Condominium Audits

Condominium legislation in Ontario requires condominium corporations with a residential component to retain “a person who holds a certificate of authorization within the meaning of the Professional Engineers Act,” or a “certificate of practice within the meaning of the Architects Act,” to carry out a Performance Audit on the common areas of the building and its systems. The audit must be carried out between the sixth and tenth month following registration of the condominium.

While other jurisdictions have not yet instituted a body similar to the Warranty Program in Ontario, their legislation with respect to condominiums, or strata corporations, anticipates that engineers must be retained by the corporations to examine and report on the status of the common elements.

The performance audit forms the backbone of any claim the condominium corporation may have against the Ontario New Home Warranty Program (in the case of new housing) or the developer (in the case of conversions). If a building deficiency is not listed in the performance audit, the condominium corporation will have an uphill battle to have it remediated.

The legislation (section 44 of Ontario’s Condominium Act, 1998) sets out mandatory inspections which must be performed, documents which must be reviewed, and surveys which must be conducted in the course of preparing the audit.

It is not unusual for the engineers doing these audits to report that drawings have not been provided by the developer; inspection reports are not available; information is not forthcoming. Usually, this is dealt with simply by noting that information was not available. In addition, performance audits always contain broad exculpatory clauses, aimed at limiting the potential liability of the firm carrying out the audit.

So, how successful, how useful, are these mandatory audits as they are currently being delivered by architects and engineers? The audits are essential tools, but I suggest that the legislation contemplates that an audit should be a much more meaningful, much more powerful weapon in the hands of a condominium corporation. The audit should be a means to compel the developer to deliver what was promised.

Developers can be made to produce relevant information and drawings

The legislation gives the person conducting the performance audit powers of enquiry and rights to demand the production of documents from the developer, or any other person who may have access to or control of those documents. Consequently, engineering firms should not simply list what they need, but did not get. If the engineers really need certain items of information, they should ask the condominium corporation to apply to the courts to make the developer produce those documents.

The legislation mandates that the person conducting the audit may “make all examinations, tests or inquiries that may on reasonable grounds be relevant to the audit.” Given this definitive language, engineers should not use broad exculpatory clauses when they issue their reports. They should be prepared to say that the tests are necessary, and to defend that opinion by, for example, swearing an affidavit to that effect for the corporation to use in the ensuing battle beween the corporation and the developer.

If the engineering firm conducting the audit believes on reasonable grounds that there may be a problem but needs to conduct further tests to resolve the issue, then the engineer should give to the corporation unequivocal notice that such tests are recommended. Also, the developer should be advised that the tests are required (and that he or she will be required to pay for any cost consequences of the testing, since the cost of the performance audit is part of the first year budget).

In short, performance audits should be tough, responsible documents. Currently they are often lengthy lists of paint scratches, wallpaper tears, burnt out lightbulbs and construction debris, with a long list appended of parking stalls that leak, balconies that are uneven, and units with complaints of insufficient hot water. Yes, these minutiae must be listed to ensure that minor failures in workmanship and materials are remedied.

But surely the real importance and value of performance audits is this: a firm of consulting engineers conducts the study which they, in their expertise, view as necessary to determine the ability of the building to perform as it should. Therefore, the consulting engineers should be prepared to take firm action when the building does not perform as it should.

The market for performance building audits is competitive; carrying out an audit is viewed as easy, formulaic, albeit low-paying work. Frequently, the audit is a loss leader for larger retainers.

But this should not be the case. Under the legislation as it was passed in 2001, it is the developer’s responsibility to predict the necessary budget for the performance audit. If the building he constructs needs a great deal of testing and many examinations or inquiries — for example, if exorbitant heating costs suggest that the building may not be properly insulated, and that thermographic tests are warranted — the authors of the performance audit must report this, and demand access to what they need. If the developer cuts corners or does not deliver the prescribed record of construction, that’s his problem, and should ultimately be remedied at his cost. Engineers should not let the developer’s actions affect their obligations to the condominium corporations who retain them.

Patricia Conway is a lawyer with Miller Thomson LLP in Toronto. E-mail pconway@millerthomson.ca