An alternative to Condominiums
By David Lu
Alternative models of residential ownership seem to have become increasingly attractive recently, perhaps due to the increasing prices of traditional freehold homes. Condominiums are certainly one model, but there are also several other models in existence.
One model that exists in Ottawa is called a Co-Tenancy or Homeowners Association. Such developments are usually either townhomes or individual homes within a specific community. In Co-tenancy/Homeowners Associations, the home (or unit if it’s a condominium) is a freehold but the other elements that make up the community, such as parking spaces, any amenities (or the common elements if it’s a condominium) are owned by all owners of the community together as tenants in common.
Unlike condominiums, Co-Tenancy/Homeowner Associations do not have a governing statute. Instead, they are generally governed by a Joint Use Agreement (JUA), or other form of contractual document that dictates all matters related to the community. A JUA is a contract between the owners. Through this document, the owners are, in a nutshell, providing both positive and negative promises (i.e. “covenants”) to each other with respect to certain rights and obligations in the community.
In real estate, a positive covenant is a promise made by a landowner to do something (i.e. pay money). A negative covenant is a promise by the landowner that restricts or prohibits the use of land in some way (i.e. not allowed to build a three-storey house). A JUA often contains both positive and negative covenants.
In some instances, there can be difficulties with enforcing a JUA against a successor owner. JUAs are registered on title to every property in the community, so a lawyer representing a purchaser would be aware of it. Nonetheless, the law in Ontario stipulates that only negative covenants run with the land. This means that a new purchaser in a community governed by a JUA would only be obliged to adhere to the negative covenants of the JUA. This would not be a preferred option in situations such as when all owners in a community are required by the JUA to pay monthly fees towards the cost of maintaining common elements (a positive covenant).
A legal tool to get around this old principle in Ontario law is with an assumption agreement. This is essentially a separate contract between the seller and the buyer, in which the buyer promises to assume all the terms and provisions of the JUA. A signed assumption agreement is often a mandatory condition of the sale. However, there is always a risk that this will not be done in a particular transaction.
In my view, reform to the law respecting positive covenants in land is long overdue. The principle in Ontario law that I briefly summarized above originated in England in the 1880s. If a new purchaser was able to free themselves of positive obligations because they somehow never signed an assumption agreement, it would be unfair to the other owners of the community. In modern times, such registered covenants are readily accessible through title searches and should form part of the scope of review during the purchasing process. In my opinion, it would hardly be fair for someone to rely on an old legal principle from 140 years ago in order to get around positive obligations that they knew existed prior to completing the sale.
David Lu is an Associate at Davidson Houle Allen LLP, a boutique Condominium Law firm serving Eastern Ontario.