Papineau Avocats Inc: Real estate and co-ownership law

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COMMON EXPENSES: WHEN DOES THE CONTRIBUTION START?

Me Yves Papineau

by: Me Yves Papineau, PAPINEAU AVOCATS inc.

It is often noticed at the beginning of a co-ownership that the payment of the common expenses is decided by each and everyone, regardless of the law. So from when and by whom are common expenses to be paid?

THE COMMON EXPENSES.

Upon the publication of the declaration of co-ownership, the co-owners constitute a legal person called a syndicate of co-ownership (art. 1039 C.c.Q.) and the declaration binds the co-owners, their successors and those who signed it, producing its effects from the time of its registration (sec. 1062 C.c.Q.).

Section 1064 C.c.Q. stipulates that each co-owner contributes in proportion to the relative value of his fraction to the expenses arising from the co-ownership and from the operation of the immovable and also to the contingency fund, subject to specific charges for common portions for restricted use.

So everyone, whether sponsor or co-owner, must contribute to the common expenses from the time of the declaration's registration..

THE CONTINGENCY FUND.

Section 1071 C.c.Q. stipulates that the syndicate must establish a contingency fund to which, according to Section 1064 C.c.Q., each co-owner must contribute.

This obligation begins with the publication of the declaration of co-ownership and applies to everybody.

For the co-owners.

The contribution to common expenses stipulated in the law has nothing to do with the promoter's word or the condition of the building, it actually depends on the syndicate.

Whether the building is ready or not has nothing to do with the required budget decided by the syndicate. Even if there is no carpeting in the hall, the janitor still expects his pay check and the charges for lawn-mowing or for the chlorine in the pool have to be paid.

Normally, the co-owner should not pay the whole amount for his unit before receiving the totality of the promoter's counterpart. He should deposit a reasonnable portion of the sale price in trust with the notary until the promoter has fulfilled all of his obligations. But in the meantime, he must pay for his entire share of the common expenses to the syndicate.

It is also important to understand that, for any number of reasons, delivering the building on time is not always possible for the promoter and that having to wait for some finishing off is normal. So it is not always necessary to hold back the payment, especially if the promoter's reputation is good.

For the promoter

Upon publication of the co-ownership declaration, the promoter becomes owner of the unsold units. So he must contribute to the common expenses just like any other owner, even if he has no personal use for them.

The promoter's contibution is mandatory and cannot be postponed after his management is transfered to the co-owners or after the finishing off work in the building is done.

For the directors.

The directors have the duty to manage the syndicate in accordance with the law and to act in the best interest of the syndicate. A director who does not fulfill these duties is personnally liable.

The promoter, who often is a corporate legal entity, usually disappears as soon the sales are completed, but the directors appointed by the promoter stay in office and they could held responsible for the promoter's unpaid debts, if any.

When the promoter loses control over the syndicate, the new board of directors must verify that a contingency fund is in place and that the obligatory contributions to it were duly made. The syndicate may institute an action against co-owners not fulfilling their obligation to contibute to it.

After its election, the new board of directors should also take immediate measures to ensure that unpaid contributions to the common expenses and to the contingency fund are recovered.

The board should also be aware that the contribution of the co-owners to the contingency fund is at least 5% of their contribution for common expenses (section 1072 C.c.Q.), but that the amount of the contribution must be established according to the estimated cost of major repairs and the cost of replacement of common portions, which will normally exceed an amount of 5%.

CONCLUSION.

The Superior court 1 recently reminded us that these mandatory provisions of the law must be fulfilled by ordering that the co-owners' syndicate replenish its contingency fund with a special contribution making up for the previous four years.


1 Tremblay c. Syndicat des copropriétaires le Saint-Claude, C.S.M. no. 500-05-060359-005, le 25 février 2005, j. Jeannine M. Rousseau

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