Leaky Condos – Lessons from British Columbia – A Few Things Every Property Manager Should Know

As promised in my January 25, 2014 post – the following is an article I wrote that was originally published in the Association of Condominium Managers of Ontario’s (ACMO) CM Magazine in 2009:

I’m a litigation lawyer and practice primarily in the area of construction law.  In particular, I seem to have a natural affinity for construction deficiency claims – I like them and they like me.  Not only do deficiency claims usually have complex and interesting factual and legal issues, they are often meaningful for the parties involved.  This makes for satisfying legal work.

I grew up in Kitchener, Ontario but packed up in 1993 and headed out west to go to school in Vancouver.  I eventually ended up going to law school and practicing law at a large Vancouver law firm where I joined that firm’s Construction Law Practice Group in early 2002 to help with the incredible workload that the “leaky condo crisis” had generated.  Until returning to Ontario in 2008, I worked on numerous files arising from leaky buildings, representing primarily condominium owners, but also single-family home owners, a large building product manufacturer, and residential developers.

Most people, certainly in condominium management circles, have some degree of awareness and understanding about British Columbia’s “leaky condos”.  It was a real phenomenon and socio-economic crisis that had a profound and lasting impact on the lives of tens of thousands of homeowners and the practices of builders, developers, architects, and municipal inspectors.  To get a sense of the magnitude of the effect and fall-out, one only need consider that it resulted in the financial collapse of B.C.’s provincial new home warranty provider of the day, a significant re-writing of parts of the B.C. Building Code, and an international renaissance in building envelope science.

I should say at the outset that I don’t think for a minute that Ontario is likely to experience a leaky condo experience anything akin in magnitude to that in B.C. – the climate is different, there’s less moisture here and warmer drying periods, and the architecture is somewhat different.  That said, buildings that suffer water ingress are not by any means a uniquely coastal phenomenon and Ontario’s heavy seasonal (and often wind-driven) rains, the rapid rise in multi-unit residential construction in Ontario and late-coming changes to the Ontario Building Code (approximately eight years behind those in the B.C. Building Code), certainly create the possibility.

While not everyone will be genuinely interested in the “leaky condo” story, what is, in my view, of utmost importance is that people – homeowners, property managers, builders, and designers – heed the lessons that were learned in B.C. as a result of the experience.  For homeowners, property managers, and condominium boards, the most important of these lessons is recognizing the early signs of a problem and acting on them.  This article is not intended to provide legal advice and neither is it intended to be a comprehensive playbook or checklist – what it is intended to do is to offer a few of the suggestions that I wished over the years I had been able to provide to owner/manager clients who, unfortunately, didn’t seek advice (legal, engineering, etc.) until long after the problem had been discovered.

Most often, the early signs of a “leaky condo” are first evident to the owners of individual units in the building.  These owners will report wet carpets, water on window sills, drywall or ceiling staining, or similar problems to the condominium board or the management company.  Sometimes these reports will begin very shortly after a new building is occupied and other times the reports won’t start until years after a building was constructed.  From a legal point of view, it is critical that those involved in the management of the building take these reports seriously and act on them quickly.

Property managers are almost always heavily involved in both the investigation of construction deficiencies and the management of the remediation work.  Similarly, if the condominium corporation votes to raise funds and pursue cost recovery litigation, the property manager will almost always serve as the primary liaison between legal counsel and the condominium’s board of directors.  Given these realities, there are a few things that every property manager should consider and keep in the back of his or her head to be well positioned to both identify issues and to respond effectively and appropriately in the face of the discovery of a design or construction deficiency.

  1. Even without signs of leaks, for new buildings, one of the best things a condominium’s management can do is to retain a building science professional (generally an architect or an engineer) to conduct an investigative building envelope assessment of the subject building within the first year of the Tarion warranty coverage.  If the investigating expert discovers Building Code violations, substandard workmanship in the building envelope construction, or significant deviations from building manufacturer’s details, specifications, and installation instructions, these should be reported to Tarion right away so that Tarion can assess whether warranty coverage applies.  While incurring the cost of a building envelope assessment on a new building can be a hard sell to the owners, taking this pro-active and preventative measure will be some of the best money the condominium corporation ever spends if a serious problem is discovered.
  2. Even if a building is not new and there’s no warranty coverage, bringing in an expert to assess the construction and condition of the building envelope can be a good investment.  If a major problem is discovered, the condominium corporation can start budgeting to carry out repair work and consult with a lawyer to see whether legal action is warranted. If no major problems are discovered, the consultant will be able to provide advice with respect to required maintenance and identify any areas that should be monitored.
  3. Regardless of whether it is a newer or an older building being assessed, encourage the condominium board to hire a premier building science firm to carry out the investigation.  First, the old adage that “you get what you pay for” often holds true in this case.  Second, the preliminary assessment may be one of the most important pieces of evidence if litigation later follows and premier building envelope consultants will generally be better expert witnesses than consultants with less experience or weaker qualifications.
  4. Educate owners within the building about what to look for and set up a protocol for reporting problems.  This suggestion may sound a little pedestrian but you’d be surprised how many times I’ve seen unit owners wait months or years before reporting the problem and acting upon it.  A necessary component to this suggestion is that the management (the condo board, the property manager, etc) needs to follow up with these reports, investigate the causes, and watch for patterns (i.e. leaks or moisture at the balcony doors of more than a couple of units may indicate a defective sliding door design or installation, a membrane problem, or slope deficiency that might affect most or all units in the complex).
  5. Establish a system of inspecting and maintaining the exterior of the building. While a window and a wall assembly might be reasonably expected to last for 20-30 years (or much more), caulking and other seals generally are not.  One excellent building envelope consultant that I worked with often in Vancouver told me that, ideally, caulking should be inspected every 1-2 years and completely replaced every few years.  If a building has systemic water ingress problems and significant design or construction flaws, this usual and normal maintenance won’t likely solve the problem.  However, if a building is not maintained, owners can bet their bottom dollar that the defendants in their cost recovery claim are going to raise a lack of maintenance as a defence (contributory negligence) to the claim.
  6. One of the most important things to do following the discovery of a problem is to consult legal counsel quickly.  Every Province has its own legislation that governs the timeframe within which a would-be Plaintiff must start its lawsuit.  In Ontario, the current legislation requires that a lawsuit be commenced within 2 years of the event giving rise to the claim.  It’s actually much more complicated than this – there is a huge body of law surrounding when that 2 year clock begins to tick – but many otherwise strong claims have been defeated because a Plaintiff failed to commence a claim in time.  This is a heartbreaking way to lose the right to pursue compensation for repairs.  Bottom line: Err on the side of caution and act quickly.
  7. Keep good records (and store them in an organized file) with respect to building envelope maintenance, reports of water ingress, any investigations undertaken, discussions (i.e. meeting minutes) and communications (i.e. emails, letters, etc.) on the subject, and financials.  If a problem arises and if litigation becomes likely, not only will the condominium corporation’s lawyer love management for having done this, the condominium corporation will likely save considerable money in legal fees if the lawyer doesn’t have to comb through dozens of files and thousands of documents looking for and sorting the relevant documents.
  8. If there is a suspected problem with the building envelope, take steps to find out the identities of all of the players involved in the construction of the building in question.  Some of this information can be obtained from the condominium’s description documents and the contracts of purchase and sale. However, often the best source is in the planning and building department file of the municipal authority having jurisdiction over building permits and approvals and such. A bit of advance notice to the good staff at the planning and building department and a half an hour at City Hall will usually net a lot of good information.  If a lawyer is retained, he or she can take care of this as well but can better “hit the ground running” if some of this information is already known.  This can also save valuable time if limitation periods are an issue.

At the end of the day, the central theme of these few suggestions is to monitor and investigate, maintain, and to seek advice promptly if problems are discovered. Another important point to take away is that, if owners fail to properly and diligently maintain their buildings over time and act quickly if problems emerge, they will, to varying degrees, risk having to absorb or share in the blame that might have otherwise been borne by the developers, designers, builders, trades, and municipalities that designed, built, and approved the construction of the building.

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Potentially helpful new tools in creating and presenting evidence in delay claims

The Daily Commercial News published a short article today, written by Peter Kenter, about Expect Delaysservices and technology being offered by Systech International (with an office in Mississauga, Ontario) for the collection and presentation of evidence pertaining to the impacts of delay to construction projects.  The service and technology described are 1) visualization presentations and 2) a smartphone Site Diary App.

While, as a construction litigator, I’m certainly intrigued by the concept of, “…high-level computer-animated sequence, fully narrated, showing exactly how delays affected the staging and construction of a project” as described by the article, realistically, such a presentation is, I would expect, likely cost-prohibitive in all but the largest delay claims.

By contrast, the ”Site Diary App” is, conceptually at least (I have no idea whether Systech’s app is good or not, how much it costs, whether it can be purchased as a stand-alone product or is only available bundled with other products, etc), something that might have a much broader appeal and utility.  Click here for a link to Systech’s promo/informational video for the app.

I’ve seen some really poor site diaries over the years and so the prospect of a tool with the objective of making the process of keeping a good site diary easier and better is of real interest.  Most litigators will agree (I think) that – without discounting the value of retrospective opinion evidence of experts on the causes and impacts of delays after they have occurred – the best factual evidence regarding the issues arising during a construction project will normally come from documents/records created contemporaneously with the events to which they relate.  If this app can, at a reasonable cost and in a robust, user-friendly way, assist in creating that evidence, I expect that it will become a useful and common tool in the construction industry.

If any of my readers has any experience with this app (or knows someone who does), and is willing to spend a few minutes to give me a call or send me an e-mail, I’d be interested to hear early thoughts and reviews on it.

Can an owner rely upon read-in evidence from transcripts of subcontractors’ Examinations for Discovery against the general contractor?

There are two ways to introduce evidence given by a witness examined for discovery at trial:

  1. The party who carried out the examination can use the prior evidence to impeach the witness’ evidence at trial where it differs from the evience given at the examination; or
  2. The party who carried out the examination can “read-in” portions of the transcript produced at the examination and those “read-ins” become part of the evidentiary record at trial.Answer

The recent case of Urbacon Building Groups Corp. v. Guelph (City), 2013 ONSC 5773 (CanLII) - which by the way is producing lots of interesting caselaw re construction liens in Ontario – addressed whether an owner rely upon read-in evidence from transcripts of subcontractors’ Examinations for Discovery against the general contractor.  The City of Guelph took the position that it could read-in portions of the transcripts of the Examinations for Discovery of Urbacon’s (the GC) subcontractors against Urbacon.

Much to my nerdy delight, Justice MacKenzie cited an earlier Ontario Decision and a B.C. Decision and ruled that (I paraphrase) discovery evidence can only be read in against the party who gave it.  One can easily imagine the mischief that could result from one party relying on the evidence given by X against Y when Y may not have had a chance to challenge or counter X’s evidence and I am glad that the door on this risk has been closed just a little further and, in particular, in the context of a multi-party construction lien action.

An “Interest”ing Decision – A contractual interest claim gone wrong

What an awful Blog post title. My apologies.

The Decision of Madame Justice Pierce in 1188710 Ontario Ltd. v. Gartner, 2012 ONSC 6110 (CanLII) is a good reminder of how judges trying to do perceived justice between parties sometimes finds the law bent (or worse – disregarded) in favour of perceived justice.

The facts of the case aren’t particularly remarkable – contractor does work, owner takes issue with various things and doesn’t pay all invoices, contractor liens, lawsuit follows.  Same old story.  Sometimes the contractor comes out on top and sometimes it is the owner that prevails.  In this case, Pierce J. interpreted the agreement between the contractor and the owners and the evidence that was presented at trial almost entirely in favour the contractor.

The two aspects of the Decision that prompted me to write this short post are:

  1. Pierce J. found a contractual entitlement to interest and awarded the contractor interest at 5.5% per annum; and
  2. Pierce J. declared that the contractor has a lien against the Defendants’ property for an amount that includes the interest that she found to be owing.

Contractual Interest

If Pierce J. had just addressed the issue of interest as one of damages (the contractor’s losses based on interest the contractor had to pay on its line of credit or to its own suppliers) rather than as interest and if the contractor had presented better evidence on this point, I don’t think there would be an issue.  However, because Pierce J. expressly found that there was no agreement as to interest (see paras 37 & 40), I think she should have been foreclosed from awarding contractual interest.  Nonetheless, she (wrongly in my view) reasoned that a contractual obligation to pay invoices within a specified time implied an agreement to pay interest if payment was not made within that time (see para 44).  If Pierce J. were right on this, it would effectively mean that every contract that obliges a party to pay contains an implied agreement to pay interest if payment isn’t made.  I don’t think that this is the law and I don’t think this accords with longstanding jurisprudence that parties should, as a general rule, be held to their bargains – if the contractor had wanted to negotiate a contractual entitlement and rate of interest, he could easily have done so.

The next part is that there seemed to be some very loose (it seems to have been given just in oral testimony at trial) evidence that the contractor had suffered some sort of losses based on having to dip into his line of credit and charges from his own suppliers as a result of the owner not paying all of his invoices (see para 100, for example).  It was this evidence that Pierce J. used to determine the rate of “interest” that the contractor should be entitled to (5.5% was the contractor’s rate on his line of credit…so Pierce J. somehow made that the contractual rate of interest “agreed to” between the contractor and the owner).  I wouldn’t be so offended by this had Pierce J. just characterised the amount payable as damages rather than interest.  However, even then, the problem would be that she found as a fact that, “Unfortunately, there is no evidence about how much [the contractor] had to draw on his line of credit for this project, or how much interest he paid.”  In effect, she awarded damages in the absence of any evidence of the proven quantum of those damages.

I think that there should have been found to be no agreement as to interest and so only pre-judgment interest payable to the contractor pursuant to the Courts of Justice Act.  Further, should Pierce J. have been inclined to find a breach of an obligation to pay on the part of the owner, she could have still found damages to have resulted from the breach but she should have then found (on the evidence described by the Decision) that the contractor did not adduce sufficient evidence to support his claim and then awarded no damages on the basis that quantum had not been proven.  Instead we are left with, in my view, a bad Decision (on this point) that could come back to haunt other litigants arguing this sort of contractual interest dispute.

Lien for Interest

On the second point, section 14(2) of the Construction Lien Act expressly says that, “No person is entitled to a lien for any interest on the amount owed to the person in respect of the services or materials that have been supplied by the person, but nothing in this subsection affects any right that the person may otherwise have to recover that interest.”  As such, Pierce J. erred in law by including the interest she awarded the contractor in the declared amount of the lien she declared the contractor to have over the owner’s lands.  The interest should have been included in the money judgment but should not have been included in the value of the lien.

The Unhelpful Expert

The opinion evidence of experts is not always admissible at the hearing of a motion or a trial.

The Ontario Divisional Court recently handed down its Decision in Mastermeter Products Canada Inc. v. Corporation of the City of North Bay, 2012 ONSC 1887 (CanLII).  The hearing involved an application for judicial review of the City of North Bay’s award of a contract for the supply and installation of water meters.  Mastermeter complained that it had been treated unfairly by the City in the course of its procurement process and lost out on the contract as a result.

While the Decision is primarily concerned with procurement issues, my interest in it is the Court’s ruling to exclude opinion evidence of an “expert” where the supposed expertise of the witness was on matters/issues within the expertise of the Judges hearing the application. The interesting bit for me is at paragraphs 21-23 of the Decision which read:

The Admissibility of an Expert Opinion

[21]          Counsel for the applicant proffered an expert witness statement of Rishi Kumar, M.Sc. Eng, P.Eng. Mr. Kumar was retained to provide an opinion for this application for judicial review on the following question:

Whether or not the bid process under RFP 2009-006 was conducted responsibly and with the requisite degree of fairness, openness and transparency applicable to major competitive procurement process.

[22]          Mr. Stieber, counsel for the City, objected to the admissibility of the proffered opinion on the ground that it does not meet one of the criteria for the admission of expert evidence from R. v. Mohan, 1994 CanLII 80 (SCC), [1994] 2 S.C.R. 9, in that it is not necessary to assist the court.

[23]          We agree that the proffered opinion does not meet the necessity criterion because the Court can form its own conclusion about the fairness of the City’s procedure without the assistance of the proffered expert testimony.   Therefore, the affidavit of Mr. Kumar was struck at the outset of the hearing.

Without getting into details of the rules and jurisprudence around expert evidence, as a general statement, the Court is to exercise a “gatekeeper” function - admitting the opinion evidence of experts where the subject matter of the evidence is outside of the expertise of judges (and provided it meets certain other criteria) and excluding the rest.

Legal theory aside, one of the reasons that this gatekeeper function is so important is that expert evidence can be very expensive and can drive up the cost of litigation substantially.  As such, only that expert opinion evidence which is helpful and necessary to the court to decide the case should be admitted.  This is particularly true of construction litigation where expert opinion evidence is very, very common and the lawsuit often evolves into a “battle of the experts”.

Too often, in my view, courts are prone to allowing parties to introduce “expert” evidence in areas where the judge has sufficient expertise and does not require assistance.  In my view, if litigants can have the confidence that the court will exercise the gatekeeper function properly, as it did in this case, when an opposing party serves an “expert” report that is unhelpful and unnecessary to the court in deciding the issue for which the evidence is introduced, the recipient of that report can more confidently chose to avoid the time and significant expense of responding the the report and simply seek its exclusion at the trial or hearing.

“I said ¾ of an inch. Look – it’s right there in the contract”

D’Urzo Demolition Inc. v. Damaris Developments Inc., 2012 ONSC 1912 (CanLII), released by the Ontario Superior Court of Justice on March 26, 2012, serves as a good reminder to owners and contractors of the importance of ensuring a mutual understanding of the specifications and other requirements of the work and then properly incorporating those documents and requirements into the construction contract.  For litigation lawyers, it also serves as a good reminder of the importance of ensuring that adequate and flexible evidence of damages (whether Plaintiff’s damages or a Defendant’s claim for set-off) is obtained and brought to trial.

Basic Facts

In a nutshell, D’Urzo Demolition Inc. (“D’Urzo”) was the successful bidder to demolish structures on a property in Toronto and then mechanically reduce the rubble into smaller crush.  The owner, Damaris Developments Inc. (“Damaris”), took the position that the contract required D’Urzo to crush the concrete to ¾ inch and to also demolish curbs and asphalt and remove same from the site. D’Urzo took the position that it only had to reduce the rubble to size of 3 inches (and that a smaller crush would constitute an extra) and that demolishing the asphalt and curbs and removing same from the site was not included in the scope of work and, again, constituted an extra.  At the end of the day, D’Urzo was substantially successful at trial – Damaris succeeded only in achieving a finding that the asphalt and curbs had to be demolished – D’Urzo succeeded in convincing the Court that the contract only required a 3 inch crush, that the asphalt should not have been required to be removed from the site and disposed of, and that Damaris was in breach of the contract for failing to pay.

Take Away Notes

Of note for contractors and owners – the work was put out for tender, there were competitive bids, and the parties used a standard form (CCDC2) contract and they still ended up in protracted litigation (the lien was filed in May, 2007 and trial did not conclude until December, 2011 – almost 5 years!) arising from a failure to clearly and properly set out what work was required by the contract.  If you are going to go to the trouble of putting a job out for tender and then use a detailed and established form of contract, spend the time and money to make sure that the specifications and drawings that establish the scope of work are both clear and properly incorporated by the contract.

Of note for lawyers – Damaris claimed $50,400.00 as its back charge to remove and dispose of the asphalt and curbs and provided evidence that this was what it cost.  But Master Albert found at trial that D’Urzo only had to remove the asphalt, not dispose of it.  Because Damaris’ evidence didn’t breakdown the back charge between removal and disposal, Master Albert had only D’Urzo’s evidence that the cost to remove the asphalt was $2,643.75 and he awarded that amount. This outcome highlights the risk of evidence limited to global amounts that aren’t broken down into component parts in case of divided findings at trial.