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Conférence - 26 Avril 2014

Conférence - 26 Avril 2014


Home Our texts in co-ownership Your Condo and The Property Contractor / Promoter / Developer
Your Condo and The Property Contractor / Promoter / Developer PDF Print E-mail
Written by Me Sébastien Fiset , LL.B., B.A.A.   
Thursday, 10 March 2011 18:23

YOUR CONDO AND THE PROPERTY CONTRACTOR / PROMOTER / DEVELOPER

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Throughout the erection phase of a real estate project in co-ownership, the promoter of the project must see to both the management and the sale of the fractions.  Some of these will be sold while the project is still in the planning phase and others will be sold later.  There is much paperwork to prepare and many responsibilities to shoulder for the promoter.[1] Then, the time will come to pass on his responsibilities to others

I- ADMINISTRATION BY THE PROMOTER OF A BUILDING HELD IN DIVIDED CO-OWNERSHIP

Under the terms of articles 1038 and 1039 of the Civil Code of Québec, the divided co-ownership and its syndicate take effect as of the publication of the declaration of co-ownership.

Generally, it is the promoter who takes the steps to have the declaration of co-ownership written up and published by a Notary.  When this document is published, the developer provides it to the members of the « first » board of directors.  Very often the promoter appoints himself as the temporary administrator.

Under the terms of the Civil Code of Québec, the promoter is appointed as follows  :

« 1093. Any person who, at the time of registration of a declaration of co-ownership, owns at least 1/2 of all the fractions, or his successors, other than a person who in good faith acquires a fraction for a price equal to its market value with the intention of inhabiting it, is considered to be a promoter. »

For a period of time, the promoter is in control of the administration of the co-ownership; then over time and as he sells his units, he will gradually lose control of the destiny of the syndicate.

In fact, under article 1092 of the C.c.Q. the promoter can only exercise his rights according to the  voting rights associated to the fractions which he owns, just as all other co-owners, and this, until the second year following the publication of the declaration of co-ownership.  Subsequently, the number of votes he will have will be reduced to 60% of the total votes of the co-ownership, plus the percentage which represent his residence, if he himself is a co-ownership resident.  And lastly, at the end of the third year, the number of votes will definitely be reduced to 25% of the total votes of the co-ownership, plus those associated to his residence, if applicable.

It goes without saying that the promoter is not exempt from assuming his common expenses  (condo fees).  Article 1064 C.c.Q. applies equally to the promoter.[2] He must contribute to the common expenses in proportion to the relative values of all the fractions he owns, just as all other co-owners.

II- TRANSITION OF POWERS (RESPONSIBLITY)

From the moment the developer no longer holds the majority of the votes at the general assembly of co-owners, the transition of power to a new board of directors should take place in the following 3 months, during a transition meeting.

In fact, article 1104 C.c.Q. states :

« Within 90 days from the day on which the promoter of a co-ownership ceases to hold a majority of voting rights in the general meeting of the co-owners, the board of directors shall call a special meeting of the co-owners to elect a new board of directors.

If the meeting is not called within 90 days, any co-owner may call it. »

[Underlined and bold added]

One should not confuse this transition meeting with the annual meeting of the co-owners which should be called every year by the promoter, within the 6 months following the publication of the declaration of co-ownership or according to the delay outlined in the terms of the declaration of co-ownership.  See our text « Convening a General Meeting of Co-owners ».   At this point in time, if the promoter is still the sole co-owner (no dwelling units having been sold) he should still see to holding an annual meeting, even if it is just to proceed with his re-election and to fix the budgets.

III- THE RELINQUISHMENT OF ADMINISTRATION BY THE PROMOTER AND THE TAKING CONTROL BY THE CO-OWNERS

During the transition meeting, there will be an election of the new board of directors according to the nomination procedures set out in the declaration of co-ownership.  Article 1105 of the Civil Code of Québec states that a surrendering of accounts should take place.  The financial statements will be presented to the co-owners, the promoter rendering an account of his administration.

« The board of directors renders account of its administration at the special meeting.

It produces the financial statements, which shall be accompanied with the comments of an accountant on the financial situation of the syndicate. The accountant shall, in his report to the co-owners, indicate any irregularity that has come to his attention.

The financial statements shall be audited on the application of co-owners representing 40% of the voting rights of all the co-owners. The application may be made at any time, even before the meeting. »

Article 1106 C.c.Q. continues :

« The accountant has a right of access at all times to the books, accounts and vouchers concerning the co-ownership.

He may require the promoter or an administrator to give him any information or explanation necessary for the performance of his duties. »

In conformance with article 1070 C.c.Q., the promoter must remember to remit the register of co-ownership :

« The syndicate keeps a register at the disposal of the co-owners containing the name and address of each co-owner and each lessee, the minutes of the meetings of the co-owners and of the board of directors and the financial statements.

It also keeps at their disposal the declaration of co-ownership, the copies of the contracts to which it is a party, a copy of the cadastral plan, the plans and specifications of the immovable built and all other documents relating to the immovable and the syndicate. »

Thus there will be a transition between the management of the promoter, which is influenced by the sales aspect, and that of the new board of directors, whose purpose will be to focus on the collective interests of the co-owners as outlined in article 1039 of the Civil Code of Québec, in order to ensure the mission of the syndicate, which is to :

« (…) preserve the immovable, to maintain and manage the common portions, to protect the rights appurtenant to the immovable or the co-ownership and to take all measures of common interest. »

IV- AFTER THE ELECTION …

In order to get their management efforts off to a good start, the new members of the board of directors should be aware from day one of the actual condition of the elements which form the immovable.  They may do this by giving a mandate to an architect, an engineer or a building technologist, to carry out a complete inspection and produce a certificate of the condition of the building to ensure that the construction of the building conforms to the building codes in place, to the municipal regulations and to the rules of the art.  In the event that defects or faults are discovered, the syndicate should not hesitate to inform the promoter and the applicable warranty provider, if necessary, so that they may make the necessary corrections.

In addition, the administrators must pay particular attention to the budgets previously put into place by the promoter.  An adjustment will, without doubt, be required to cover the real expenses and perhaps even to make up for those which were omitted or ignored by the promoter.

Finally, following the relinquishment by the promoter of his administration, the new board of directors of the syndicate has a right to look over certain contracts that the promoter would have entered into.

In fact, under the terms of article 1107 of the Civil Code of Québec :

« The new board of directors may, within 60 days of the election, terminate, without penalty, a contract for the maintenance of the immovable or for other services entered into before the election by the syndicate, where the term of the contract exceeds one year.»

Thus, the legislature has made provisions to protect the minority co-owners from control by the promoter of the co-ownership and others, in order to permit the co-owners to gradually take over the management process.

If you are among those who will soon be in this period of transition and are feeling apprehensive, refer to a professional who has a practice specializing in co-ownership.  They will provide you with guidance and all the necessary information so that your co-ownership remains on solid ground and prospers !

 

The information provided on this page is general in nature and cannot compensate for the need to obtain legal advice specific to a particular situation.


[1] See our text « Purchase of a fraction of co-ownership by the promoter : the documents which you should procure»

[2] Article 1064 C.c.Q. : « 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 the contingency fund established under article 1071, although only the co-owners who use common portions for restricted use contribute to the costs resulting from those portions. »

Last Updated on Tuesday, 12 February 2013 10:29