Section 98 Indemnity Agreements: Unit Owners are Strictly Obligated to Enter Agreements and Risk Significant Liability for Costs for Failure to Comply

Introduction:

Danielle Marks & Eric Kerson of SV Law recently obtained an Order from the Ontario Superior Court of Justice (the “Court”) on behalf of Wentworth Standard Condominium Corporation No. 403. The Order provides clarity with respect to unit owners’ obligations with respect to indemnity agreements under section 98 of the Condominium Act, 1998 (the “Act”). Namely, the Court ordered the Unit Owners—who had refused to execute an indemnity agreement despite making unauthorized alterations to the common elements—to: (i) comply with section 98; (ii) enter an indemnity agreement, and (iii) pay the Condominium $21,012.61 in costs. In making the significant costs award, the Court highlighted the Unit Owners’ unreasonable refusal to enter the required indemnity agreement, and their decision to aggressively defend the Condominium’s compliance Application despite the Unit Owners’ clear statutory obligations to comply with section 98.

Facts:

In 2015, the Unit Owners sought to make an alteration to a common element deck appurtenant to their Unit (the “Deck”). While the Condominium provided approval, it imposed certain conditions, including the execution by the Unit Owners of an indemnity agreement as required by section 98 of the Act (the “Indemnity Agreement”). The Unit Owners proceeded to alter the Deck but failed or refused to enter into the Indemnity Agreement. The Condominium commenced a Court Application seeking to compel the Unit Owners to comply with section 98 and execute the required Indemnity Agreement.

Section 98 Agreements are Mandatory:

Before any unit owners can make an addition, alteration, or improvement to the common elements, including exclusive use common elements, section 98 of the Act requires:

1. That the owners obtain approval from the condominium via Resolution of the Board of Directors; and

2. The execution and registration of an indemnity agreement.

In this case, the Unit Owners failed to execute the Indemnity Agreement despite repeated demands over several years. Despite their non-compliance with clear statutory requirements, the Unit Owners aggressively defended the Application, including pursuing several unnecessary procedural steps, before finally consenting to an Order on the eve of the hearing compelling the Unit Owners to: (i) comply with section 98 of the Act; and (ii) enter the Indemnity Agreement. The hearing proceeded on the issue of costs. At the conclusion of the hearing, the Court ordered the Unit Owners to pay $21,012.61 in costs, and commented on the unnecessary steps taken by the Unit Owners.

Bottom Line:

Unit owners cannot refuse to enter section 98 indemnity agreements if they wish to keep additions, alterations, or improvements to common elements. If a unit owner changes the common elements without executing an indemnity agreement, condominiums can obtain an order compelling the unit owner to: (i) comply with section 98 of the Act, and (ii) enter an indemnity agreement. Condominiums may be entitled to an elevated costs award if a unit owner refuses to enter an indemnity agreement. Counsel should always be consulted when unit owners seek to make additions, alterations, or improvements to common elements.

Written by Jamie Cockburn, edited by Eric Kerson, Christopher Mendes, and Danielle Marks. 

*This article does not constitute legal advice; always consult legal counsel.