In some cases, work on a condominium may have to be financed because of the syndicate's lack of liquidity.
The method of financing and the related decision-making regime will vary according to the nature of the work itself, which leads us first to define the term "work" before discussing its financing.
The concept of "works" and its variations
Although the term "travaux" is used in several articles of the Civil Code of Québec (1039, 1087, 1097, 2110, 2117, 2120, 2122, 2726 and 2728), it is not defined.
The Petit Robert defines it as follows:
« A series of undertakings or operations requesting sustained physical activity and the use of technical means. Field work, agriculture. Housework. Heavy, arduous work that does not request any particular skill. (...)»
The Quebecers dictionary of the French language defines them as:
« All operations of construction, repair, transformation, maintenance or demolition of buildings, land, communication routes, etc., that require the physical activity of one or more people and the use of special means. »
That said, the Civil Code of Québec (hereinafter "CCQ") categorizes work on common areas as follows. These categories are
- conservation of the immovable (article 1039 CCQ)
- building maintenance (articles 1039, 1064 and 1077 CCQ);
- routine or minor repairs (article 1064 CCQ) ;
- major repairs (articles 1064 and 1071 CCQ) ;
- replacement of common areas (articles 1064 and 1071 CCQ);
- alterations, improvements and additions to common areas (article 1097 CCQ).
The Declaration of Co-ownership will usually define what constitutes a common portion, a restricted-use common portion and a private portion. The CCQ defines private portions and common portions in articles 1042 and 1043 respectively.
Article 1044 CCQ, in the absence of specific wording in the Declaration of Co-ownership, establishes a presumption that the following are common portions:
« The following are presumed to be common portions: the ground, yards, verandas or balconies, parks and gardens, access ways, stairways and elevators, passageways and halls, common service areas, parking and storage areas, basements, foundations and main walls of buildings, and common equipment and apparatus, such as the central heating and air-conditioning systems and the piping and wiring, including that which runs through private portions.».
The cadastral plan, for its part, illustrates and defines the boundaries between common and private portions (art. 3026 CCQ). In the event of a discrepancy with other documents, such as the declaration of co-ownership, the cadastral plan is "presumed to be accurate" with regard to the boundaries, measurements and contents shown therein (art. 3027 al.2 CCQ).
a) Conservation work
Conservation of the building appears to cover maintenance work, routine repairs, major repairs and repairs, major repairs and replacement of common parts.
By using the word "conservation", the legislator also seems to have intended to include everything that is not specifically covered elsewhere in the CCQ, which we will discuss below.
b) Maintenance work
Maintenance is defined as "the care, repair and expenditure required to keep a building in good condition". (Le Petit Robert)
These are recurring expenses that are part of the day-to-day running of a condominium corporation.
They include cleaning of equipment, accessories and common areas of buildings and grounds, snow removal and landscaping, etc.
Expenses related to this work are presented in the operating fund of the provisional budget.
c) Routine or minor repairs
This category of work is often confused with the previous one, insofar as the maintenance of a common part of the building may include or result in minor repairs or the replacement of certain elements or components of a piece of equipment, a structure or a construction.
Thus, replacing ventilation system filters, roof extractor belts, replacing a door hinge or a window opener for common use will generally turn out to be routine repairs. These minor repairs are in contrast to the major repairs we'll discuss later.
All co-owners contribute to the resulting common expenses for maintenance and routine or minor repairs in proportion to the relative value of the fraction or fractions they respectively own (art. 1064 CCQ). However, in the case of restricted-use common portions, only those co-owners who have the use of the common portions will contribute to the resulting expenses.
For example, balconies in multi-storey condominium towers are often used by one or more co-owners. In such cases, the co-owner who uses the balcony is solely responsible for its maintenance and ongoing repairs.
Unless otherwise stipulated in the declaration of co-ownership, it is not the responsibility of a co-owner who has restricted use of a common area to carry out the work himself. On the contrary, unless expressly stipulated in the declaration of co-ownership, and in accordance with the intent of the legislator as expressed in articles 1039, 1066 and 1077, it is the responsibility of the syndicate of co-ownership to carry out all work on the immovable, or to retain the services of an appropriate building professional to do so. This makes sense in that, whether they are common parts or restricted-use common parts, they are the property of the community of co-owners (art. 1043 CCQ). It goes without saying that the syndicat de copropriété should also retain the warranties of the contractors with whom it does business.
d) Major repairs
Under the terms of article 1152 CCQ, major repairs include :
«Major repairs are those which affect a substantial part of the property and require extraordinary outlays, such as repairs relating to beams and support walls, to the replacement of roofs, to retaining walls or to heating, electrical, plumbing or electronic systems, and, with respect to movables, to motive parts or the casing of the property»
Article 900 CCQ specifies that: « Land, and any constructions and works of a permanent nature located thereon and anything forming an integral part thereof, are immovables».
In our opinion, the "major" nature of a repair is determined by the extent of the work carried out on the structure or construction concerned.
For example, work that consists of repairing, but not replacing, a large area of a building's roof would, in our view, constitute major repairs, given that it involves a significant part of the property, i.e. the roof (structure). By analogy, the same would apply to the repair of an air exchanger motor, which would be considered an exceptional expense given the nature of the repair in relation to this equipment.
e) Replacement of common areas
This involves work that has become necessary and compulsory due to the age, wear and tear or life expectancy of life expectancy of each of the elements making up the common areas.
As replacement is linked to the co-owners' right of ownership in the common areas, unless otherwise expressly stipulated in the declaration of co-ownership (art. 1064 al.2 CCQ), co-owners must contribute in proportion to the relative value of their fraction, regardless of whether or not they use the common areas. This applies to both common areas and restricted-use common areas (art.1043al.2CCQ).
f) Alterations, improvements and additions
This last category of work is specifically covered by article 1097 CCQ.
Over the years, case law has provided certain definitions of what constitutes work of transformation, enlargement or improvement.
The Superior Court2 has defined them as follows:
“ Transformation
Definition
Construction work that changes the physical characteristics of a building, such as part of the structure, mechanical equipment or the location of openings in the existing structure, but does not increase the floor area.
Improvement
Definition
Construction or public utility or any other installation or material change made to a property in order to increase its utility or beauty."
There is a great deal of case law on this subject and, as the same Court pointed out, it is not always possible to distinguish between "improvements" and "repairs". There are, however, some possible solutions. One is that, in article 1097 CCQ, the term "transformation" is added to the words "enlargement and improvement", which could mean that "the legislator did not wish to omit anything that affected the physical form of the immovable beyond maintenance "
Another interpretation would be to consider that such work is not, a priori, necessary, which would distinguish it from the other categories.
For these reasons, the legislator wanted them to be approved by a majority of co-owners representing 75% of the votes of the co-owners present or represented at the meeting (art. 1097 CCQ).
Sources of financing for work
The Co-owners' contributions to common expenses are the main source of funding for work (art. 1064 CCQ).
This source contributes to a number of funds, including :
• The operations fund ;
• The contingency fund ;
• The self-insurance fund;
• Funds dedicated to one or more specific expenses.
Routine maintenance and repairs are financed by the annual operating fund budget.
Major repairs and replacement of common areas are financed by the projected budget contributions to the contingency fund and the sums accumulated there.
Alterations, improvements and enlargements are generally financed by a special contribution, the distribution of which is either general or specific to the benefit or use of one or more co-owners (art. 1097 CCQ).
As for the self-insurance fund, when it comes into effect on April 15, 2022, it will be financed by special contributions dedicated to both its creation and maintenance.
Lastly, funds dedicated to specific expenses will generally be financed by special contributions to common expenses. Examples include the creation of a contingency fund, a cash fund or a fund dedicated to a specific extraordinary expense.
In addition to these usual sources of financing, a syndicate of co-ownership can also take out a loan from a financial institution.
This type of financing enables the syndicate to meet relatively large expenses for which it may not have immediate or short-term liquidity. In this case, co-owners contribute over a longer period of time than would be the case with a special contribution, and consequently, up to a reduced periodic amount.
Such a loan does, however, have its drawbacks. In addition to having to pay interest on the amount borrowed, institutions generally require the syndicate to provide a guarantee.
This guarantee is generally of two (2) types:
a) Movable hypothec
A movable hypothec, as its name implies, is exercised against movable property.
In condominiums, this security is generally attached to the intangible movable property constituted by the co-owners' common expenses. In the event of non-performance, the financial institution has the right to collect, for example, the co-owners' contribution in place of the syndicate.
Bill 166, passed on December 5, 2019, amends the CCQ in the area of "divided co-ownership" to provide a framework for the creation of such guarantees. Since January 10, 2020, movable hypothecs have been subject to the provisions of article 1076.1 CCQ, which reads as follows : “The syndicate may grant a movable hypothec only after obtaining the authorization of the general meeting of the co-owners.”.
The Board of Directors must now obtain the authorization of the general meeting of co-owners before taking any steps to grant a movable hypothec to the lending financial institution and, consequently, to obtain a loan secured by such a hypothec.
As a general rule, the majority required to grant this authorization will be that provided for in article 1096 CCQ (absolute majority).
As an exception, prior authorization for the constitution of a movable hypothec securing a loan intended to cover expenses generated by work to transform, enlarge or improve the common portions must be obtained by a reinforced majority in accordance with article 1097 CCQ. In fact, even if we are of the opinion that article 1097 (2) CCQ, as recently amended, is somewhat confusing in its wording, it cannot be interpreted otherwise.
b) Immovable hypothec
The syndicate of co-ownership is not the owner of the common portions of the building. of co-owners (art. 1043 CCQ).
However, it is quite possible for the syndicate to own immovable property. This may, for example, be a piece of land adjacent to the condominium, or, more often, a private portion that has sometimes been transferred or sold by the developer, and which is cadastralized and defined as private in the description of fractions in the declaration of co-ownership. If this is the case, the property may be encumbered by an immovable hypothec to secure a loan from a financial institution.
On the other hand, we are of the opinion that this is at the very least , ultimately, an act akin to an "alienation" of immovable property, since such a guarantee may lead, in the event of default by the syndicate, to the forced sale of the immovable property on which the hypothec is constituted.
It will therefore be necessary to obtain at the very least a favorable vote from the general meeting of co-owners by a qualified majority (75% of the votes of the co-owners present or represented), as specified in article 1097 (1) CCQ.
Although these financing tools are interesting, a syndicate that establishes good financial planning from the outset should, when the time comes, have the necessary sums in its funds so as not to have to resort to them.
In all cases involving the above-mentioned guarantees (movable or immovable hypothec), the Board of Directors should sub-weigh the time required to study, authorize and set up such guarantees against the more or less short deadline for carrying out the expenditure to be financed.
