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On October 13, 2016, the Court of Appeal rendered a long-awaited decision (french only) on divided co-ownership. This decision underlines a matter of great interest: the importance of detailing the method used to establish the relative value of the fractions when drafting a declaration of co-ownership and how the different assessment criteria should be taken into account.
Matter in dispute
Lucie Bernatchez and Estelle Mainguy Bernatchez (the “Plaintiffs”) each acquired a commercial unit located on the ground floor of a building subject to a declaration of divided co-ownership, which building also comprises four residential units. Since their acquisition, the Plaintiffs had paid the common charges imposed by their syndicate of co-ownership (the “Syndicate”). They however noticed a steady increase in the common charges as well as the assessment by the Syndicate of two special contributions related to soundproofing work carried out on the roof terrace of the building and work conducted to improve the ventilation system of the interior parking (collectively the “Work”). Since the Plaintiffs did not have access to these areas, they questioned the relative value of their respective fractions, as determined under the declaration of co-ownership governing their building (the “Declaration of co-ownership”).
As less than five years had elapsed from the registration of the Declaration of co-ownership at the land register, the Plaintiffs requested the Superior Court to review, for the future, the relative value of their fractions. Their argument was based on the fact that these relative values were neither proportionate to the “the value or dimensions of each of their fractions in relation to all the fractions” of the building.
In addition, the Plaintiffs asked the Superior Court to rule on the special contributions relating to the Work, considered by the Syndicate as general common charges. The Plaintiffs alleged that they were unfairly charged for those special contributions as they did not have the use of the terrace and the parkings. Therefore, these special contributions should only have been charged to co-owners who had access to these areas, as common charges related to common areas with restricted use.
First instance judgment
The trial judge concluded that the drafter of the Declaration of Co-ownership had not specified the method used to establish the relative value of the fractions, nor its use of the criteria set out in section 1041 of the Civil Code of Quebec (the “C.C.Q.”).
To address this omission, and in order to establish the relative value of the Plaintiffs’ fractions, the trial judge used data obtained from the City’s assessment rolls. Based on this assessment which took into account the units’ size, he concluded that the relative value of the Plaintiffs’ fractions differed by more than one tenth from the relative value described under the Declaration of Co-ownership.
The judge therefore concluded that it was required to amend the Declaration of Co-ownership to review, for the future, the relative value of the fractions held by the two Plaintiffs.
In addition, the judge canceled the special contributions imposed on the Plaintiffs by the Syndicate for the Work. In his opinion, these contributions were linked to work done on common portions with restricted use to which the Plaintiffs did not have access. To reach this conclusion, the judge dismissed the Syndicate’s claim that the Work was intended only to correct defects affecting the structure of the whole building.
Court of Appeal decision
The essence of this appeal concerns the right to apply for a revision of the relative values provided for under section 1068 C.C.Q. The Court considers that this action is mainly a request to intervene in the discretionary exercise that led to the determination of the relative value of the fractions composed in a divided co-ownership.
Recourses related to this section are rarely used as the relative values determined in an initial declaration of co-co-ownership, although modifiable under certain very specific conditions, are nevertheless deemed final once the declaration of co-ownership is registered at the land register. The legislator also implicitly recognized the primacy of the parties’ law in section 1102 C.C.Q., which provides that “any decision of the syndicate which imposes on a co-owner a change in the relative value of his fraction (…) is without effect”.
The Court held that an application made under section 1068 C.C.Q. is unique since it must be determined “in accordance with the criteria set out in the declaration of co-ownership”. The discretion given to co-owners who are parties to the initial drafting of the declaration of co-ownership must therefore be taken into account in the assessment of each of the factors mentioned in section 1041 C.C.Q.
In order to better understand the scope of section 1068 C.C.Q., the Court reviewed the criteria listed in section 1041 of the C.C.Q, namely:
- The “nature” of the fraction, which relates mainly to its substance. As a result, nature relates to the physical condition of the property, such as the structure of the private unit, the quality of its construction and materials used, the presence of balconies or terraces, the whole without taking into account its use;
- The “destination” of the building, namely its purpose. The destination can be considered as the function of the building;
- The “dimensions” of the unit, which refers to precise data, namely the size of each unit and, where appropriate, to the calculation of its volume;
- The “situation” of the unit, its specificities, such as orientation, the level of sunshine or light it benefits, the view and the location of the unit in the building.
The Court emphasizes that the application of these criteria is based on a discretionary assessment of the co-owners who are parties to the initial drafting of the declaration of co-ownership. Moreover, despite the subjective considerations surrounding their implementation, these criteria are nonetheless essential for the purpose of establishing the relative value of a fraction, even if each of them can be granted a different weight, and sometimes even neutral effect, depending on the circumstances.
The Court continued its analysis by revising the mandatory statements enumerated in section 1053 C.C.Q, which provide that the declaration of co-ownership must determine the relative values of each fraction and indicate the method used to establish them. It concludes that this obligation goes beyond the mere indication that the criteria of section 1041 C.C.Q. have been applied for the purposes of fixing the relative value. The drafter must indicate the weight given to each of these criteria. The Court thus puts an end to a doctrinal controversy as to the obligation to specify the method of determining the relative value within the declaration of co-ownership.
The Court went on to analyze the criteria enabling the review of the relative value under 1068 C.C.Q. which indicates that such a review must be based on proof of the objective standard for a difference in excess of more than one-tenth between the relative value assigned to a fraction or the share of common expenses allocated thereto. Since the assessment of the relative value of a fraction may be established according to criteria that are not exclusively the result of a mathematical calculation, it is therefore important for the drafter of a declaration of co-ownership to detail the method that led to the determination of the relative value of each fraction and to retain evidence supporting the methodology used.
The Court adds that where the constitutive act is silent on the method to be followed, it is for the Syndicate or the co-owners to demonstrate that the relative value of the fractions has been established in a reasonable manner, in accordance with the criteria laid down in section 1041 C.C.Q. and that the relative values established result from a reasonable application of the law.
Decision of the Court
The Court held that the trial judge could not seek a review of the relative values of the fractions of the Plaintiffs and that he should have declared insufficient the evidence presented as it did not allow a reasonable application of the criteria of section 1041 C.C.Q. Since the Plaintiffs were unable to demonstrate predominantly that the condition for opening the revision based on the difference of more than one-tenth was met, the Court concluded that the action should have been dismissed.
As to the cancellation of the two special contributions, the Court decided that this question being based on facts must be left to the discretion of the trial judge.
It follows from this ruling that authors of future declarations of divided co-ownership will henceforth have to double their efforts in order to clearly outline the method used when establishing the relative values of the fractions by detailing each of the criteria leading to their determination, in order to avoid future scrutiny by the tribunals.