2011 QCCQ 8202, 2011 QCCQ 8202

Lewis c. Pombert 2011 QCCQ 8202 COURT OF QUEBEC Small Claims Division CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-32-115720-098 DATE: July 15, 2011 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ CYNTHIA LEWIS LESLIE HINDS [...] Anjou, Quebec [...] Plaintiffs vs.

GHISLAINE POMBERT JEAN-LUC TÉTREAULT [...] Louiseville, Quebec [...] Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] The Plaintiffs, Cynthia Lewis and Leslie Hinds, purchasers of a unit in the divided co-ownership known as VALBOURG II at [...] in Anjou, sue the vendors, the Defendants, Ghislaine Pombert and Jean-Luc Tétreault, for a reduction of price alleging a serious hidden defect existing and undisclosed at the time of the sale affecting the roof of the garage-terrace of the building. [ 2 ] They allege that repairs to this structure required a contribution on their part of $28,816 to the common expenses.

They reduce their claim to the $7,000 maximum permitted in the Small Claims Division. [ 3 ] The Defendants contest alleging that the Plaintiffs' inspection of the premises on April 24, 2007, with their building inspector revealed infiltrations coming from the roof of the residence and also from the roof of the garage below the terraces. [ 4 ] They also allege having provided all of the documents concerning the ordinary and special meetings of the condominium syndicate in which discussions concerning repairs to the roof of the garage terrace were noted.

ISSUES [ 5 ] In order to resolve this case the Court must determine: 1. Was the garage, terrace and roof affected by a serious hidden defect at the time of the sale? 2. What were the disclosures made concerning the state of the roof to the purchasers or their broker?

3. What is the economic impact on the Plaintiffs of the contribution they were forced to make to the common expenses for the repairs to the roof? [ 6 ] The answers to these questions will enable the Court to determine whether the Plaintiffs are entitled to a reduction in price. FACTS [ 7 ] According to the broker acting for the Plaintiffs as purchasers, Sylvie Bédard, a bilateral offer to purchase was agreed to on April 17, 2007. [ 8 ] The condominium is one of the approximately 26 units configured as town houses.

Beneath the landscaped terraces between the rows of town houses an interior garage is constructed, so that the roof of the garage is the base of the terraces. [ 9 ] As is usually the case in sales of undivided co-ownership units, the vendor was to provide access to all of the documentation of the syndicate.

This is important to enable the purchaser to assess whether the syndicate is solvent and has sufficient reserves in its contingency to provide for the operation and maintenance of the common portions of the immovable and any foreseen repairs. [ 10 ] Jean-Luc Tétreault affirmed that he had provided all of these files containing not only financial statements but minutes of all meetings going back at least 5 years as part of his undertakings as a seller. [ 11 ] The Plaintiffs' broker, Sylvie Bédard, claims to have read everything that was in these files but she affirms that there was nothing from which it could be inferred that there would be expensive repairs on a short-term basis to the garage, terrace and roof. [ 12 ] She states that, after the sale, when the situation became litigious, she discussed the matter with the listing broker, Mr Michael Falduto.

They came to the conclusion that the Syndicate file did not contain anything of note that would shed light on the issue. [ 13 ] The Court asked Ms Bédard to go to the offices of La Capital Est de Montréal Inc., to recover the file which, according to her, contained this documentation. [ 14 ] She returned to the Court later in the day, saying that the file contained no such documents. [ 15 ] On April 24 th , a visit of the unit was carried out on behalf of the Plaintiffs by an inspector from the firm AmeriSpec, Mr Marcel Demers. [ 16 ] Exhibit D-1, a declaration entitled: « Divulgation du propriétaire vendeur » has two items of note.

Firstly, the age of the roof covering « recouvrement du toit » is declared to be 27 years and it has not been replaced. An affirmative answer is given, however, to the question: « Les travaux ont-ils été executes par un contracteur ? » This implies there were works done. [ 17 ] Under the question: « Y a-t-il déjà eu de l'infiltration d'eau (actuelle ou antérieure) ? » , the vendor answered: « oui, fuite près du foyer (cheminé

e) réparé mai 07 ». [ 18 ] Mr Tétreault affirms that during the visit, May 24 th , he showed the inspector, Demers places where there was water infiltration from the roof of his unit that was repaired in May 2007. [ 19 ] He also says that he told the inspector and the Plaintiff, Mr Hinds, that the roofs of one of the units had already been replaced and that the roofs of all on the units would be replaced gradually over time as needed. [ 20 ] He also says that he pointed out to the inspector signs of water infiltration in the garage at a location that corresponded with the placement of a lamppost on the terrace and that repairs over several years were planned with regard to this type of infiltration. [ 21 ] The report provided by AmeriSpec (P-21) contains a

chapter concerning the garage. Under step #414, under component "Ceiling" , the following comment is made: Signs of previous water damages. Dry at time of inspection. We recommend repairs be performed. See photo

annexe #9, #10 and #11. [ 22 ] These photos are appended to the report and clearly show signs of water infiltration along cracks in the roof and a fair amount of efflorescence indicative of interaction between the concrete and moisture. [ 23 ] There is no indication of whether the ceiling is "serviceable or functional" and the AmeriSpec's inspector gives no indication as to what type of repairs may be necessary. [ 24 ] The Court heard from Mr Louis D'Auteuil of the firm Valoripro Compagnie de Gestion ("Valoripro").

Valoripro took over the administration of the condominium with respect to its financial files in January 2007 and it took over the operations as of April 2007. [ 25 ] When Mr D'Auteuil took charge of the situation, he took cognisance, in July 2007, of the water infiltration in the garage in the vicinity of lampposts.

He reviewed what was in the condominium syndicate's files. [ 26 ] Essentially, the approach taken by the syndicate had been to perform local repairs in the vicinity of the lampposts taking up the paving stones and repairing the roof membrane. [ 27 ] He met the contractor that was doing this work in the summer of 2007 and decided to take advantage of the fact that certain surfaces were exposed to have a proper expertise conducted. [ 28 ] LVL Technisol did the analysis and gave its conclusions in October 2007 proposing a complete rebuilding of the roof

membrane using a polystyrene membrane. [ 29 ] On the basis of this report and Mr D'Auteuil's management of the situation, the syndicate decided to go ahead with these major repairs. [ 30 ] The 27-year-old roof, that was leaking around the lampposts, was completely replaced. This necessitated re-landscaping the terrace. [ 31 ] The entire project cost $836,000 as confirmed at a meeting of the syndicate on April 21 st , 2008.

On May 16 th , 2008, the Plaintiffs received a notice of their assessment based on their percentage of co-ownership of the common areas of $28,816. [ 32 ] In order to pay this amount, they obtained financing incurring his interest charges. [ 33 ] An analysis of the record of the syndicate shows that water infiltration had been a concern at least since a report obtained in 2003. That report, produced as part of exhibit P-6, revealed various problems in the roof structure and contained, at page 7 of 16, a general reference to the age and composition of the membrane.

It concludes: « quant à la toiture terrasse en fonction de l'âge et de la composition de la membrane, il faudra prévoir son remplacement complet à moyen terme deux à cinq ans. » [ 34 ] At the meeting of April 19 th , 2007, item 5 of the minutes (P-19), refers to: « les projets triennaux à venir » . Some of these items are relevant: « B. Réparation des infiltrations à la dalle du garage et au toit; […] D.

Fissures dans le garage, la présence du Saule pleureur aurait peut-être endommagé la dalle. » [ 35 ] According to Mr Tétreault, it was this discussion about: « les projets triennaux » that led him to make the comment to the purchasers during the inspection that there would be works done concerning the water infiltration in the garage roof over several years. [ 36 ] The sale was formalised with the notary on June 22 nd , 2007.

The sale is made with the legal warranty but there is no mention anywhere in the deed of sale of any representation or warranty concerning the financial status of the syndicate, the sufficiency of its financial reserves or of the levels of assessments in force. ANALYSIS Obsolescence, not a hidden defect [ 37 ] As a question of fact, at the time of the sale, the part of the condominium that we are concerned with, the garage roof, was 27 years old having never undergone any significant repair.

It was at the end of its useful life and, for several years, there had been problems of infiltration that were noted, analysed by experts, discussed at the syndicate meetings and, to some extent, a program of gradual repairs was envisaged. Water infiltrations, that were the manifestation of the roof membrane's need for replacement, were visible on a normal inspection in April 2007.

Because the roof is covered by the landscaping of the terraces it would not have been possible to investigate further to see the actual extent of the roof membranes but there were sufficient signs of active water infiltration to cause the Plaintiffs' expert to note in his report that repairs should be envisaged. [ 38 ] The Court has had the opportunity to read the contents of the syndicate's file including the minutes of meetings of which the Defendants would have had a copy.

From even a superficial reading of these minutes, it is clear that there is an issue with the roof and that it has not been resolved at the time of the sale. [ 39 ] It would not have been possible at the time that these documents were made available to the brokers to have an exact assessment of the costs to be incurred in the short, medium or long term regarding this roof problem but the existence of the problem itself was manifest. [ 40 ] Although the exact extent of the problem and the costs associated with its correction were not known in April 2007, the fact that the roof was defective and required repairs sooner or later was not hidden.

There were signs that would have led a reasonable person inspecting the building for a proposed sale to be on the alert. [ 41 ] Since the roof was 27 years old, it is more a question of the end of a cycle than a defect although, according to today's standards, the 27-year-old roof would probably not meet technical requirements. [ 42 ] In that sense, the problems should not be though of as a hidden defect: they are, in fact, the inherent condition of an aged roof that will require replacement on something like a thirty-year cycle. [ 43 ] If the problems had been repaired prior to the sale and the vendors had themselves incurred these special contributions, the selling price would have been that much higher because the value of the unit to be sold would be correspondingly greater. [ 44 ] By the same token, had the repairs that were carried out as planed in April, continued, the Plaintiffs would have had a very minor expense but they would have owned a property subject to the need for more extensive repairs in the future. [ 45 ] The approximately $28,000 that they paid in 2008 can be seen as an added value as apposed to a prejudice.

Even if the roof

had not been leaking in 2008, it was at the end of its useful life and would have had to be replaced shortly, if only to prevent short-term damages resulting from its obsolescence.

Finances of the Co-ownership [ 46 ] Divided co-ownerships require funds for the operation and upkeep of the common portions of the immovable and also for major repairs and replacements of these common portions. [ 47 ] In addition to what could be though of as an operating fund to meet the needs of an annual budget, the law also provides for the establishment and maintenance of a contingency fund. [ 48 ] The responsibilities of the syndicate are as follows: 1071.

The syndicate establishes, according to the estimated cost of major repairs and the cost of replacement of common portions, a contingency fund to provide cash funds on a short-term basis allocated exclusively to such repairs and replacement. The syndicate is the owner of the fund. 1072.

Each year, the board of directors, after consultation with the general meeting of the co-owners, fixes their contribution for common expenses, after determining the sums required to meet the expenses arising from the co-ownership and the operation of the immovable, and the amounts to be paid into the contingency fund. [ 49 ] In a perfect world, there would always be enough money in both the operating fund and the contingency fund on a year-to- year basis to meet all expenses associated with the maintenance and upkeep of the common portions and also to carry out major replacements and repairs occurring on a cyclical bases for example, the replacement of roofs. [ 50 ] The syndicate operates, however, as a democratic institution and it may or may not have recourse to competent professionals to establish the levels of the contingency fund. [ 51 ] Therefore, in a less-than-perfect world, a situation can develop where the contingency fund is seriously insufficient to cover the costs of repairs and replacements of the common portions. [ 52 ] This is especially the case when an expense is incurred on a very long cycle such as 20 or 30 years. [ 53 ] As the condominium approaches the end of a cycle, it may not have funds sufficient in the contingency fund to meet a major capital expense such as the replacement of a roof. [ 54 ] Potential purchasers of a condominium unit are faced with the uncertainty that the contingency fund as established at any particular point in time will be sufficient to meet the future needs of the syndicate and, depending on whether the contingency fund is sufficient or insufficient, there may calls for contributions as a given situation unfolds. [ 55 ] The Civil Code of Quebec does not impose an obligation on the part of the seller to guaranty the sufficiency of the contingency fund.

The purchaser assumes the risks of the state of the building in proportion to the level of liquidity in the contingency fund. [ 56 ] For this reason, purchasers and the brokers that are assisting them in a transaction are well advised to spend the necessary time and, if necessary, seek professional advice, to scrutinize the financial statements of the syndicate and acquaint themselves with the history of the management of the property as recorded in the minutes of meetings. [ 57 ] The file that was constituted before this Court shows that, for several years, there had been regular attention in the minutes to the problem of the leaky roof membrane.

There were various solutions envisaged, some of which were being carried out or planed on a gradual basis. [ 58 ] After the sale was agreed to, the new administrator hired by the syndicate brought about a change of policy, for financial and technical reasons and, based on the recommendations of this administrator, the syndicate decided, through its democratic process, to engage in a complete replacement of the roof terrace rather than continue over a period of several years to patchwork repairs. [ 59 ] The broker who assisted the Plaintiffs testified that she had analysed the condominium files and had not seen anything from which it could be inferred that there was a major problem with the roof. [ 60 ] This testimony is simply not credible. [ 61 ] When asked to produce the file kept with the broker, the witness returned to the Courthouse empty handed. [ 62 ] What documents did she actually see?

What analysis did she do?

How much time did she spend perusing minutes and analysing financial statements? [ 63 ] It seems quite obvious that the broker working for the purchasers did virtually nothing to ascertain the financial status of the condominium funds and no advice was given to her clients as to the risks they were assuming and the impact these risks might have on the value of the immovable they were purchasing. [ 64 ] In a situation where a purchaser performs his due diligence and comes to the conclusion that the financial state of affairs of a condominium are not sufficiently clear, he can negotiate clauses for an adjustment in price if for example, extraordinary assessments

occur within a certain time of the sale. [ 65 ] This is an area of the law where there is freedom of contract and the possibilities to assign the risk to the buyer or seller or to apportion it between the two would depend only upon the imagination of parties negotiating in good faith and the competency of the professionals assisting them in a transaction. [ 66 ] Since no analysis was done in any serious way in the present file, the Plaintiffs purchased a condominium unit with a roof that was at the end of its cycle and without sufficient funds to meet the required replacement in the contingency fund. [ 67 ] But, on the other hand, they bargained to purchase a roof that was 27 years old and that showed signs of leakage requiring, according to their building expert, repairs. [ 68 ] By paying approximately $28,000 of the costs, calculated according to their fraction of approximately 3.5%, they were left with the ownership of a building with a brand-new roof and with a correspondently higher potential resell price should they decide to sell or, should they decide to live in a long term in their unit, they would have that much less to pay into the contingency fund for the foreseeable future. [ 69 ] Given those circumstances, there was substantially no financial loss resulting from their decision to purchase, even if it was made, unfortunately, without a clear understanding of the condominium's finances.

FOR THESE REASONS, THE COURT: DISMISSES the Plaintiffs' action; CONDEMNS the Plaintiffs to pay, to the Defendants, judicial costs in the amount of $144. __________________________________ DAVID L. CAMERON, J.C.Q. Date of hearing: May 16, 2011