, arguing that the arbitrator erred in finding that the “liquidated damages” clause of the Agreement could survive a management agreement terminated under section 111 of the Act.
The Court agreed with WSCC 744. The Court found that section 111 of the Act gave WSCC 744 to right to terminate the Agreement unconditionally (i.e., without any penalty). The Court also found that LMS is not allowed to “contract out” of its statutory obligation under section 111 of the Act via its “liquidated damages” clause because allowing LMS to do so would be inconsistent with the consumer protection objective of the Act (i.e., to protect owners).
The Court allowed the appeal, set aside the arbitrator’s award for WSCC 744 to pay LMS $151,000 in liquidated damages, and ordered LMS to pay WSCC 744 $14,000 in costs.
Key Takeaways
The key takeaways of the decision are the following:
No penalties on termination: A developer-signed property management contract can be terminated under section 111 of the Act without paying any damages and/or penalties. Once 60 days’ written notice is given to the property management company, the contract is terminated completely with no additional obligations.
No reason required for termination: A reason is not required to terminate a developer-signed property management contract. Section 111 of the Act allows termination of property management contracts “for any reason”.
Management companies assume the risk of developer-signed agreements: If a property management agreement is signed before the condominium’s turnover meeting, the management company must understand that the owner-elected board may decide to terminate the agreement under section 111 of the Act.
This decision confirms that section 111 of the Act is a powerful tool for owner-elected boards seeking to end management contracts entered into by developers. For condominium boards, this case is a reassuring victory. For property managers, it is a reminder that statutory obligations cannot be avoided through contractual terms.
If your condominium corporation or property management company is considering ending a management agreement, expert legal advice is essential in order to avoid potentially breaching any legal obligations. The condominium law group at Shibley Righton LLP can provide the guidance you need to help you navigate this process.