Standard Unit Bylaws

Patrick Maloney, FCIP, CPIB, CRM Atrens-Counsel Insurance Brokers

What is a standard Unit Bylaw?

The Standard Unit By-Law is a critically important part of your condominiums governing documents with respect to good insurance management. This document helps unit owners, directors, and insurance adjusters know who is responsible for repairing property within the unit boundaries by defining what the corporation is responsible to insure and defines what constitutes the betterments or improvements that unit owners are responsible to insure.

Why is a standard Unit Bylaw so important for Condominiums?

There are a couple key reasons why a standard unit bylaw is important.

First, all unit owners should be treated fairly and equally in the event of a claim that triggers the corporation’s policy. The condominium act basically states that anything that was in the unit prior to registration is the responsibility of the corporation to insure.

The problem here is if one person took the standard unit as built, and another unit owner put in $100,000 of upgrades prior to registration, the unit owner who up - graded could receive the benefit of $100,000 of insurance coverage under the corporation’s insurance policy that all other unit owners are paying for through their common element fees. This is simply not fair.

In order to make the benefits under the corporation policy equal for all unit owners, the standard unit needs to be specifically defined from this moment in time and onward.

Secondly, all unit owners should clearly understand what their responsibilities are. Many condominium buildings are getting older and many units have been resold numerous times. It is getting more difficult for new owners to determine what was original to the unit and what wasn’t. By passing the standard unit by-law, all unit owners will now officially know what is standard to the unit so they can better determine the value of their improvements and betterments for personal insurance purposes.

What items should Corporations consider INCLUDING or EXCLUDING in their SUB and why?

We typically recommend re-affirming a basic builder grade level of finishes and features particular to the units in any given corporation (dry- wall, baseboards, basic connections, cabinetry, fixtures, etc). We generally recommend removing ALL flooring down to the sub-floor in order to better manage the corporation’s insurance policy as flooring is usually the biggest expenses in claim scenarios, and damage is often caused by unit owner actions. The board may also choose to remove other items that they feel should be the responsibility of unit owners to repair after damage. Many boards also elect to remove countertops and light fixtures as they are often-upgraded items.

It is best to be as descriptive as possible stating widths and thicknesses to ensure the bylaw is specific enough to allow an insurance adjuster to determine replacement value of such property. The Board should do their best to describe items in terms of size and material, ie. Crown Molding is described as “tall”, but how many inches and is it wood or MDF? Likewise for cabinetry, wood or laminate. Anywhere you can be more descriptive it will ensure the bylaw is very clear when an insurance event happens. Also we discourage the use of brand names within an SUB as it will ensure the bylaw doesn’t get outdated due to companies/brands going bankrupt or out of business for some other reason.

We recommend keeping a unit livable and sellable, because maintaining a basic level of finishes under the corporation’s insurance will ensure a consistent level of protection to all owners and mortgagees under the corporation’s policy. While unit owner’s policies are not mandatory, and coverage levels vary so greatly, too much reliance on unit owner’s insurance could result in coverage deficiencies for both owners and mortgagees. With the shift in the current insurance marketplace it can also be difficult for certain owners to secure the proper unit owners coverage which can further exacerbate the issues above.

What is the process for passing a Standard Unit Bylaw?

Communication is key! The process is driven by boards engaging the services of their property managers and lawyers, as well as the corporation’s insurance broker. This can be a challenging process, requiring all parties to work together to communicate the need for new bylaw and to clearly convey the benefits to all. The concept of a standard unit bylaw may be introduced in a newsletter, followed up by special unit owner meetings, and ultimately leading to the vote required in order to pass the bylaw. The corporation’s lawyer will guide you through the legal mechanisms, but the majority of responsibility will fall on the board and management to educate the unit owners to gain support for the bylaw prior to the actual vote.

Consulting with a condominium specialist insurance broker is also very helpful, as they can share insights about the impact to both the corporation’s insurance while helping to balance the needs of unit owners. Brokers are frequently asked to participate in unit owner meetings, and have the benefit of seeing bylaws that have been passed in many different corporations for many different reasons.

Finally, once the bylaw is successfully passed, a professional appraisal should be completed by a qualified third party company to establish the proper replacement cost of the corporation’s property taking into account any changes passed in the new standard unit bylaw.

What are some successful strategies to help pass a Standard Unit Bylaw?

It’s all about balance! Many people move to a condo because they like the amenities and enjoy the convenience without all the typical responsibilities of a traditional home ownership.

The key to passing a proper standard unit definition is to make sure the units will always be livable and sellable should a serious claim arise, despite the unit owner having insurance or not. A proper standard unit by-law protects all owners collectively in addition to any interests held by mortgage companies in individual units. A standard unit by-law, if properly prepared, will assist in the long-term management of the corporations insurance program and help all parties understand exactly what their responsibilities are from an insurance standpoint.

Patrick Maloney is the Assistant Vice President of Atrens-Counsel Insurance Brokers, a specialist brokerage focused on the condominium marketplace. With over 20 years of experience in underwriting and marketing specialty insurance products across Canada, he oversees brokers that service all aspects of insurance for condominium corporations, unit owners, and property managers.

As a specialist in condominium insurance himself, Patrick routinely speaks with managers, boards, and unit owners to help demystify insurance and find creative solutions for his clients.

Patrick holds his Fellowship Chartered Insurance Professional (FCIP), Canadian Professional Insurance Broker (CPIB), and Canadian Risk Management (CRM) designations, as well as being an Insurance graduate from Mohawk College.

CCI-National has been urgently reviewing the new Federal Underused Housing Tax (“UHT”) to determine how it will impact condominium and strata corporations across the country. The deadline for filing returns for the prior calendar year with the Canada Revenue Agency (“CRA”) is April 30. This year’s return would be May 1, 2023, as April 30, 2023 is a Sunday.

However, we are pleased to confirm that the CRA announced yesterday that the application of penalties and interest under the UHT for the 2022 calendar year are being waived as long as the return is filed or the UHT is paid by October 31, 2023. This was done due to the unique challenges facing affected owners for the first year of the tax.

What does this mean? While filings are still due on April 30, 2023 (May 1, 2023), any condominium or strata that files after this deadline, but before October 31, 2023, will not be penalized. Furthermore, it provides much needed time to lobby the government to seek to classify condominium and strata corporations as “excluded owners” (similar to co-operative housing corporations).

CCI-National has put a team together to work on submissions to the Government to address this issue and seek a meeting with the Minister of Finance. We will provide further updates as they become available.

RELEASE DATE: MARCH 29, 2023

Federal Underused Housing Tax

Filing Deadline April 30, 2023

In June, 2022, the Underused Housing Tax Act came into force with an effective date of January 1, 2022. The purpose of this legislation was to introduce the Underused Housing Tax (UHT), which is calculated as a 1% tax on the value of residential property. The tax is aimed primarily at non-resident, non-Canadian owners of residential property that is considered to be vacant or underused.

Under the enabling legislation, specified people and entities that own residential property in Canada are considered to be “excluded owners”, and are not subject to the UHT. “Excluded owners” include (but are not limited to) individuals who are Canadian citizens or permanent residents, among others. Of note, “cooperative housing corporations” are expressly included in the definition of “excluded owners”. CCI-Toronto has reached out to the Canada Revenue Agency to request guidance as to whether the CRA will be adopting a sufficiently expansive definition of this term so as to potentially encompass condominium corporations, and will provide an update if and when such guidance is received.

Any person or entity that owns residential property in Canada and that does not fall into the definition of “excluded owners” is considered to be an “affected owner”. “Affected owners” are required to file an annual return with the CRA (which is due by April 30 of the following year), and are required to pay the UHT unless their residential property qualifies for an exemption from the UHT. The available exemptions include (but are not limited to) property that is the primary residence of the owner (or their spouse or child), property that was occupied for at least 180 days (made up of one or more periods of at least one month) during the year in question, seasonal property that is not suitable for year-round use, or property owned by a “specified Canadian corporation”. “Specified Canadian corporation” is defined as including any corporation that is incorporated under the laws of a province of Canada, and whose directors are all Canadian citizens or permanent residents. Of note, “affected owners” who claim an exemption from the UHT for a given year are still required to file an annual return.

For condominium corporations that own residential property (e.g., a guest suite or a superintendent’s suite), provided that the CRA does not adopt a sufficiently expansive definition of “cooperative housing corporation” to encompass them, it is likely that they would be required to file the annual UHT return, but would be exempt from paying the UHT unless one or more of the directors is neither a Canadian citizen nor a permanent resident. It should be noted that failing to file the annual return can carry a fine of up to $10,000.00 for corporations. In all cases, condominium corporations should seek professional advice from their auditor or other qualified professional, and ensure that their UHT returns, if required, are attended to during this year’s tax season.

Although the annual UHT return must be filed with the CRA by April 30, 2023, on March 27, 2023, the CRA announced that the Minister of National Revenue will be providing transitional relief to affected owners under the Underused Housing Tax Act so that no penalties or interest will be applied for UHT returns and payments that the CRA receives prior to November 1, 2023.

Jon Juffs, C.E.T., LCCI McIntosh Perry