Muskoka Standard Condominium Corporation No. 5 Appellant (Claimant) – v. –, 2023 ONSC 1740

CITATION : Muskoka Standard Condominium Corporation No. 51 v. Tarion Warranty Corporation, 2023 ONSC1740 DIVISIONAL COURT FILE NO.: 761/18 DATE: 20230317 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT D. L. Edwards, Ryan Bell and Leiper JJ. BETWEEN: Muskoka Standard Condominium Corporation No. 5 Appellant (Claimant) – and – Tarion Warranty Corporation Respondent (Respondent) ) ) Michael Spears, Blaine Fedson for the Appellant Danielle Peck for the Respondent ) ) ) ) ) ) ) ) ) ) ))))) )) HEARD at Toronto (by videoconference) : March 9, 2023 D. L. EDWARDS J.

Introduction [ 1 ] This is an appeal by Muskoka Standard Condominium Corporation No. 5 (“Muskoka”) from a decision of the Licence Appeal Tribunal (“LAT”) dated October 23, 2018, that ordered Tarion Warranty Corporation (“Tarion”) pay the sum of $84,830 in damages for a warranty claim, whereas Muskoka sought damages in excess of $1.5 million. [ 2 ] For the reasons that follow, I dismiss the appeal. Factual background [ 3 ] Muskoka is a condominium corporation which, for the purposes of this warranty claim, owns the common elements of the Gravenhurst, Ontario building. The building is six storeys and has 43 units.

The condominium declaration was registered on March 14, 2006. [ 4 ] Under the Condominium Act, [1] a performance audit (“PA”) must be delivered to Tarion before the end of the eleven (11) months following the registration of the condominium corporation. A PA is a document, prepared by professionals and delivered to Tarion, outlining deficiencies in the workmanship of the common elements of the corporation. [ 5 ] On February 13, 2007, Muskoka delivered a PA to Tarion. The PA noted that due to the lack of sealant at the composite siding, there were small gaps in the caulking at the siding and trim interfaces.

This deficiency was identified as deficiency 4.2.2.1 in the PA and subsequent proceedings. There were other deficiencies noted in the PA, but only deficiency 4.2.2.1 is at issue before this Court. [ 6 ] In 2009, Tarion contacted Muskoka to inquire whether the vendor builder had repaired all of the common element deficiencies identified in the PA, and if not, whether a repair

schedule had been set.

[ 7 ] In 2011, Muskoka triggered the statutory conciliation process to assist with unresolved deficiencies. [ 8 ] The conciliation was overseen by Tarion and was between the Muskoka and the vendor builder. Ultimately, in March 2013, Muskoka agreed to accept compensation from Tarion for all deficiency items dealt within the conciliation process, except for deficiency 4.2.2.1. A Settlement and Release was signed with respect to the resolved items. [ 9 ] Tarion ultimately agreed that deficiency 4.2.2.1 was warranted. [ 10 ] In September of 2013, Tarion issued a scope of work to fix deficiency 4.2.2.1.

Bid documents were prepared and sent to Muskoka. Muskoka’s engineer found the scope to be insufficient. On consent, Tarion added the phrase “consequential or concealed damage related effects” to the bid documents. Tarion received a response to the bid for $84,830. Following that, Tarion offered the Muskoka $75,070 to resolve deficiency 4.2.2.1. This amount was not accepted by Muskoka. [ 11 ] In 2017, Muskoka hired an engineering firm and a contractor to do significant repairs to the building. Included in this work was additional work beyond repair of deficiencies.

The total cost of this work was $1,555,961.50 plus engineering fees. [ 12 ] Muskoka appealed Tarion’s decision to the LAT. LAT Decision [ 13 ] Muskoka’s appeal before the LAT took place over seven days. The decision was released on October 23, 2018. [ 14 ] The LAT found that deficiency 4.2.2.1 was covered by the first-year warranty, as well as the damages resulting from that deficiency. Muskoka argued that the cost to remediate was approximately $1.5 million.

The LAT disagreed, and awarded $84,830, being the cost to resolve deficiency 4.2.2.1 based on the scope of work described in September 2013 in the bid documents. [ 15 ] The LAT found that in 2017 Muskoka chose to do more extensive work than what was required to fix deficiency 4.2.2.1. It found that, although it may have been the most practical choice, it did not mean that all the work fell within the first-year warranty. [ 16 ] In making these findings, the LAT preferred the evidence of Tarion’s engineer.

The LAT did not accept Muskoka’s submission that since the PA identified multiple deficiencies that involved water penetration, deficiency 4.2.2.1 was a symptom of a larger systemic deficiency which should have been covered by the warranty. [ 17 ] The LAT rejected this submission on the basis that the PA did not identify any overall systemic problem. It found that the PA, Tarion and Muskoka all treated each deficiency in the PA as separate items, not one of systemic proportions.

Of the deficiency items presented at the hearing by Muskoka, the LAT found only deficiency 4.2.2.1 fell within the first year warranty coverage. [ 18 ] Muskoka also argued that, as a result of the inclusion of “consequential or concealed damage related effects” language to the bid documents, Tarion had agreed to cover work beyond deficiency 4.2.2.1. This position was not accepted by the LAT, which found that bid documents were neither a warranty claim, nor an admission nor agreement by Tarion to fund more than warranted work.

Court’s Jurisdiction [ 19 ] The court has jurisdiction pursuant to s. 11(1) of the Licence Appeal Tribunal Act, 1999, S.O. 1999, c. 12 Sch. Appeals from the LAT from decisions under the Ontario New Home Warranties Plan Act are not restricted to questions of law. Standard of Review [ 20 ] This is an appeal. The standard of review for questions of law is correctness.

The standard of review for questions of fact, or mixed law and fact, is palpable and overriding error. [2] Issues [ 21 ] There are three key questions raised in this appeal. [ 22 ] First, did the LAT err in its decisions regarding the inapplicability of certain case law? [ 23 ] Second, are there recoverable damages for consequential/concealed damage relating to the defect identified in 4.2.2.1? [ 24 ] Third, was the claim for water penetration impacted by the settlement?

The Law [ 25 ] Tarion is the not-for-profit corporation designated by the Ontario government to administer the Ontario New Home Warranties Program (“ONHWP”) under the Ontario New Home Warranties Plan Act (“ONHWP Act”) [3] . [ 26 ] The ONHWP imposes certain mandatory warranties on new home vendors in Ontario and provides for the payment of compensation by Tarion to new homeowners whose vendors have failed to honour their warranties.

The definition of new homes includes condominium units, as well as the common elements of a condominium. [ 27 ] To qualify for statutory warranty coverage, notice must be provided to Tarion within the times and in the form set out in the

Condominium Act and the ONHWP Act.[4] [28]

Section 44 of the Condominium Act requires that a PA must be completed by an engineer or architect.

The purpose of the PAis to determine whether there are any deficiencies in the common elements that may give rise to a claim under the ONHWP. [29] Section 44(5) describes steps that one must take in conducting the PA, including the requirement to conduct a survey of unitowners to determine whether they have any damage to their units that may be caused by defects in the common elements, and whetherthey have observed any defects in the common elements. [30] Section 44(10) states that the filing of the PA with Tarion is deemed to constitute a notice of claim under the CondominiumAct. [31] In making a claim with respect to its common elements, the condominium corporation must show that there is a deficiency inthe common elements that is covered by the vendor’s statutory warranties.

If Tarion agrees, the vendor of the condominium is offeredan opportunity to resolve the breach. Should it fail to do so, then Tarion will resolve the breach directly with the condominiumcorporation. [32] I will now examine the issues raised by Muskoka. 1. Did the LAT err in its decision regarding the inapplicability of certain case law? Positions of the Parties Appellant’s Position [33] Muskoka submits the LAT committed an error of law and fact by dismissing York Condominium Corp.

No. 528 v OntarioNew Home Warranty Program[5] and Urbanetics Ltd. (Re)[6], on the basis that the Member said that the legislation, at the time thosecases were decided, required lay persons to report claims. [34] Muskoka submits this was an error of law, as the legislation has never required individual unit owners to report claims forcommon elements.

It argues that this was also an error of fact because prior to the s.44 requirement that performance audits beconducted by professionals, condominium corporations often retained professionals to conduct “technical audits”, which previously wasthe term for the notice to Tarion. [35] Muskoka also submits the finding that York Condominium and Urbanetics were inapplicable was contrary to the remedialconsumer protection purposes of the legislation. It submits that York Condominium was applicable because of similarities in the facts. Inboth instances Tarion knew of the water penetration problems.

The court in York Condominium did not deal with the complaints as“separate and unrelated”, whereas the LAT did just that in this case. [36] Also, in Urbanetics, the LAT found that two reports regarding common element issues from unit owners to Tarion, madebefore the one-year-warranty-period expired, constituted adequate notice to Tarion. Respondent’s Position [37] Tarion submits that the issue before the LAT was not who or how, claims were reported but what was reported during thewarranty period.

It submits that the amendments to the legislation created the PA system as the method for a condominium corporationto make a common elements claim to Tarion. [38] Further, under the current scheme, it is not sufficient for a condominium corporation to only report symptoms or conditions toTarion. A condominium corporation’s claim to Tarion must identify in the PA the deficiencies, not just the symptoms.

Tarion submitsthat the LAT correctly found that York Condominium and Urbanetics did not apply because those cases were determined under an olderversion of the warranty scheme which only required a claimant to provide notice to Tarion of the symptom of a deficiency. [39] Tarion submits that the PA provided to Tarion contained many distinct deficiencies that caused or contributed to the waterinfiltration and damage. The sole deficiency at issue before the Tribunal, namely deficiency 4.2.2.1, was only one of many.

Tarionsubmits the gaps in the siding caulking are not related to other deficiencies with such things as the balconies, flashing, and membranes,many of which were found years after the PA was conducted. The existence of these other deficiencies does not mean they arise fromthe same warranted deficiency. [40] Tarion submits that Muskoka’s PA report concerning small caulking gaps that may cause localized water damage cannot beexpanded to entitle Muskoka to compensation for other deficiencies that were not reported within the warranty period.

Analysis [41] Paragraph 41 of the decision is the one to which Muskoka objects. It is as follows: The appellant’s counsel submitted that Tarion did not follow York Condominium Corp. No. 528 v. Ontario New Home WarrantyProgram, (ON SC), 60 O.R. (2d) 662 (Div. Crt.) and the decision of this Tribunal’s predecessor in Urbanetics Ltd.(RE), [1994] O.C.R.A.T.D. No. 39. These cases are not applicable as both predate the PA requirement. At that time, it was theindividual unit owners who had to report claims.

The legislation was later changed to require an engineer or architect to do a PA insteadof putting the burden on laypersons. [42] In York Condominium this court found that notice to Tarion of the symptoms, rather than the cause of the symptom, wassufficient notice to Tarion of the deficiency because it “would be impractical an unfair to expect the unit owners and the condominiumcorporation to advise the respondents within the one year period not only of the symptoms of the problem but the cause of the problem

and the appropriate method of correcting the defects.” [7] [ 43 ] Urbanetics followed the York Condominium decision. [ 44 ] However, these cases were determined prior to the passage of s. 44 of the Condominium Act. Section 4(4) clearly describes the purpose of the PA, which is to “determine whether there are any deficiencies in the performance of the common elements that (

a) may give rise to a claim…” (emphasis added). [ 45 ] The purpose of the PA is not to describe the symptoms of a deficiency, but rather to identify the deficiency. Tarion must receive notice of the deficiency and not just the symptom. [ 46 ] The obligation of the condominium corporation to notify Tarion of deficiency in the common elements, and not just the symptom, is highlighted by the recent amendment to the ONHWP Act . Although this amendment was not in force when the PA was conducted, it helps illuminate the distinction between the position of a new homeowner and a condominium corporation in reporting claims to Tarion. [ 47 ] Section 14(5.1) (

c) states that a claim under that Act does not require proof of the cause of the concern giving rise to the claim. However, s.14(5.2)(

b) specifically excludes from s.14(5.1)(c), a claim with respect to common elements made by a condominium corporation, thereby defaulting to the PA scheme created by s.44 of the Condominium Act . (emphasis added) [ 48 ] Accordingly, new homeowners need only advise Tarion of the symptom of a deficiency during the relevant period.

However, condominium corporations with common elements claims must identify the deficiency in the PA, as required by s.44 of the Condominium Act . [ 49 ] The point to take away from paragraph 42 of the LAT decision is not who can make the claim, but rather those cases which held that Tarion only had to receive notice of the symptom of common element claims, rather than the cause or deficiency, are no longer the law because of s. 44 of the Condominium Act . [ 50 ] I find that the LAT made no error of law in ruling that those cases that predate s.44 and which held that only the symptom must be identified in the notice to Tarion with respect to common elements claims, are not consistent with the current law. [ 51 ] I will now turn to the second issue. 2.

Are there recoverable damages for consequential/concealed damage relating to the defects? Appellant’s Position [ 52 ] Muskoka submits it was unreasonable for the LAT to conclude that the damages did not include consequential or concealed damage related to the defect, because of the wording added by Tarion to the bid documents in the scope of work for repair of deficiency 4.2.2.1. [ 53 ] Muskoka’s engineer testified that, due to the consequential and concealed damage related defects, all the work done in 2017 was required to make an effective repair.

Muskoka submits the LAT erred in disregarding the engineer’s evidence. Respondent’s Position [ 54 ] Tarion submits that warranted consequential damage is damage directly caused by a deficiency. It submits that the deficiencies and damage for which Muskoka seeks compensation was not caused by (and not consequential to) the only deficiency (4.2.2.1) that was properly before the LAT and this Court. The damage that was consequential to the warranted deficiency (4.2.2.1) was included in the scope and cost of repair accepted by the LAT.

The addition of “including any consequential or concealed damage related to the defects” in the bid documents did not change the scope of what was covered under the warranty. Analysis [ 55 ] The distinction between a symptom and a deficiency is critical to the analysis of this issue. [ 56 ] Water damage is a symptom which can have many different causes. It is the cause that is the deficiency. [ 57 ] For example, where a window leaks because of a specific deficiency, it is the deficiency, which is the cause of the window leak, not the water leak.

If many windows leaked throughout a building because of the same deficiency or cause (for example, no flashing), then there would be a systemic issue. All windows lacking flashing would be warranted, notwithstanding that Tarion was only given notice of a few leaking windows. The windows would be warranted because they all had the same deficiency (no flashing). [ 58 ] Contrast to the situation where some windows leaked because of no flashing and the roof also leaked because of a hole in the membrane of the roof.

The fact that both have water penetration would not mean that notice of water penetration at a window would constitute notice of the roof issue. In that example, the roof leak has a different cause or deficiency. Notice to Tarion of the window leak would not be notice of the roof leak. [ 59 ] Here the PA noted many different deficiencies, several of which involved water penetration. For example, one unit owner had water leaking into her unit. That deficiency was identified and resolved. Another deficiency (4.2.2.1) was the gap in caulking. This was reported in the PA and warranted by Tarion.

[ 60 ] Further, Tarion did agree that consequential damage arising from the gaps in caulking was covered. Indeed, the PA noted that in a few locations there was some deterioration in the siding because of water penetration through the gaps in the caulking.

Tarion agreed that this damage was a consequential damage to the deficiency, which was the gaps in the caulking, and covered by its warranty. [ 61 ] It follows from this reasoning that the addition by Tarion of “consequential or concealed damage related effects” to the bid documents, does not expand Tarion’s obligation beyond the consequential damage caused by the gaps in the caulking. [ 62 ] The LAT heard the evidence and concluded that all other areas of water penetration were not consequential to the gaps in the caulking. That is a decision of mixed fact and law.

I find that there is no overriding or palpable error in this finding. 3. Was the claim for water penetration impacted by the Settlement and Release? Appellant’s Position [ 63 ] The Appellant submits the LAT did not address in its decision that the parties agreed to not include deficiency 4.2.2.1 in their Settlement and Release. Respondent’s Position [ 64 ] Tarion asserts that the Settlement and Release had no impact upon the Tribunal’s finding with respect to the sole deficiency, namely 4.2.2.1 that was before the Tribunal.

Analysis [ 65 ] Tarion never asserted, nor did the Tribunal find, that the Settlement and Release precluded Muskoka from pursuing relief with respect to deficiency 4.2.2.1. However, for reasons stated above, the warranty did not extend beyond the identified deficiency and consequential damage. The LAT concluded that the consequential damage was not, as Muskoka asserted, all of the other deficiencies that were subsequently identified, some many years after the PA was undertaken. [ 66 ] This finding by the LAT is one of mixed law and fact. I find that the LAT made no overriding and palpable error.

Disposition [ 67 ] For the above reasons, the appeal is dismissed, Costs [ 68 ] Tarion was successful and is entitled to a cost award. I order that Muskoka pay to Tarion the sum of $16,000 fixed, inclusive of HST. _______________________________ D. L. Edwards, J. I agree _______________________________ Ryan Bell J. I agree _______________________________ Leiper J. Released: March 17, 2023 CITATION : Muskoka Standard Condominium Corporation No. 51 v. Tarion Warranty Corporation, 2023 ONSC1740 DIVISIONAL COURT FILE NO.: 761/18 DATE: 20230317

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT D. L. Edwards, Ryan Bell, and Leiper JJ. BETWEEN: MUSKOKA STANDARD CONDOMINIUM CORPORATION NO. 51. Appellant (Claimant ) – and – Tarion Warranty Corporation Respondent (Respondent) REASONS FOR JUDGMENT D.L EDWARDS, J. Released: March 17, 2023