Kelowna: Court rules owners of town houses must pay their share of cost to repair leaky condo tower in Kelowna


 

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Poloway v. Owners, Strata Plan K692,

 

2012 BCSC 726

Date: 20120522

Docket: S84849

Registry: Kelowna

Between:

James Michael Poloway, John Wayne Toljanich, Lorraine Dorothy Toljanich, William Rutherford Bradley, Deborah Louise Bradley, Gusbertus Bastiaan Bouma, Emma Josephine Bouma, Victoria Crompton, Nicholas John Kozuska, Elizabeth Gail Kozuska, Randall Yatscoff, Nancy Christine Yatscoff, Sherry Linn Priebe, David Gibbons and Carol Ponsford

Petitioners

And

The Owners, Strata Plan K692

Respondents

 

Before: The Honourable Mr. Justice Barrow

 

Reasons for Judgment

Counsel for the Petitioners:

J.D. Metherell

Counsel for the Respondents:

A. Murray

Place and Date of Hearing:

Kelowna, B.C.

January 11-12, 2012

Place and Date of Judgment:

Kelowna, B.C.

May 22, 2012


 

[1]             The petitioners are owners of townhouse-style strata lots within the respondent Strata Corporation (the “Strata Corporation”). They argue that the respondent has acted, and will act in the future, in a significantly unfair manner. The past unfairness relates to a special resolution put before a general meeting on April 30, 2011 (the “Special Resolution”). The future unfairness relates to costly repairs that are needed to the apartment tower within the development. The Strata Corporation proposes that those costs be borne by all of its members, including the owners of townhouses, on the basis of unit entitlement. The petitioners argue that to do so will result in them subsidizing repairs to a building that they have little connection with. They seek an order under s. 164 of the Strata Property Act, S.B.C. 1998, c. 43 creating “sections” within the Strata Corporation - one section for the townhouse-style strata lots and another for the apartment-style lots. They seek ancillary orders allocating the repair costs to the sections based on the building involved. The respondent argues that to allocate costs on the basis of unit entitlement is simply to follow the statutory regime, and in the absence of some reasonable expectation that another method would be used, that cannot be significantly unfair.

Background

[2]             The Strata Corporation was created with the filing of a strata plan in the Land Title Office in 1988. The property is comprised of 29 residential units housed in three buildings. Building A is a four-storey building containing 17 apartment-style strata units. Buildings B and C are single-storey buildings each containing 6 townhouse-style strata units. The petitioners are the owners of 10 of the 12 townhouse units.

[3]             The apartment building houses several amenities which benefit all of the strata lots in the development. Those amenities include a mailroom, a garbage collection room, and the primary water, cable and telephone hook ups for the development.

[4]             Between its creation and the year 2000 when the Strata Property Act came into force, the Strata Corporation functioned under the statutory framework contained in the Condominium Act, R.S.B.C. 1996, c. 64. Part 5 of the Condominium Act sets out the bylaws of strata corporations, and by s. 26 those bylaws applied until altered or repealed in a manner provided for by the Act. Part 5 included s. 128 which dealt with the allocation of common expenses. Although the Condominium Act did not define different types of strata lots, s. 128 (2) required that common expenses attributable to one or more types of strata lots be allocated to and shared by the owners of those particular strata lots in proportion to their unit entitlement. All other common expenses were required to be shared by all the owners in proportion to their unit entitlement to the entire condominium development. Section 128 read:

(2) If a strata plan consists of more than one type of strata lot, the common expenses must be apportioned in the following manner:

(a) common expenses attributable to one or more type of strata lot must be allocated to that type of strata lot and must be borne by the owners of that type of strata lot in the proportion that the unit entitlement of that strata lot bears to the aggregate unit entitlement of all types of strata lots concerned;

(b) common expenses not attributable to a particular type or types of strata lot must be allocated to all strata lots and must be borne by the owners in proportion to the unit entitlement of their strata lots.

[5]             Despite this statutory regime, the Strata Corporation did not allocate common expenses attributable to one type of strata lot solely to the owners of that type of lot; rather, except for the year 1991, the Strata Corporation’s budgets simply allocated all common expenses to all owners, regardless of whether the expenses were attributable to only one type of strata lot or not. The amended disclosure statement filed on March 22, 1989, foreshadowed the approach to common area expenses that the Strata Corporation would follow. Under the heading “Budget”, paragraph 6 (o) of that document provides in part as follows:

An estimated operating budget for a typical full year of operating expenses of the Strata corporation, based on current costs, is attached .... These common expenses will be allocated among the individual Strata Lot owners in the proportions that the Unit Entitlements of their respective Strata Lot bear to the total Unit Entitlements of all Strata Lots, and Exhibit “C” hereto gives the estimated monthly assessment for each Strata Lot based on the budget.

[6]             For the year 1991 the Strata Corporation changed the manner in which it treated the common area expenses that were attributable to one type of strata lot but not to others. Further, it seems that consideration was given to a similar approach in 1992. Uncertainty about this stems from a lack of minutes for that period indicating which of two proposed budgets was adopted by the Strata Corporation. There is a schedule of strata fees for 1991 and if fees were in fact levied based on that schedule then common area expenses were allocated according to the method prescribed in s. 128 of the Act. There is a “proposed” schedule of fees for 1992, and if it was adopted then common area expenses were shared by all strata lots in accordance with their unit entitlement and regardless of  whether the expenses related to only one type of strata lot.

[7]             What is clear from the material is that by 1993 the method of allocating common area costs associated with only one type of unit was becoming an issue within the Strata Corporation. The issue arose because expensive repairs to the fire sprinkler system in the apartment building were in the offing. One of the townhouse owners wrote to the Deputy Superintendent of Real Estate inquiring about how costs of that sort could be allocated. The Deputy Superintendant responded, and his letter and the issue more generally was the subject of discussion at an extraordinary general meeting of the Strata Corporation on September 29, 1993. The minutes of that meeting include the following:

Discussion of both letters [that is the letter to and the letter from the Deputy Superintendent] ensued. Owners recognized that there were a number of costs borne by the townhouse type units which were directly attributable to the highrise type units. However, it was stated that owners had agreed from the inaugural General Meeting onward that the Strata Corporation was to be treated “all as one” with the costs being apportioned among all units. It was decided to proceed with the meeting, but mention that the contents of the letter from [the Deputy Superintendent] had been received, and duly noted.

While nothing was decided at this meeting regarding the manner in which common area costs should be allocated, the minute is relevant in three respects. First, it tends to support the conclusion that the proposed budget that would have allocated common area costs according to unit type was not adopted. Second, it is an indication of what the owners knew about the cost sharing arrangements when they purchased their units. Third, it demonstrates that the Strata Corporation turned its corporate mind to the manner by which common area expenses should be shared.

[8]             It is clear that in the years since 1993 common area expenses have been shared by all strata units in accordance with their unit entitlement and without regard to whether the expenses related to one type of unit or another. This has been the case notwithstanding that on February 17, 1994 the owners adopted changes to the Strata Corporation’s bylaws. The changes were voluminous, and among them was the adoption of the cost allocation scheme envisioned by s. 128 of the Condominium Act. Thus, from 1994 forward the Strata Corporation should have been accounting for common area expenses by allocating those referable to one type of strata lot to strata lots of that type. In spite of the adoption of this approach in its bylaws, the Strata Corporation did not change the method by which it accounted for such expenses.

[9]             The ability to allocate common area expenses according to unit type changed with the coming into force of the Strata Property Act on July 1, 2000.

[10]         From 1993, when the fire suppression system in the apartment tower was replaced at a cost of just over $14,000, until 2007, there were at least four special levies imposed to cover the cost of various repairs. According to John Tolijanich, one of the petitioners, those levies totalled $213,922, and of that sum $42,000 was for repairs that benefited the complex as a whole; $51,717 was for repairs that benefited only the townhouse units; and $120,205 was for repairs associated with the apartment complex. In addition the Strata Corporation spent a further $90,000 to repair the balconies attached to the apartment units and to fix some associated water damage. These costs were treated as common area expenses and borne by all units regardless of type.

[11]         There remains some dispute as to whether the foregoing amounts are properly categorized as benefiting the apartment tower or the townhouses. When this petition initially came on for hearing in August 2010 Burnyeat J. adjourned the matter. He said that it would be of assistance if the Strata Corporation had its auditors prepare a list of past and future expenses allocating them according to the unit type benefited. That exercise has not been done for reasons I will mention below. All I am now asked to take from the evidence about how past expenses have been allocated is that it demonstrates that the townhouse owners have not disproportionately benefited from the uniform sharing of expenses. In other words this is not a situation in which the apartment owners have subsidized repairs to the townhouses, and that the townhouse owners are now seeking to avoid doing the same for in relation to repairs needed to the apartment tower. This conclusion is well supported by the evidence even if the cost of past repairs or their characterization is not entirely accurate.

[12]         What is not in dispute, and what prompted this petition, is that there are much needed and very expensive repairs necessary to address water ingress in the apartment tower. These expenses may exceed $2 million. The deficiencies that give rise to these costs first surfaced in 2007. From the outset, at least some of the townhouse owners have been concerned about how these costs would be allocated. In February 2009 the Strata Corporation held its annual general meeting. In advance of that meeting some of the townhouse owners, including the petitioners, requested that a resolution be placed before the meeting as provided for by s. 46 of the Strata Property Act. The resolution read:

The Bylaws of the Strata Corporation KAS692 be amended to provide for the creation and administration of separate sections for the town house style strata lots (strata lots 18 to 29) and the apartment style strata lots (strata lots 1 to 17) in accordance with Section 191 and 193 of the Strata Property Act. ...

The resolution was defeated by a vote of 10 in favour and 16 opposed.

[13]         The next event of consequence occurred in the spring of 2009 when the Strata Corporation’s insurers carried out an inspection of the development. In April 2009 they wrote to the corporation advising of a number of issues which, in an effort to reduce and manage future risks, needed to be addressed. On that list was water ingress in several of the apartment-style units. At a September 2009 meeting, council authorized the expenditure of $4,000 to have a professional building inspection done. In October 2009 this petition was filed. On January 31, 2010 the building inspection report prepared by Aqua - Coast Engineering Ltd. was released. The report noted significant water penetration problems primarily in relation to the cladding, the balconies and the skylights in the apartment tower. While it is not entirely clear exactly how much of these repairs relate to the apartment tower and how much relate to the townhouses, it is reasonable to assume that close to 90 percent of the costs would be for the apartment building.

[14]         Aqua - Coast provided three options for remedying the problems and the costs of those options ranged from just over $1 million to $1.14 million. The petitioners sought a second opinion and that opinion was provided by Timothy Spiegel, a professional quantity surveyor, on June 17, 2010. He estimated the costs, exclusive of soft costs, mark ups and the like, at $1.14 million. Of that sum, $954,035 was for repairs to the apartment tower and $186,665 was for repairs of the townhouses.

[15]         Votes at meetings of the Strata Corporation are allocated according to units; each unit has one vote. Given that there are 29 units of which 17 are apartments, the apartment owners hold 58 percent of the available votes and townhouse owners the remaining 42 percent. Allocation of common expenses is done according to unit entitlement, and the apartments have 57.9 percent of the units of entitlement while the townhouse owners have 42.1 percent.

[16]         When the petition came on before Burnyeat J. he had two concerns. One related to resolving the evidentiary conflict surrounding how to characterize the past expenses, that is, whether they related to the townhouses, the apartment tower or both. Burnyeat J.’s other concern was that the petition was premature insofar as the Strata Corporation had not yet resolved to proceed with the repairs. He therefore asked for the accounting noted above and ordered that the Strata Corporation convene a special general meeting prior to November 15, 2010 for the purpose of considering a special resolution to be prepared by the strata council dealing with the levy by which the repair costs would be funded. The resolution the council was to prepare was to be “fair to all owners”.

[17]         Following Burnyeat J.’s decision the owners of the Strata Corporation established an ad hoc committee with four members, two from each type of strata unit (the “Committee”). The Committee was charged with exploring the possibility of a consensual solution to the issue of cost allocation between the different types of units and with providing input on the resolution ordered by Burnyeat J.

[18]         Not long after the Committee was struck there was a serious rain storm in Kelowna which caused flooding in three of the apartments. Aqua - Coast was asked to revisit its recommendations in light of this additional damage. It issued its second report on January 17, 2011 (the “2011 Report”) (in the interim the parties had filed a consent order extending the deadline imposed by Burnyeat J.). In the 2011 Report the cost of remediation is estimated at just over $2 million. Of those costs, $1.88 million relate exclusively to the apartment tower and $137,838 relate to the townhouses. In percentage terms, just over 93 percent of the costs relate to the tower and just under 7 percent relate to the townhouses.

[19]         Armed with this new information, the Committee set about attempting to agree on an acceptable resolution to be placed before the special general meeting. The townhouse representatives on the Committee proposed that townhouse owners pay for the repairs to the townhouses recommended in the 2011 Report and contribute $200,000 towards the repairs necessary to the apartment tower. Further, they recommended that going forward any common area repairs to the apartment tower would be paid for by the owners of the units in the tower, and the townhouse owners would pay for repairs to their buildings; in neither case would there be contribution by owners in buildings housing one type of strata unit to repairs made to buildings housing another type of unit. The townhouse owners on the Committee thought that if the Committee could not agree on a resolution, then each faction on the Committee would put forth a draft resolution and council would put them in final form for presentation to the owners.

[20]         The apartment owners provided a counter proposal in which they suggested the townhouse owners would only contribute 33 percent of the cost of the remediation of the apartment tower (down from the 42 percent that would otherwise apply) but that all future repairs would be paid for in accordance with unit entitlement regardless of which type of building needed the repairs.

[21]         These drafts were given to the council who, after seeking legal advice, proposed the Special Resolution that would have had the townhouse owners contribute $300,000 to the remediation of the apartment building as well as pay for all the repairs to the townhouse buildings. As a percentage of the total cost, this amounted to just under 22 percent. Further, the Special Resolution included an explicit rejection of future sharing of costs otherwise than on the basis of unit entitlement without regard to which building the repairs may relate to. The Special Resolution was put before a special general meeting on April 30, 2011, and defeated by a vote of 19 opposed and 6 in favour.

[22]         After the April 30 meeting, the respondent retained Ms. Murray. She advised that it was not legally possible for the Strata Corporation to allocate costs otherwise than by unit entitlement unless the Strata Corporation passed a unanimous resolution to that effect or created sections. Given Ms. Murray’s advice on the matter, further attempts at a consensual resolution appeared doomed and the parties reset their petition.

Analysis

[23]         The petitioners seek relief under s. 164 of the Strata Property Act which provides that:

(1) On application of an owner or tenant, the Supreme Court may make any interim or final order it considers necessary to prevent or remedy a significantly unfair

(a) action or threatened action by, or decision of, the strata corporation, including the council, in relation to the owner or tenant, or

(b) exercise of voting rights by a person who holds 50% or more of the votes, including proxies, at an annual or special general meeting.

(2) For the purposes of subsection (1), the court may

(a) direct or prohibit an act of the strata corporation, the council, or the person who holds 50% or more of the votes,

(b) vary a transaction or resolution, and

(c) regulate the conduct of the strata corporation's future affairs.

[24]         The parties agree that the definition of “significantly unfair” is that set out in Reid v. Strata Plan LMS 2503, 2003 BCCA 126, 12 B.C.L.R. (4th) 67. In that case Ryan J.A. approved of the definition of “significant unfairness” in Gentis v. Strata Plan VR 368 2003 BCSC 120, 8 R.P.R. (4th) 130, where at paras. 27-29 Masuhara J. held:

[27]      The scope of significant unfairness has been recently considered by this Court in Strata Plan VR 1767 v. Seven Estate Ltd. (2002), 49 R.P.R. (3d) 156 (B.C.S.C.), 2002 BCSC 381. In that case, Martinson J. stated (at para. 47):

The meaning of the words "significantly unfair" would at the very least encompass oppressive conduct and unfairly prejudicial conduct or resolutions. Oppressive conduct has been interpreted to mean conduct that is burdensome, harsh, wrongful, lacking in probity or fair dealing, or has been done in bad faith. "Unfairly prejudicial conduct" has been interpreted to mean conduct that is unjust and inequitable: Reid v. Strata Plan LMS 2503, [2001] B.C.J. No. 2377.

[28]      I would add to this definition only by noting that I understand the use of the word ‘significantly’ to modify unfair in the following manner. Strata Corporations must often utilize discretion in making decisions which affect various owners or tenants. At times, the Corporation’s duty to act in the best interests of all owners is in conflict with the interests of a particular owner, or group of owners. Consequently, the modifying term indicates that court should only interfere with the use of this discretion if it is exercised oppressively, as defined above, or in a fashion that transcends beyond mere prejudice or trifling unfairness.

[29]      I am supported in this interpretation by the common usage of the word significant, which is defined as “of great importance or consequence”: The Canadian Oxford Dictionary(Toronto: Oxford University Press, 1998) at 1349.

[25]         The Strata Property Act recognizes and permits the creation of “sections” within a strata corporation. Section 191 provides that:

(1) A strata corporation may have sections only for the purpose of representing the different interests of

(a) owners of residential strata lots and owners of nonresidential strata lots,

(b) owners of nonresidential strata lots, if they use their strata lots for significantly different purposes, or

(c) owners of different types of residential strata lots.

(2) For the purposes of subsection (1) (c), strata lots are different types if they fall within the criteria set out in the regulations.

[26]         Section 11.1 of the Strata Property Regulation, B.C. Reg. 43/2000, establishes three types of strata lots, including apartment-style and townhouse-style lots. Sections may be established either by the owner developer on depositing the strata plan or by the strata corporation following its creation. In relation to the latter, s. 193 of the Act provides in part that:

(1) To create or cancel sections, the strata corporation must hold an annual or special general meeting to consider the creation or cancellation.

(2) The notice of meeting must include

(a) a resolution to amend the bylaws to provide for either the creation and administration of each section or the cancellation of the sections, ...

(3) The resolution referred to in subsection (2) (a) must be passed

(a) by a 3/4 vote by the eligible voters in the proposed or existing section, and

(b) by a 3/4 vote by all the eligible voters in the strata corporation.

[27]         In Chow v. Strata Plan LMS 1277, 2006 BCSC 335, 54 B.C.L.R. (4th) 380 Taylor J. ordered the creation of sections pursuant to the remedial power in s. 164. The parties agree that this Court has the authority to order the creation of sections under s. 164; they disagree on whether anything done or proposed to be done by the Strata Corporation has been or will be significantly unfair.

[28]         The petitioners argue that two actions, one that has occurred and the other which is proposed, has been or will be significantly unfair. The past action is the manner in which the Strata Corporation dealt with the Special Resolution which Burnyeat J. wanted the Strata Corporation to consider. The proposed action is the imposition of a special levy that will be necessary to fund the repairs to the apartment tower.

[29]         It is the prospect of the special levy which is at the core of the petitioners’ concern and I will therefore deal with that issue first. The Strata Property Act prescribes how operating and other costs are to be shared. Section 99 sets out how the owners’ contribution to the Strata Corporation’s operating and contingency reserve fund are to be calculated. It provides that each owner is to pay that portion of such costs that the owner’s unit entitlement bares to the total unit entitlement of all the lots in the Strata Corporation. Repairs of the kind necessary to the apartment tower are not operating expenses and the contingency reserve fund does not and will not have a sufficient balance to cover them. As a result they will have to be funded by a special levy. Section 108 of the Actprovides that:

(1) The strata corporation may raise money from the owners by means of a special levy.

(2) The strata corporation must calculate each strata lot's share of a special levy

(a) in accordance with section 99, 100 or 195, in which case the levy must be approved by a resolution passed by a 3/4 vote at an annual or special general meeting, or

(b) in another way that establishes a fair division of expenses for that particular levy, in which case the levy must be approved by a resolution passed by a unanimous vote at an annual or special general meeting.

...

[30]         The Strata Corporation has a total unit entitlement of 3,537. The unit entitlement of the apartments range from 108 to 138 per lot and total 2,041 units or 58 percent of the total. The townhouse lots range from 118 to 150 per lot and total 1,496 or 42 percent of the total unit entitlement.

[31]         The 2011 Report groups the recommended repairs according to the urgency of undertaking them. The two most urgently needed repairs relate exclusively to the apartment tower. As noted above they are estimated to cost $1,882,406. The third category of repairs, those that are the least urgently needed, relate to the two townhouse buildings and are expected to cost $137,838. Assuming all the repairs are undertaken, the cost per unit of entitlement will be $571. The cost for each apartment-style lot will range from a low of $61,668 to a high of $78,798. The cost for the townhouse lots will range from $67,378 to $85,650. If the Strata Corporation is divided into sections and the repair costs are borne by the type of units to which they relate, the cost per unit of entitlement for the apartment-style lots would be $922 per unit. The cost to each apartment owner would range from a low of $99,576 to a high of $127,236. The townhouse owners’ cost per unit of entitlement would be $92. The individual owners would have to pay from $10,856 to $13,800.

[32]         Put in other terms, some 93 percent of the repairs relate to the apartment tower. If they are paid for by all of the owners contributing according to their unit entitlement, the townhouse owners will pay 42 percent of these costs. In terms of the impact on individual townhouse owners, they will be paying from between $56,522 to $71,850 more than if they were paying only for repairs to the buildings housing their units. This, they say, is significantly unfair.

[33]         The apartment owners on the other hand argue that they purchased lots in the Strata Corporation as a whole and on the assumption that every owner would contribute as provided for by theAct. If sections are created and costs allocated according to unit type and building benefited, then they will pay from between $37,908 to $48,438 more than they reasonably expected to pay. They also say that there is no history of treating the townhouse buildings differently than the apartment tower. Further, they argue they will be saddled with the additional administrative costs associated with running what will be in effect three strata corporations - the two sections and the umbrella Strata Corporation. Those costs they argue are not insignificant. Finally, they point out that there are amenities and services housed in the apartment tower which benefit the townhouse owners. To the extent that is so, repairs to the apartment building benefit the townhouse owners. Section 195 of the Strata Property Act provides that only the expenses that relate “solely” to the strata lots in a section are section expenses to be paid for by that section. If the townhouses benefit from the cost of repairs to the apartment building, then arguably the expense does not relate “solely” to the apartment-style units and is not an expense to be borne by only one section.

[34]         The petitioners argue that their situation is similar to that dealt with in Chow and to a lesser extent Shaw v. Strata LMS 3972, 2008 BCSC 453, 71 R.P.R. (4th) 255. The respondents argue that support for their position is found in  Strata Plan LMS 1537 v. Alvarez, 2003 BCSC 1085, 17 B.C.L.R. (4th) 63; Terry v. Strata Plan LMS 2153, 2006 BCSC 950; Peace v. Strata Plan VIS 2165, 2009 BCSC 1791; Liverant v. Strata Plan VIS-5996, 2010 BCSC 286, The Owners, Strata Plan VR1767 v. Seven Estate Ltd., 2002 BCSC 381, 49 R.P.R. (3d) 156 and Large, McCall v. Strata Plan No. 601, 2005 BCSC 1128, 34 R.P.R. (4th) 62.

[35]         An examination of this jurisprudence should begin with Alvarez, a decision of Bauman J. (as he then was). The issue in Alvarez related to the cost of repairs to the building envelop. The threshold legal question was whether the regime created by the Strata Property Act or the Condominium Act governed the allocation of those costs. In the course of answering that question Bauman J. considered the overall scheme of the Strata Property Act. He held at paragraph 35 that the organizing principle of the Strata Property Act is that “you are all in it together”.

[36]         The strata development in Alvarez consisted of eight units - two of which were in a heritage house while the other six were in a new building attached to the heritage house. The new building experienced water penetration problems and costly repairs were needed to remedy them. The Alvarezes, who owned one of the heritage units, did not want to contribute to the cost of the repairs, taking the position that the repairs did not benefit them at all. Bauman J. concluded that all of the units in the development were of one type, and thus the option of creating sections was not available. The question of whether the allocation of the repair costs in accordance with unit entitlement was significantly unfair was however considered. At paragraph 97 he wrote:

            From the perspective that this building is an integrated structural unit (albeit marrying old and new construction) there is nothing unfair or oppressive, as urged in the alternative by Mr. and Mrs. Alvarez, in the resolution of 15 October 2001. On the contrary, it is wholly consistent with the implicit representations made by the Alvarezes as owner developers of this project. That is to say, there was never any suggestion in the disclosure statement for this development but that common expenses would be shared by all units in accordance with their unit entitlement.

[37]         The repair costs in Alvarez were estimated at $160,000. The precise implications for the individual owners is not set out in the decision but, assuming relatively equal unit entitlement, the cost to the Alvarezes would likely be $20,000 if all contributed to the repair costs. If only those housed in the newly constructed portion of the building paid, then each of them would pay about $26,666.

[38]         Terry is another decision of Bauman J. It involved a phased strata development. All the units were of the same type and thus sectioning was not available as a remedy if the actions complained of were found to be significantly unfair. Phase 1 of the development had water penetration problems. The other two buildings did not. The cost of repairing the problems was variously estimated at between $2.9 million and $4 million. There were 302 units in the building. The repairs would cost between about $10,000 and $13,500 per unit. If only phase 1 units were required to shoulder the cost, the levy would be about $25,000 per unit (about half the units were in phase 1). The phase 1 owners sought declarations that the repairs were necessary and that there be a special levy applicable to all owners according to their unit entitlement. This was resisted on the ground that it would be significantly unfair. The court held that all owners in all phases were required to contribute to the cost of repairs. In reaching that conclusion Bauman J. adopted the more expansive definition of “significant unfairness” in Reid and then noted at paragraph 86:

I begin by noting that in each of the cases cited by counsel where "significantly unfair" conduct was found, there had been a history of past dealing or conduct which the strata corporation, in each case, was ignoring in pursuing the impugned action, usually against a distinct minority within the strata corporation...

He then concluded in paragraphs 100 and 102 that:

[100]    Nothing in the conduct of the strata corporation before the advent of Phases 2 and 3 can sustain a submission that the corporation has been "significantly unfair" to these new members. ...

...

[102]    The unfairness argument really falls away when one looks at what the Phase 2 and Phase 3 owners knew, or ought to have known, when they purchased their units. Nothing about the problem with the Phase 1 buildings was kept secret. The nature and extent of that problem was disclosed in the minutes of the strata corporation. The problem was also, eventually, more fully disclosed by the developer, at least to the extent of putting purchasers on their enquiry in the amended Disclosure Statement of October 2003. There is no suggestion that the Phase 1 owners delayed so as to subject the Phases 2 and 3 owners to responsibility for the repair costs.

[39]         The declarations requiring the strata corporation to effect the necessary repairs and allocate costs based solely on unit entitlement sought in Terry were, for the most part, made. The court found that it was not significantly unfair for owners in buildings that did not have water ingress problems to pay, according to their unit entitlement, for repairs necessary to the buildings that did have those problems.

[40]         The matter at hand has three circumstances that may serve to distinguish it from Terry. Those three circumstances are: firstly, in the matter at hand the buildings house different types of units; secondly, the expenses are not ones that anyone anticipated when they purchased; and finally, the expenses per unit of entitlement are significantly higher.

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Madalena's new leaky rotten house

Madalena's foster father builds a new leaky rotten house for Madalena

 

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Madalena v. Kuun,

 

2009 BCSC 1597

Date: 20091123

Docket: S062218

Registry: Vancouver

Between:

Pamela Ann Madalena

Plaintiff

And

Regional District of Comox –Strathcona, Karel Kuun
doing business as Plum Construction, Russ Nelson
Roofing Ltd., Tim Crisp doing business as
Sunwest Stucco, and John Doe #1

Defendants

 

Before: The Honourable Mr. Justice Butler

 

Reasons for Judgment

Counsel for the Plaintiff:

Amy A. Mortimore

Counsel for the Defendant Karel Kuun doing business as Plum Construction:

Edward A. Holekamp

Place and Date of Trial:

Vancouver, B.C.
April 27-30 and May 1, 2009

Place and Date of Judgment:

Vancouver, B.C.
November 23, 2009


 

[1]             When Pamela Madalena, the plaintiff, wanted to build a new home in the Comox Valley, she turned to Karel Kuun, her former foster father.  She had lived with Mr. Kuun and his wife for ten years, between the ages of 7 and 17.  Ms. Madalena and the Kuuns maintained a close relationship after she left their home in approximately 1980.  Mr. Kuun, doing business as Plum Construction, worked as a contractor building single family homes in the Comox Valley.  When Ms. Madalena returned to Vancouver Island with her husband and family, she approached Mr. Kuun and he agreed to design and build the home at 2219 Sea Lion Way in the Comox Valley Regional District (the “Home”).

[2]             Ms. Madalena purchased a heavily treed lot in the Comox Valley.  She had a limited budget for the construction of the Home.  She liked the Cape Dutch style of homes built by Mr. Kuun.  She wanted a house in that style that was large enough for her family.  The parties did not enter into a formal agreement.  They had a series of informal discussions that led to agreement about the design of the Home.  They also agreed on the amounts to be spent on construction and paid to Mr. Kuun for his services.

[3]             The Home was built during the summer of 1998.  Ms. Madalena and her family moved into the Home in October 1998.  It is a two-storey wood frame building and was built with face-sealed exterior stucco walls.  It had minimal overhangs and a concealed gutter and downspout roof drainage system.  It was built within the limited budget set by Ms. Madalena.

[4]             About a year after construction was completed, Ms. Madalena discovered water entering one of the bedrooms.  Mr. Kuun attended, unplugged the gutters and performed repairs which appeared to remedy the problem.  About a year later, Ms. Madalena discovered water in the master bedroom closet.  Once again the carpet and underlay were lifted and the moisture was removed from the building.  Mr. Kuun attended to perform repairs.  He altered the water collection system on the roof by adding a perforated pipe along the length of the gutters.  A third leak was found about a year and a half later.  It was more extensive and took longer to repair.  Ms. Madalena lost confidence in Mr. Kuun and turned to other contractors to resolve the problem.

[5]             Ms. Madalena also noticed staining and cracking in the stucco on the exterior of the Home during the first years after construction.  Eventually she decided that repairs were required to the stucco.  In 2005, when the stucco repair work was performed, evidence of water damage was discovered underneath the stucco.  Ultimately Ms. Madalena retained a consultant to provide advice regarding the repairs required to halt the water ingress.  These repairs were performed at a cost of $139,016.13, including the investigation costs.  Ms. Madalena claims this amount as damages for negligent design and construction of the Home, or alternatively for breach of contract.

[6]             Mr. Kuun denies any negligence or breach of contract.  He says that the Home was designed and constructed according to the agreement between the parties.  He says that any damage to the Home from water ingress occurred as a result of Ms. Madalena’s failure to maintain the Home properly.  He says that he instructed her to regularly clean and maintain the gutters.  Had this been done, he alleges that there would have been no water ingress damage.  He also says that some of the work performed was done to upgrade the Home and had nothing to do with a water ingress problem.

[7]             Tim Crisp, doing business as Sunwest Stucco, is also a defendant in these proceedings.  Mr. Crisp did the stucco work when the Home was built in 1998.  That work included the application of sealant and the installation of flashings around the doors and windows.  Mr. Crisp did not defend the action and Ms. Madalena obtained judgment against him in default with damages to be assessed.

[8]             The issues raised by these circumstances are:

1.       Was the Home designed or built negligently or in breach of the terms of the contract?

2.       Was Ms. Madalena negligent in maintaining the Home?

3.       What damages were caused by the negligence or breach of contract of Mr. Kuun and Mr. Crisp?

4.       What is the apportionment of fault between the parties and Mr. Crisp?

Issue 1.        Was the Home designed or built negligently or in breach of the terms of the contract?

[9]             There were few differences in the evidence of the parties about the discussions that led to the agreement to build the Home.  Given their family-like relationship, the discussions were informal and did not touch upon the potential liability of Mr. Kuun for building or design faults, nor the existence or extent of any warranties.  The focus of the discussions was the layout of the Home and the amount of money available for the construction.  In their testimony, Ms. Madalena and her husband, Tom Finkelstein, attempted to minimize their involvement in the design of the Home.  In part, they did so to emphasize the fact that they have no knowledge of building construction.  However, I accept the evidence of Mr. Kuun that they did take an active role in determining the appearance and layout of the house.  Ms. Madalena also set a limit on the amount of money she had available to spend on construction.

[10]         I also accept Mr. Kuun’s evidence that in order to build the Home within the financial constraints, the parties agreed to proceed without the involvement of Mr. Kuun’s business, Plum Construction.  Mr. Kuun made the arrangements as Ms. Madalena’s agent to hire contractors and obtain permits, while she acted as the owner/builder.  She entered into agreements (through Mr. Kuun as her agent) with the various contractors and opened accounts with suppliers.  The workers were paid as independent contractors so that no one would have to pay GST on the labour charges.  Ms. Madalena obtained the course of construction insurance.  These steps resulted in savings on taxes, CPP, and other overhead expenses.  Mr. Kuun also made design changes to maximize the square footage of the Home and reduce the cost of the construction.

[11]         As a result, the Home was built within the budget of $187,000 set by Ms. Madalena.  In addition, she paid Mr. Kuun $15,000 to compensate him for the work he did as her agent and to cover equipment, tools and other overhead expenses.  I accept Mr. Kuun’s evidence that if the building had been built for an arm’s length client it would have cost significantly more.  He was prepared to proceed in the way he did because he wanted Ms. Madalena, as his foster daughter, to have a nice house at a reasonable cost.  I also accept that the layout, design and finishing choices made by Ms. Madalena resulted in the Home being finished with supplies and materials at a relatively low level of quality.

[12]         Mr. Kuun came to B.C. from South Africa.  He has a Bachelor of Arts in Philosophy as well as a Masters degree.  He has no formal education in building construction.  He began building homes with his brother who did have some training in architecture.  They built their first home in 1974.  Between that date and 1998 they built between 50 and 70 homes.  He learned the skills required for the various trades on the job.  He described how he taught himself to do wiring, plumbing and roofing by reading the relevant building codes and doing the work.  He also taught himself how to use AutoCad, which he used to assist with the design of homes.

[13]         As a result of his experience and self-teaching, by the time he built the Home for Ms. Madalena, he considered himself skilled in most aspects of construction.  He was also familiar with the trades people in the Comox Valley.  He felt competent to do everything required to design, build and oversee the construction of the Home.

[14]         Mr. Kuun prepared the drawings used to obtain the building permit and guide the construction.  These were not detailed construction drawings, but they were adequate to establish the layout of the rooms and the exterior appearance.  He selected and hired the sub-trades to work on the Home.  He performed a lot of the work himself and was also responsible for supervision of the sub-trades.  The work he performed included the application of the waterproof membrane on the roof and in the gutters.  He installed the windows.  His design for the Home included a hidden gutter system that had a scupper and downspouts hidden behind a stuccoed wall enclosure.  He designed the parapet above the portico over the front door entrance.  The parapet had a flat roof that adjoined the gutter running along the front of the house.  He designed the building envelope that featured windows flush with the stucco walls.  There was no rain screen incorporated in the building envelope as Mr. Kuun did not expect water to penetrate behind the stucco.

[15]         Major Thorne Ferguson, the president of C.E.S. Contracting Ltd. (“C.E.S.”) was called as a witness by Ms. Madalena.  C.E.S. was originally hired to replace the windows in the Home with a better quality window because the original windows were not opening properly.  When C.E.S. removed stucco around the windows, water damage was observed behind the stucco.  Subsequently, C.E.S. was hired to remove all of the existing building envelope and replace it with a rain screen and fibre board siding.  C.E.S. also removed the existing concealed gutter system and replaced it with an external gutter system tied in to the water drainage system.

[16]         Major Ferguson gave evidence regarding his observations of the condition of the Home when he attended to perform the work.  He took photographs which showed staining and black mould around the windows.  It was evident that the face-seal system had failed around the window and door openings.  However, the areas with the most significant water ingress problems were the gutters, the concealed downspout system and the portico.  Major Ferguson noted that the membrane applied in the gutters did not extend high enough up the side of the gutter.  As a result, when the gutters were backed up and full of water, there would be leakage down the face of the building behind the stucco.  It was also evident from the staining of the Oriented Strand Board (“OSB”) sheathing that this kind of leaking occurred on an ongoing basis in certain areas of the Home.

[17]         The OSB sheathing behind the stucco on the portico and in the concealed downspout system had deteriorated so badly from moisture damage that, in places, it was falling apart.  The membranes applied to the flat roof above the portico did not serve to protect the wall structure.  The concealed downspout system was a poor design as it made it difficult to see if there was a blockage in the system.  Further, any moisture that escaped was trapped inside the stucco where it promoted the deterioration of the structure and the growth of mould.  In some parts of the Home there was damage to the wood frame structural members as well as to the sheathing.

[18]         Alex McGowan, a professional engineer employed by Levelton Consultants Ltd. with building envelope expertise prepared reports and gave expert evidence regarding the design of the Home.  In his report of February 25, 2009, he set out his opinion on the causes of the water ingress at the Home:

... [T]he primary reason for the failure of the building envelope at this residence was the unprotected face-sealed design of the walls (which requires continuity of the weather barrier on the exterior surface of the building envelope) combined with discontinuities at window openings and at the roof/wall interface.  The problem was compounded by the minimal protection provided by the lack of overhangs, the boxed-out windows at either end of the building that increase the exposure level of the stucco to wind-driven rain, and by leaks associated with the rainwater leaders concealed inside the walls.

[19]         In his site report of July 25, 2007, Mr. McGowan described the problems with the roof drainage in more detail:

Rain gutters are shallow, and direct water inside the false columns at four locations along the north and south elevations (Photo 9).  The rainwater leaders (or downspouts) are hidden inside the false columns.  If these downspouts become blocked, it is likely that water will back up inside the false columns, resulting in water damage.  Also, the flat roof above the main entrance is poorly detailed, with minimal upturn of the roofing membrane and poor drainage....

[20]         Mr. McGowan described in some detail how a blockage in the drainpipes would affect the drainage of water from the roof.  The water would rise in the scupper and flow back in the gutter.  It would eventually flow out and down at the lowest point of the gutter membrane either on the outside or the roof side of the gutters.  It was evident from photographs of the water damage that this is what occurred in many locations along the face of the Home.  Undoubtedly this is what happened when the interior leaks occurred.

[21]         Mr. McGowan’s 2009 report concludes that the design and construction of the Home “did not meet the requirements of the relevant building codes, guidelines and trade practices of 1998.”  While Mr. McGowan was cross-examined on his report, his conclusions were not seriously challenged.

[22]         I conclude that the Home was negligently designed and constructed.  It did not meet the requirements of the codes, guidelines and trade practices in effect in 1998.  The failure to design and build in accordance with those standards resulted in a building that had significant weaknesses.  The lack of overhangs and the design of the windows and face of the structure meant that the Home could only survive the wet Vancouver Island winters if the face-seal was impenetrable or there was some form of rain screen to allow moisture to escape behind the stucco surface.  Of course, the stucco was not impenetrable and there was no way for the moisture to escape once the face-seal and gutters started to fail.  The design problems were compounded by poor finishing of the windows and inadequate application of membrane to the gutters and flat roof.

[23]         I also conclude that the stucco work performed by Mr. Crisp was done negligently.  As noted by Mr. McGowan, for the face-seal system to be effective the doors and windows must be properly sealed and protected.  That was not done in this case.  The failure to properly seal and flash the windows and doors was an effective cause of the water ingress and the failure of the building envelope.

[24]         While Mr. Kuun and Ms. Madalena agreed that the Home was to be built at a low cost, that is not a defence to the claim.  The design and construction of the Home did not meet acceptable standards for the prevention of water ingress.  I find that Mr. Kuun is liable in negligence both for the design and construction of the Home.

[25]         As noted in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85, at para. 43, a contractor or designer owes a duty in tort to subsequent purchasers if it is found that the building, as constructed, has defects that pose a substantial danger to the health and safety of occupants.  A contractor who breaches that duty of care will be liable for the reasonable cost of repairing the defects.  Of course, a contractor or designer owes that same duty of care to the original purchaser and will be liable for the costs of repair.  Here, both Mr. Kuun and Mr. Crisp were in breach of the duty owed to Ms. Madalena.  As a result, both are liable for the reasonable cost of repairs to the Home.

[26]         Before leaving this issue, I should comment on one additional argument raised by Mr. Kuun.  He argued that in light of the family relationship and the low price paid by Ms. Madalena for the Home, the agreement between the parties must include an implied term that Ms. Madalena bore the risk of any design or construction deficiencies.

[27]         I cannot accept that argument.  Normally, where a contractor agrees to design and build a home, there will be an implied warranty that the house will be reasonably fit for habitation upon completion of the construction.  That warranty is not implied where the house construction is complete at the time of sale.  That is not the case here as Ms. Madalena did not purchase a completed home.  Rather, she contracted with Mr. Kuun to build the Home as the residence for her family.  There was nothing in the discussion of the parties to suggest that the Home would not be fit for habitation or that Ms. Madalena would bear the risk of design or construction failures.  I would have expected evidence of such a discussion if the parties intended to shift those risks to Ms. Madalena.

[28]         There may be some circumstances that could lead a court to imply a term that the purchaser of a home was accepting the risk of design or construction failure leading to an uninhabitable home.  For example, such a term might be implied if a contractor performed the construction services without charging for labour or materials.  However, the circumstances present in this case do not lead to such a conclusion.  Mr. Kuun was paid for all of the time he spent working on the construction of the Home.  He was paid an additional $15,000 for his overhead and for supervision and management.  The sub-trade contracts were awarded on the basis of competitive bids.  There is no basis to find that there was an implied term that any risk regarding the fitness of the Home was to be borne by Ms. Madalena.

Issue 2.        Was Ms. Madalena negligent in maintaining the Home?

[29]         Mr. Kuun testified regarding the specific instructions he gave to Ms. Madalena and her husband to clean the gutters.  This was particularly important given the setting of the Home.  It was surrounded by trees and was within a kilometre of the ocean.  It was buffeted by winds and rain during winter storms.  Leaves and debris from both deciduous and coniferous trees collected in the gutters.  It was apparent that Mr. Kuun did not appreciate at the time of construction how quickly the gutters could be blocked by leaves.  He understood this when he attended at the Home to repair the roof after the first leak.  He advised Ms. Madalena of the drainage problem and gave her two options:  cut down the surrounding trees or clean the gutters every two weeks.  Ms. Madalena and Mr. Finkelstein indicated that they were very fond of the trees and did not want to remove any from the yard.  That left them with the option of instituting a proper maintenance system.  Mr. Kuun impressed upon her the need to clean the gutters regularly and frequently during the rainy season.

[30]         When the second leak occurred it was evident that Ms. Madalena was not performing the gutter cleaning as frequently as required.  He developed a plan to try to alleviate the problem.  He installed a four-inch perforated pipe along the length of the gutter.  This would allow water to drain into the gutter and down the downspout without transmitting leaves along the gutter where they would collect quickly in the scupper.  It was not a total solution to the problem.  The intent was to lengthen the time between gutter cleanings.  He advised Ms. Madalena that this new device meant the cleaning did not have to be done every two weeks, but that it still had to be done frequently.  Further, it meant that the gutters needed to be inspected frequently so they could be cleaned on an as needed basis.

[31]         Ms. Madalena and her husband deny receiving such specific warnings about the necessity and frequency of gutter cleanings.  On this issue, the testimony of both was vague and imprecise.  I accept the evidence of Mr. Kuun in preference to that of both Ms. Madalena and Mr. Finkelstein.  I find that neither of them was interested in maintenance of the gutters and so disregarded Mr. Kuun’s advice.  I find that he fully advised them of the importance of attending to regular and frequent gutter cleaning.

[32]         While they denied receiving warnings from Mr. Kuun, both Ms. Madalena and Mr. Finkelstein admitted that they were aware of the need to clean gutters on occasion.  They retained a contractor, Chorebusters, to do that.  Ms. Madalena said that Chorebusters attended frequently during the winter months to perform the cleaning.  However, the documentation produced showed that Chorebusters only attended at the Home on four occasions to clean the gutters in the years between 1998 and 2005.  No one from the company was called as a witness.  I cannot accept the evidence of Ms. Madalena and Mr. Finkelstein that Chorebusters attended on more than four occasions.

[33]         I find that Ms. Madalena did not maintain the gutters properly.  Neither she nor Mr. Finkelstein performed the work themselves.  Chorebusters was brought in to do the cleaning only four times in the space of seven years.  The frequency of cleaning was inadequate given the circumstances that faced Ms. Madalena.  Her failure to properly maintain the gutters contributed to water damage in the Home.  This was the most significant water ingress problem at the Home.  While the failure of the face-seal system around the windows and doors would have ultimately led to a need to repair the residence, it was the leaking from the gutters and downspouts that created the early requirement to repair the entire building envelope.

[34]         In summary, I find that Ms. Madalena was contributorily negligent in failing to properly maintain the gutters when she ignored the detailed advice and warning from Mr. Kuun on the need to perform that maintenance.

Issue 3.        What damages were caused by the negligence or breach of contract of Mr. Kuun and Mr. Crisp?

[35]         The total claim for damages is $139,016.13.  The largest component of this is the remediation work done by C.E.S. at a cost of $70,472.44.  This covered removal of the existing stucco, repair and replacement of damaged structural members, and installation of the new rain screen system including the fibre board siding.  The damage claim includes charges from Levelton Consultants Ltd. for field review and site visit in the amount of $6,663.69.  Another significant part of the claim is the Sierra Stucco charges of $27,899.75.  Most of these costs were incurred in 2005 when Ms. Madalena was first investigating the stucco deterioration and the overall water ingress problem.  These were charges for removal and patching of portions of the stucco.  The new windows in 2006 were purchased from Vera-De for a cost of $28,798.50.  There was also landscaping expenses of $2,337.55.  These were charges incurred to restore landscaping damaged during the repairs to the building envelope.  The remaining claims are for repair costs incurred at the time of the initial leaks.

[36]         There are two significant and related issues with respect to the damage claim.  First, Mr. Kuun argues that Ms. Madalena replaced the windows because she wanted to install a higher quality window than she purchased when the Home was built.  Second, he says that the remediated building is of a higher quality than that which Ms. Madalena contracted to buy.  He argues that she should not receive the full value of the repairs as that would give her something better than what Mr. Kuun was contracted to build.  I will consider each of these arguments in turn.

Windows

[37]         There is no question that the windows purchased from Vera-De were a significant upgrade to the windows installed at the time of the original construction.  Ms. Madalena indicated that she wanted to replace the windows because many of them did not open properly.  There was no evidence that tied the malfunction of the windows to the water ingress problems or any construction defect.  I infer that the windows did not function properly simply because they were of poor quality.  Major Ferguson confirmed that C.E.S. was retained to upgrade the windows.  In his letter of February 5, 2008, he stated that his firm was “contracted in October 2006 to remove the old windows and replace with a better quality window”.  Ms. Madalena agreed in cross-examination that the decision to replace the windows was made before there was any perceived need to replace the building envelope.  She agreed that the new windows were “quite an upgrade” to what were originally installed.

[38]         In these circumstances, I have no hesitation in concluding that the decision to replace the windows with higher quality windows was unrelated to the water ingress problem.  Ms. Madalena decided to upgrade the windows in the Home.  The windows would have been replaced even if there was no problem with the building envelope.  Ms. Madalena decided to replace them because she wanted windows of better quality.  The replacement of the windows was not caused by the water ingress.  Accordingly, the cost of the new windows is not recoverable as damages.

Betterment

[39]         A more difficult question given the evidence in this case is whether the damage award should be reduced because Ms. Madalena received a better quality building as a result of the replacement of the building envelope.  I have noted above that the building was constructed in a cost effective manner to achieve the largest possible floor area at the least cost.  There is no question that the decisions made throughout the construction were motivated by cost.  I conclude that Ms. Madalena would not have spent the funds necessary to install a rain screen in 1998 had she been given that option.

[40]         The rain screen system installed by C.E.S. is a more expensive building envelope system than the face-sealed stucco finish used at the time of construction.  It is a better system than that for which Ms. Madalena contracted and was prepared to pay.  However, there was no direct evidence establishing the cost differential of the rain screen system.  The question that arises here is whether Ms. Madalena should be entitled to the full cost of repair given my finding that the Home was negligently designed and built, and my finding that the rain screen design employed in the reconstruction represents a betterment to her.  The question is complicated by the lack of evidence of the amount of the betterment.

[41]         Historically, the case law regarding the effect of betterment on the assessment of damages has been split, particularly where the sole basis for the betterment was that the plaintiff was receiving new property in the place of older property.   Recently, however, the B.C. Court of Appeal in Laichkwiltach Enterprises Ltd. v. F/V Pacific Faith (Ship), 2009 BCCA 157, affirmed that damages can be reduced when restoration or repair increases the value of a plaintiff’s property.  Mr. Justice Low stated at para. 36:

Betterment is a question of fact to be determined on the evidence and with regard to what is reasonable in the particular case.  The starting point is the cost of repair.  In some cases, that cost will also be the end point.  In other cases, betterment will be proven and it will fall to the trier of fact to assess the extent of the betterment.

[42]         The situation in Laichkwiltach was somewhat different; in that case, the defendant negligently damaged the plaintiff’s boat and the necessary repairs enhanced the overall condition of an older boat in need of some repair.  In the present case, the defendants negligently constructed the plaintiff’s house and the necessary repairs resulted in Ms. Madalena receiving something better than that which she contracted to buy.  However, the general principle in Laichkwiltach – that a court can use betterment in assessing damages – still applies.  The same principle has been applied in cases involving negligent construction where courts have reduced damages on the basis of betterment:  Reed v. Garbutt, [2003] O.J. No. 4201 (S.C.J).  As a result, I consider it appropriate in this case to reduce the damages on the basis of betterment.

[43]         The only damages claimed by Ms. Madalena that could be subject to a betterment reduction would be those spent on the installation of the new rain screen and fibre siding.  This is a portion of the C.E.S. costs.  It is only a portion of those expenses because C.E.S. did both the demolition of the old system as well as the installation of the new system.  None of the other expenses – for landscaping, stucco, leak repair and site investigation – incurred by Ms. Madalena resulted in any betterment to her.

[44]         The onus is on Mr. Kuun to prove betterment.  I find that he has met the burden to show that Ms. Madalena has received, as a result of the repair work, a better quality home that is more valuable than that which she contracted to acquire.  However, Mr. Kuun has not presented sufficient evidence to establish the exact amount of that betterment.  In these circumstances the choice I have is to either award the full amount of the damages or reduce the award by estimating the extent of the betterment.  The former will result in overcompensation to Ms. Madalena.  The latter approach will produce a result that may or may not be correct.  Given these two alternatives, the latter approach is preferable.  Bearing in mind that there is a possibility that Ms. Madalena could be undercompensated by this approach, the amount applied as a reduction for betterment should be modest.  Accordingly, I find that the rain screen envelope represents a betterment of $7,500 or roughly 10% of the total cost of the C.E.S. work.

[45]         In summary, the damages recoverable for the negligent design and construction of the Home are $102,717.63.

Issue 4.        What is the apportionment of fault between the parties and Tim Crisp?

[46]         Having concluded that both Mr. Kuun and Mr. Crisp were at fault in designing and constructing the Home and that Ms. Madalena was at fault in her maintenance of the Home, I must determine the apportionment of fault pursuant to the provisions of the Negligence Act, R.S.B.C. 1996, c. 333.

[47]         In Cempel v. Harrison Hot Springs Hotel Ltd. (1997), 43 B.C.L.R. (3d) 219 (C.A.), Lambert J.A. set out the proper approach to apportionment of fault at para. 19:

The Negligence Act requires that the apportionment must be made on the basis of “the degree to which each person was at fault”.  It does not say that the apportionment should be on the basis of the degree to which each person’s fault caused the damage.  So we are not assessing degrees of causation, we are assessing degrees of fault. In this context, “fault” means blameworthiness.  So it is a gauge of the amount by which each proximate and effective causative agent fell short of the standard of care that was required of that person in all the circumstances.

[48]         In Aberdeen v. Langley (Township), 2007 BCSC 993, at paras. 62-63, Groves J. provided a helpful review of the factors that should be taken into account to determine the amount by which the conduct of the parties fell short of the standard of care required in the circumstances:

[62]      Thus, fault is to be determined by assessing the nature and extent of the departure from the standard of care of each of the parties.  Relevant factors that courts have considered in assessing relative degrees of fault were summarized by the Alberta Court of Appeal in Heller v. Martens, supra, at ¶ 34 as follows:

1.   The nature of the duty owed by the tortfeasor to the injured person…

2.   The number of acts of fault or negligence committed by a person at fault…

3.   The timing of the various negligent acts.  For example, the party who first commits a negligent act will usually be more at fault than the party whose negligence comes as a result of the initial fault…

4.   The nature of the conduct held to amount to fault.  For example, indifference to the results of the conduct may be more blameworthy…  Similarly, a deliberate departure from safety rules may be more blameworthy than an imperfect reaction to a crisis…

5.   The extent to which the conduct breaches statutory requirements.  For example, in a motor vehicle collision, the driver of the vehicle with the right of way may be less blameworthy…

[Authorities omitted.]

See also Vigoren v. Nystuen, supra, at ¶ 90 (summarizing these same factors).

[63]      Many of the above-noted factors are discussed in Chiefetz, Apportionment of Fault in Tort, supra, at pp. 102-104.  Considering that, I conclude it would be appropriate to add the following as relevant factors:

6.   the gravity of the risk created;

7.   the extent of the opportunity to avoid or prevent the accident or the damage;

8.   whether the conduct in question was deliberate, or unusual or unexpected; and

9.   the knowledge one person had or should have had of the conduct of another person at fault.

[49]         Applying those factors to the circumstances of the present case I apportion liability 75% to Mr. Kuun, 15% to Mr. Crisp and 10% to Ms. Madalena.  Below I set out some of the factors I have taken into account for each of the parties.

Mr. Kuun

[50]         Mr. Kuun must bear the largest portion of the fault.  The duties owed by a designer/builder to his client are well understood.  Mr. Kuun was responsible for ensuring that the design and construction of the Home conformed to the building standards of the day.  Ms. Madalena, as the purchaser of the Home, expected that the Home would be reasonably fit for habitation and would not be subject to leaks shortly after it was constructed.  Mr. Kuun breached his duty to her in a number of ways:  there were several design flaws as well as problems with construction.  The negligent design is the most blameworthy fault because without it, the impact of the subsequent construction and maintenance breaches on the integrity of the Home would not have been so serious.  Quite simply, the gravity of the risk created by the design faults was much greater than what was created by the other breaches.  In addition to the design faults, he also personally performed some of the inadequate construction work.  As a result, he is responsible for the majority of the faulty work that led to the water damage.

Mr. Crisp

[51]         As a stucco contractor Mr. Crisp knew that the design required the building envelope to be impermeable and that, in order to accomplish this, the window and door openings had to be properly sealed and flashed.  His failure to properly carry out these fundamental tasks significantly increased the risk of building envelope failure.  As I noted above, the defective construction of the face-seal system would ultimately have led to a need for repairs even without the gutter system design, construction and maintenance breaches.

Ms. Madalena

[52]         The failure to properly maintain the gutter system, along with the poor design and construction of that system, significantly increased the risk of leakage.  The failure of the gutter system caused the worst leaks as well as the damage to the portico and much of the damage to the sheathing and structural members.  While the design and construction errors preceded the negligent maintenance, Ms. Madalena was given detailed warnings and advice about possible solutions.  She knew from experience, after the first leak in the Home, the likely consequences of failing to maintain the gutters.   In spite of the specific warnings and instruction she did nothing to prevent the damage which she knew was imminent.   As I have already mentioned, her negligence meant that there was much more damage to the Home than there otherwise would have been.  In addition, the repairs to the Home were required much sooner than they would have been if she had heeded the advice and maintained the gutter system.

Summary

[53]         I have concluded that Mr. Kuun was negligent in the design and construction of the Home.  His failure to design and build in accordance with the standards of the day resulted in a building that was susceptible to water ingress.  I also have concluded that the stucco work performed by Mr. Crisp was done negligently.  The failure to properly seal and flash the windows and doors was an additional cause of the water ingress.

[54]         As a result, I find both Mr. Kuun and Mr. Crisp liable for the reasonable cost of repairs to the Home.  The replacement of the original windows with significantly better windows was unrelated to the water ingress problem and is not recoverable as a cost of repair.  In addition, the replacement of the face-sealed stucco building envelope with a rain screen amounts to betterment such that the full cost of that repair is not recoverable.  The reasonable cost of the repairs after deduction of the cost of the windows and the betterment is $102,717.63.  Ms. Madalena is also entitled to prejudgment interest.

[55]         Finally, I have concluded that Ms. Madalena was contributorily negligent in failing to properly maintain the Home.  Liability is apportioned between the parties in the following amounts:  75% to Mr. Kuun, 15% to Mr. Crisp and 10% to Ms. Madalena.

[56]         Subject to any submissions the parties wish to make regarding settlement offers, costs will be payable at Scale B in the same proportion as each party’s respective liability:  Negligence Act, s. 3(1).

“Butler J.”

Court finds home inspector Imre Toth negligent

 

 Court finds CAPHI home inspector Imre Toth negligent - extensive rot, numerous fungal organisms, timbers oozed water

 

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Salgado v. Toth,

2009 BCSC 1515

Date:  20091109

Docket: S073646

Registry: Vancouver

Between:

Manuel Ignacio Salgado and Nora Gabriela Calcaneo

Plaintiffs

And

Imre Toth and 659279 B.C. Ltd. doing business as HomePro Inspections,  Grahame Harold Shannon, Shirley Yap Shannon,  The District of North Vancouver  and Cesar Parayno

Defendants

Before: The Honourable Mr. Justice Burnyeat

Reasons for Judgment

Counsel for Plaintiffs:

F.R. Eadie

Counsel for Defendants Imre Toth and 659279 B.C. Ltd., dba HomePro Inspections:

G.S. Miller and C. Tham

Place and Date of Trial:

Vancouver, B.C.
May 25-29, 2009

Place and Date of Judgment:

Vancouver, B.C.
November 9, 2009


[1]             The Plaintiffs purchased a property in North Vancouver having a building lot that had a steep slope along the southern perimeter of the lot (“Property”) and a house consisting of an A‑frame structure built during the early 1960s and an addition that was constructed in the late 1980s (“House”).

[2]             The former owners listed the Property for sale during the summer of 2006 at a listing price of $1,195,000.00.  By a September 15, 2006 contract of purchase and sale (“Agreement”), the Plaintiffs agreed to pay $1,095,000.00 for the Property with the purchase to complete on October 27, 2006.  The Agreement was “subject to an inspection report and bank approval to the Buyers’ satisfaction on or before 5 week days after acceptance”. 

[3]             At the recommendation of their real estate agent, the Plaintiffs retained the Defendants, Imre Toth and 659279 B.C. Ltd. doing business as HomePro Inspections (“Mr. Toth”) to prepare an inspection report for the Property.  Mr. Toth came to the Property, inspected the House, and provided both a written and a verbal report to the Plaintiffs.  Mr. Toth received $450.50 for his services. 

[4]             The Plaintiffs allege that Mr. Toth made certain statements about the cost of repairing the Property and that those representations constitute negligent misrepresentations that were relied upon by the Plaintiffs.  At the same time, the Plaintiffs allege that Mr. Toth conducted the inspection of the Property in a negligent manner and failed to identify and warn the Plaintiffs of a number of material defects.  Mr. Toth denies those allegations, and, in any event, relies on his contract with the Plaintiffs to limit any liability that he might have.

[5]             The Plaintiffs have settled with the Defendants, Grahame Harold Shannon and Shirley Yap Shannon, who were the former owners, have discontinued their action against Alfredo Lavaggi and Sussex Realty Corporation, carrying on business as Prudential Sussex Realty and the said Sussex Realty Corporation, and have discontinued their action against the District of North Vancouver and Cesar Parayno, an engineer.  Accordingly, the Plaintiffs do not seek from the Defendants any damages or other relief for any portion of the loss, damage or expense alleged which may be attributed to the fault of those Defendants and expressly waive any right in this Action to recover from the Defendants, Imre Toth and 659279 B.C. Ltd., any amount which the other Defendants would be liable to indemnify Imre Toth and 659279 B.C. Ltd. in third party proceedings.

[6]             By agreement, the parties accept that the cost of remedial work to remedy certain problems with the House totals $192,920.45, made up as follows:  (a) “A” Frame Beams – west side of the House ($35,000.00); (b) “A” Frame Beams – east side of the House ($18,800.00); (c) Stabilization of House ($56,800.00); (d) Engineering ($26,269.00, comprised of costs incurred to date of $16,269.00, and estimated future costs of $10,000.00); (e) West side deck removal ($9,360.00); (f) replacement of the west deck ($24,100.00); and (g) a shoring up of the east deck ($11,500.00).

[7]             With G.S.T. of $9,091.45, and a contingency of $22,000.00, the total cost of the required remedial work is $212,920.45.  From that amount, the Plaintiffs subtract the $20,000.00 that Mr. Toth estimated the remedial work would cost and claim $192,920.45, as well as pre-judgment interest and Scale “B” costs.

BACKGROUND

[8]             Alfredo Lavaggi was a realtor who was contacted by the Plaintiffs.  Mr. Lavaggi introduced the Property to the Plaintiffs and acted as their agent with respect to the purchase of the Property.

[9]             At the recommendation of Mr. Lavaggi, Mr. Toth was requested to prepare a home inspection report.  Mr. Toth inspected the Property and House on September 21, 2006.  In accordance with his testimony at Trial, I find that Mr. Toth took about 30 minutes to inspect the roof and the “rest of the exterior of the House”.  I make no conclusions about how long Mr. Toth spent to inspect the interior of the House.

[10]         After completing his inspection, Mr. Toth met with the Plaintiffs, discussed what was in the written part of his report, discussed other matters about the Property and the House with the Plaintiffs, and received payment from the Plaintiffs for providing his services.  Sometime during that meeting, a contract with the Defendant, 659279 BC Ltd. doing business as HomePro Inspections, was signed by Mr. Salgado (“Contract”).  Ms. Calcaneo did not sign the Contract.  While the Contract defines “659279 BC Ltd. dba HomePro Inspections” as the “Inspector”, the Contract is signed by Mr. Toth in a space above the words:  “INSPECTOR IMRE TOTH 659279 BC LTD. HOMEPRO INSPECTIONS”.

[11]         After receiving the written and verbal report of Mr. Toth, Mr. Salgado phoned Mr. Lavaggi to discuss what he had been told.  At his March 12, 2008 Examination for Discovery, Mr. Lavaggi was asked the following questions and gave the following answers:

Q.        But he [Mr. Salgado] might have said there’s a reference here to a structural problem?

A.         He did mention, as I said to you before, that he was told there was structural and foundation problems.

Q.        Did he indicate to you what the extent of those problems were?  Other than –

A.         He talked about it and that they were major, that they were significant.

Q.        Did he say what the dollar value of the problem was?

A.         I don’t recall.

[12]         The Plaintiffs removed the subject clauses on the Agreement, the purchase in the name of both Plaintiffs completed on schedule, and the Plaintiffs took possession of the Property. 

THE CONTRACT

[13]         The Contract signed by Mr. Salgado on September 21, 2006 contained a number of provisions, including the following (capitalization and bold print as set out in the Contract):

1.  The INSPECTOR will perform a VISUAL INSPECTION of the readily accessible and visible areas of the major systems and components of the Primary Residence on the Property and certain built-in equipment and improvements.  The inspection and report are not intended to reflect on the market value of the Property nor to make any recommendation as to the advisability of purchase.

2.  The condition of certain systems, components and equipment will be randomly sampled by the inspector.  Examples of such systems, components and equipment are window/door operation and hardware, electrical receptacles, switches and lights, cabinet/countertop mounts and functions, insulation depth, mortar, masonry, paint and caulking integrity and roof covering materials.  Furniture, rugs, appliances, stored items, etc. will not be moved for the inspection.

3.  The INSPECTOR will give a professional opinion on whether those items inspected are performing their intended function at the time of the inspection or are in need of immediate repair. The inspection and report are based upon observations of conditions that exist at the time the inspection was performed.

4.  Cost estimates, if provided, are “ballpark” estimates only and are not intended to be relied upon by any person for accuracy.  The CLIENT should obtain written bids from qualified licensed contractors in order to determine the possible cost of repairs.

5.  This inspection is performed in accordance with the Code of Ethics and Standards of Practice of the Canadian Association of Home and Property Inspectors (CAHPI), a copy of which is attached to this report.  

6.  The Client is encouraged to participate in the visual inspection process and accepts responsibility for the consequences of electing not to do so, i.e. incomplete information being available to the Inspector.  This Client’s participation shall be at the Client’s own risk for injuries, falls, property damage, etc;

9.  THE INSPECTION AND REPORT ARE NOT INTENDED NOR ARE TO BE USED AS A GUARANTEE OR WARRANTY, EXPRESSED OR IMPLIED, REGARDING THE FUTURE ADEQUACY, PERFORMANCE OR CONDITION OF ANY INSPECTED STRUCTURE, ITEM OR SYSTEM.  THE INSPECTOR IS NOT AN INSURER OF ANY INSPECTED CONDITIONS.

13.  It is understood and agreed that should the INSPECTOR be found liable for any loss or damages resulting from a failure to perform any obligations, including but not limited to negligence, breach of contract, or otherwise, then the liability of the INSPECTOR shall be limited to a sum equal to the amount of the fee paid by the CLIENT for the Inspection and Report.

15.  In the event that the CLIENT claims damages against the INSPECTOR and does not prove those damages, the CLIENT shall pay all legal fees, arbitrator/mediator fees, legal expenses and costs by the INSPECTOR in defence of the claim.

16.  By signing the Property Inspection Contract, the CLIENT acknowledges, covenants and agrees that:

a)  The CLIENT understands and agrees to be bound by each and every provision of this contract;

b)  The INSPECTOR has not made any representations or warranties other than those contained in the Contract;

c)  The TOTAL fee payable at the time of the visual inspection of the Subject Property shall be $450.50.

d)  The CLIENT shall pay the fees described above to the inspector without set-off or deduction.

[14]         At Trial, Mr. Toth stated that he understood that the Plaintiffs would be available at 12:00 noon on the 21st so that he could provide them with his “presentation” regarding the inspection.  The Plaintiffs did not arrive as Mr. Toth anticipated:

I cannot recall exactly the time when they arrived.  And I believe I expressed my frustration, because we agreed upon a time, and I felt ignored and disrespectfully treated, so I was having quite a … [frustrating] time.  I expressed them I have other things to do than waiting for people, and I scheduled this, as I told, my presentation between 12:00 and 1:00, and I have other things to do.  And that was what I said, and then I started discussing the report.

[15]         At his December 26, 2008, Examination for Discovery, Mr. Salgado stated that he arrived at the Property at about 12:30.  I conclude that the presentation of Mr. Toth took between 30 and 45 minutes, and, in addition to the written and verbal report provided by Mr. Toth, Mr. Toth and the Plaintiffs visited some of the areas within the House during that time.  At Trial, Mr. Toth was asked how long he spent after the presentation of the written and verbal report going through the House with the Plaintiffs and he stated:  “15, 20 or more minutes after the structural presentation.”

[16]         At Trial, Mr. Toth stated that his contract would usually be signed by both parties at the beginning of the inspection if all parties were present but, if not present, then at the time before the inspection was discussed.  At Trial, Mr. Toth stated that it was his “usual practice” that approximately 99% of his written report was “fully blank until the presentation with my client starts”, but that, if the client was not present, then “for time management and killing the empty time”, he would fill in most if not all of the written portion of his report prior to the client being present.  Mr. Toth stated that the Contract was signed before any kind of presentation on September 21, 2006.  I find that the Contract was signed after virtually all of the written portion of the report was added to the report. 

[17]         At his October 17, 2007 Examination for Discovery, Mr. Toth stated that he completed the report, invited the Plaintiffs to sit down, and then “… introduced this inspection report system”.  At Trial, Mr. Toth stated that, after Mr. Salgado filled in his name and address on the Contract, he then said to Mr. Salgado:

This is the property inspection contract.  Opening the book, showing the contract, I told, in Canada, every home inspection conducted by a member of the national association has to have this written agreement signed.  I did my part.  I’m asking him to review it and fill the top part and sign it at the bottom.  He reviewed it and then signed it, filled it and signed it.

Since I’m not sure my clients how much they understanding or reading from my contract, this is my standard practice, to briefly point out three major elements.  I’m calling them three major elements.  Is the number 1 is inspection – this regarding to the scope of inspection, sentences 1 to 4. I briefly summarizing those section as the nature of my inspection is visual inspection. ...

And then second cornerstone or significant information is I’m following the standard of practice and code of ethics ... and that was the 5 and 6.  And I called the so-called sentence number 9 printed in bold capital lettering, I named it as a third major information, it telling inspection is not an insurance policy, not a warranty or assuring or one of the – any conditions.  This is a standard no matter how much time my clients spending reading or not reading, I’m pointing always out these three areas.

WRITTEN REPORT

[18]         The written report prepared by Mr. Toth started with a “The Big Picture/Summary” page.  The form of report was prepared by Mr. Toth after consulting with a lawyer and after incorporating the recommended contract form of the Canadian Association of Home and Property Inspectors of B.C. (“CAHPI (BC)”).  The “Big Picture/Summary” page set out eight separate areas of the inspection, rating each of the eight sections as average, above average or below average, as well as setting out “major points of concern”, setting out “significant qualities”, and setting out whether “major/minor repairs” were “recommended”. 

[19]         The rating for “STRUCTURE” was half-way between “average” and “below”, and all of the words “Major/Minor Repairs Recommended” were underlined.  The ELECTRIC, PLUMBING, KITCHEN and EXTERIOR are all rated as “Average”.  The “HEATING/VENTILATION/AC” and the “INTERIOR” were rated as between average and above average.  The “UNDER HOUSE SPACE” was also rated as between above average and average.  Minor repairs were recommended for the “ELECTRIC” and “minor repairs and maintenance” were “Recommended” for the PLUMBING and ELECTRIC components.  Maintenance was recommended for the HEATING/VENTILATION/AC COMPONENT.  The “SIGNIFICANT QUALITIES” were noted as being “200 A service”, “Newer furnace”, and “Well maintained clean interior”.  The “MAJOR POINTS OF CONCERN” for the “structure” were described as follows:  “To fix-up structural deficiencies”.  The comments under the headings “MAJOR POINTS OF CONCERN” and “SIGNIFICANT QUALITIES” were handwritten onto the report form.  The next part of the written report dealt with each of the eight components and comprised two pages for each of the eight components. 

[20]         On the first page for the component “STRUCTURE”, the following was noted:

settlement noted:                         □ Slight                     Moderate    Ongoing?

soil erosion noted:                       □ No                         Yes  South SW

[21]         The only marks or words that were not on the printed form were the question mark after the word “ongoing” and the words “South SW” after the word “Yes”.  There was a check mark beside the printed words:  “check with professional engineering/pest control contractor or _________ for complete information”.

[22]         The printed heading on the next page dealing with STRUCTURE, was: “SIGNIFICANT STRUCTURAL DEFICIENCIES”.  On this page, there were number of printed “Descriptions”.  There was a column where a tick mark could be placed to indicate that a particular description applied, a second column to write in the “Location” where the description applied, and two columns to allow tick marks to be added to indicate whether “Repair” or “Upgrade” or both were suggested.  The following printed descriptions had tick marks beside them, with the Location, Repair and/or Upgrade columns as noted:

(a)   Unstable soil conditions/erosions (location being “S, SW”, and “repairs” and “upgrade” ticked);

(b)   Solitary foundation movements (location being “S side, deck, SW (?), and “repairs” ticked;

(c)   Floor sag (location being SW living rm (bsmt) settled to South”, but without “repair” or “upgrade” ticked); and

(d)   Wood deck unstable, lateral support missing (with both “repair” and “upgrade” ticked).

[23]         In addition to those descriptions that were printed on the form, the following additional comments were handwritten in by Mr. Toth:

(a)   “Wood decks 6x6 posts have no bracing in any directions, new braces must be added.  N side framing (posts and beam) moved, doesn’t support the deck any more.  Raise the top of beam to support joists.”

(b)   “SW deck structure solitary foundations have major settlements, post base soil connection structure has no proper connection to house.  To lift-up, and reinforce foundation & posts.

(c)   “Two West side timber rafters near foundations are decayed, water damaged.

(d)   “SE corner of garage conc. structure cracked.

For each of (a), (b) and (c), the “repair” column was ticked but the “upgrade” column was not.

[24]         The other seven areas of inspection contained somewhat unimportant notations on the two printed pages for each of the seven separate areas of the inspection:

(a)   UNDER HOUSE SPACE” – “mouse droppings in furnace rm.” (with the “SIGNIFICANT UNDER HOUSE DEFICIENCIES” being noted as “Occasional seepage possible, to drain backyard!” and “Property grading pooling water against house – N. side (backyard)”, with both noting a suggested “Upgrade”);

(b)   ELECTRICAL” with the “SIGNIFICANT ELECTRICAL DEFICIENCIES” notations “Wires / boxes uncovered / loose – Furnace rm, Exterior E” and “Tree branches / vines interfering with cable”, with both noted as requiring “Repair”;

(c)   PLUMBING” – a number of repairs were recommended, but nothing of a particularly significant nature;

(d)   HEATING/VENTILATION/AIR CONDITIONING” (with the only “SIGNIFICANT H/V/AC DEFICIENCIES” being “Fireplace damper warped, not closing – Family rm”);

(e)   KITCHEN” had two matters noted:  “Refrigerator handle loose” and “Countertops have swollen joints”;

(f)     INTERIOR” was a notation “Mouse droppings in furnace room”.  There were a number of “SIGNIFICANT INTERIOR DEFICIENCIES” noted but none that bear on the questions between the parties involving this litigation;

(g)   EXTERIOR”, the “SIGNIFICANT EXTERIOR DEFICIENCIES” were noted as:  “Retaining wall has no weep holes, add new, drill drains in conc. wall along stair”, “Finished grading high, lowering 6” below siding required – NE, E”, “Yard has no proper drainage pooling rain water – N patio area”, “Debris to remove from E side”, and “50% of garage roof, 100% of N overhang roof, 90% of walkway roof, ponding water, new drainage recommended at low points”.  Upgrades were recommended for all those “deficiencies”.

[25]         After the first significant rainfall, the Plaintiffs noted leakage from the roof above the area that had been established as a family room.  As a result, repairs were made to the roof.  The Plaintiffs had discussions with a contractor who provided them with estimates of what it would cost to undertake the repairs of the areas in the report of Mr. Toth that required attention.  The Plaintiffs also had William E. Clayton undertake an inspection of the Property

REPORT OF WILLIAM E. CLAYTON

[26]         Mr. Clayton went to the Property in mid-December 2006 and undertook a cursory inspection.  That involved taking no notes but taking photographs which are in evidence.  The photographs taken in December 2006 clearly show well-established rot in a number of the A‑frame members.  While the written report of Mr. Toth had indicated:  “Two West side timber rafters near foundation are decayed, water damaged” and while Mr. Toth did not inspect the structural members on the east side of the A‑frame part of the House as he did not attempt to access a room which housed the east side structural members, Mr. Clayton found substantial problems with almost all of the A‑frame beams.

[27]         At Trial, Mr. Clayton was qualified to provide an expert opinion regarding home inspections and the responsibility of home inspectors.  His May 13, 2009 opinion was in evidence.  In that opinion, he was asked the following questions and provided the following answers:

A‑frame Beams

Q1.      Please advise if there is any material difference in the state of the structure since your inspection of the structure in November or December of 2006.”

A1.       Since my inspection on 17 December 2006, the rot conditions in all visible portions of the A‑frame members appear to have progressed and are more extensive.  At the time of my 2006 inspection, the rot appeared to be well established.

Q2.      “Please examine the balance of the exposed A‑frame rafters on the west side of the house and advise whether or not they are also in need of repair.”

A2.       I examined all the exposed A‑frame members on the west side of the house May 5th and advise that, in my opinion, all of the members, except the first one at the northwest corner, need extensive repairs and replacement of the majority of the exposed exterior portions.

Q3.      “Please examine that portion of the structure [the horizontal beam at the south end of the A‑frame structure] and advise as whether or not it is need of repair.”

A3.       I inspected the southernmost beam in the crawlspace.  It is in an advanced state of rot.  My knife easily penetrated 3” into the members.  Water was weeping out of the wood.  There were numerous fungal organisms growing on the wood members.  In my opinion, these members will need to be replaced as they cannot be repaired.

Q4.      “Please describe the state of the A‑frame rafter on the East side and advise whether or not they are in need of repair.”

A4.       Examination of the east side, southernmost A‑frame reveals extensive rot immediately above the deck.  It appears that an attempt has been made in the past to cover-up the condition or hide the condition – possibly before the last time the house was painted.  In my opinion, repairs are required.

Q5(a).  “Once the house inspector determined that two of the rafters were rotten, what steps should the house inspector have taken, what should the house inspector have reported to the client and what recommendations should the house inspector have made to the client.”

A5(a)   In my opinion, a prudent inspector in this market place at that time, would have checked the condition of all of the similar structural members and reported the condition in writing and in discussion with the client and would most likely have physically shown the client the condition.  A prudent inspector would have recommended that a (structural) engineer, experienced in heavy timber construction be engaged to review the condition and make further recommendations with respect to repair and costs for repairs.

Q5(b)   “In order to be consistent with the standards in the industry, what steps would a house inspector take with respect to the inspection of the A‑frame rafters on the East side of the A‑frame structure, particularly given the fact that he had identified two of the rafters on the West side of the structure as being rotten.”

A5(b)   The standards used by Mr. Toth and referred to in his Property Inspection Contract are the Canadian Association of Home and Property Inspectors (CAHPI) Standards of Practice.  Those Standards only require that the inspector inspect and probe “... a representative number of structural components where deterioration is suspected or where clear indications of possible deterioration exist.”

In spite of the conditions imposed by the Standards, and as explained in A5(a) above, I believe that a prudent inspector would have inspected and reported on all of the A‑frame members, not just some of them as required by the Standards.

Stability of House

Q2.      “Given those observations, in order to be consistent with the standards in the industry, what steps would a house inspector take and what would be reported to the client and recommended to the client?  In this regard, please make whatever comments you deem appropriate with respect to the reference in the house inspection report prepared by Mr. Toth to settlement and advise whether or not you believe those comments are consistent with the standards in the industry give the conditions observed.”

A2.       The CAHPI Standards of Practice require that an inspector report “on those systems and components inspected which, in the professional opinion of the inspector, are significantly deficient or are near the end of their service life.”

In my opinion, the condition of the A‑frame members were significantly deficient at the time of the inspection and should have been reported as such.  Also in my opinion, the location of the foundations very close to the juncture between the house construction site and the steep slope, regardless of their condition, should have caused a prudent inspector to recommend that his clients consult a geotechnical engineer prior to completing their purchase decision.

In his report Mr. Toth indicates on The Big Picture / Summary page that the structure is below average, and that the MAJOR POINTS OF CONCERN: are “To fix-up structural deficiencies”

Further in the report in the Structure page, Mr. Toth notes 1) Moderate settlement and suggests that it may be ongoing 2) soil erosion a [sic] the south – SW and 3) a check mark beside “Check with professional Engineer/pest control contractor” but does not specifically indicate the exact concern.

On the Significant Structural Deficiencies page, Mr. Toth indicates that there are “Unstable soil conditions / erosion” at the S, SW which require repair & upgrading and that “solitary foundation movements at the S side dec, SW (?)” need repair, and that “floor sag SW living rm (bsmt) settled to South” without any recommendation;

and that “wood deck unstable, lateral supports missing” and in need of repair and upgrading;

and that “wood deck’s 6x6 posts have no bracing in any directions, new braces must be added.  N side framing (posts and beam) moved, doesn’t support the deck any more.  Raise the top of the beam to support joists.”  Repair needed;

and that “SW deck structure, solitary foundations have major settlements, post bases have soil connections, structure has no proper connection to house. To lift-up and reinforce foundations & posts”  Repairs needed;

and that “two West side timber rafters near foundations are decayed, water damaged.”  Repairs needed.

Mr. Toth has reported many of the structural deficiencies and recommended that his client should “check with professional engineer”.  In this respect, the report appears to meet the intentions of the Standards of Practice. but, in my opinion, Mr. Toth’s report is deficient in as much as it does not make any recommendation to have a geotechnical review of the Property and that the report does not clearly present the significance of the problems observed.

Q3.      Assuming that Mr. Toth verbally advised that the slope stability Issue or settlement issue related to the supports for the decks on the south side of the A‑frame portion of the structure and that the cost of repair would be in the order of $15,000, was Mr. Toth’s advice consistent with the standards of the industry.  If not, why not?

A3.       The Standards of Practice are silent on the provision of repair estimates.

Mr. Toth’s contract states that “4. Cost estimates, if provided are “ball-park” estimates only and are not intended to be relied upon by any person for accuracy.  The CLIENT should obtain written bids from qualified licensed contractors in order to determine the possible cost of repairs.”

There are no repair costs provided in Mr. Toth’s written report, therefore any cost estimates provided must have been verbal.  Some inspectors provide order-of-magnitude estimates verbally to their clients, and in this respect, Mr. Toth appears to be consistent with industry practices although the provision of such estimates are beyond the requirements of the Standards of Practice.

If Mr. Toth did provide a repair estimate of $15,000, it would appear to be insufficient, based on the significance of the deteriorated condition of the structure and decks that were evident at the time of his inspection.  Given the limited time that Mr. Toth spent on site and the time required to adequately inspect and report on this somewhat complex structure, there was little time available for Mr. Toth to consider and provide a “ball-park” estimate that would be a reasonable reflection of the conditions noted in the house.

[28]         Mr. Clayton summarized his findings regarding the beams of the House as follows:

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Grid

A-Frame

Beam

Comments

West

 

 

 

A1

No rot evident

No beam visible

 

A2

Rot north & south

Rot north & south

Bent & beam repaired, not original.

Rot in both original and repaired beams.

A3

Rot north & south

Rot north & south

Bent & beam repaired, not original.

Beam rot in new/repaired portion only

A4

Rot north & south

Rot south

Bent & beam repaired, not original.

Rot in original beams only.

A5

Rot north & south

No not visible.

 

A6

No rot visible

Rot north

Rot in both original and repaired beams.

East

 

 

 

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October 25, 2009

Your New Condo Leaks? Join the Club

ROOFS and windows that leak whenever it rains.

Heating and air-conditioning units that can’t quite heat or cool the entire building.

Balconies with flaking concrete and wobbly railings.

These kinds of complaints have become more and more common in recent months, according to lawyers and engineers who represent owners of sleek new condominium units across the city.

They say the wave of development in New York City that started in 2004 and crested in mid-2007 has resulted in a wave of accusations about defective construction and building design.

“There’s always an underlying number of lawsuits about defects,” said Stuart M. Saft, a real estate lawyer and the chairman of the Council of New York Cooperatives and Condominiums, “but about a year ago the number started to increase. And over the next two years there’s going to be an explosion, because of all the buildings that were built at about the same time.”

He noted that buildingwide problems often don’t become apparent until people have lived in a building for a while. Legal action is often delayed because sponsors typically control a condo board for a year or more after a building opens and can block attempts by residents to file complaints.

But since condo owners have a three-year statute of limitations for suing a developer or construction contractors for negligence, many people who moved into new buildings in 2007 — when about 7,000 condos came on the market — are realizing that they will soon run out of time.

A negligence lawsuit charges a sponsor or contractor with causing harm or damage to condo owners. If the owners believe a written agreement has been violated, another legal strategy is to sue a sponsor for breach of contract. The statute of limitations for breach of contract is six years.

Lawyers at several firms said that the volume of condo defect work had doubled in the last year, adding up to dozens of buildings with construction problems. In most cases, the condo owners hire lawyers to add muscle to their complaints, in the hope of getting the necessary work done. In a few instances they have filed suits. Lawyers say that condo owners are reluctant to talk about the defects in their buildings, fearful that publicity will decrease the value of their properties.

Water leaks and climate control problems top the list of complaints. Many of the recently built glass towers are especially prone to temperature issues, because air-conditioning units are too small to combat the punishing summer sun, and heating systems can’t make up for a lack of insulation during the cold months.

But lawyers and engineers said that they had also come across buildings with more serious defects that violate the city’s building code. The most common code violation involves inadequate fire-stopping components — building materials that are used to fill empty spaces where fire or smoke can spread between floors and apartments.

Howard L. Zimmerman, an architect whose firm is checking about 35 new condo buildings for construction problems, said that his workers had found fire-stopping violations in about a third. He said his firm has clients in buildings of five to 300 units, throughout Manhattan and in Brooklyn and Queens.

According to Mr. Zimmerman, the most common problem is found behind the walls of apartments, where, say, no caulking material has been used to seal a two-inch space between a pipe and a concrete wall. That unsealed space, he said, “is where smoke and fire can travel quickly,” and it could also allow smells to float through a building. “Odor migration has been a tremendous problem, and if you buy a $3 million apartment, you probably don’t want to smell your neighbor’s smoking or the restaurant downstairs.”

Mr. Zimmerman says that the Department of Buildings can miss these kinds of lapses because architects or engineers hired by the sponsor are allowed to vouch for certain aspects of construction. “There was supposed to be somebody on the job who signed off that this was all installed before the walls got covered up,” he said. “As nutty as it sounds, just because you have a certificate of occupancy doesn’t mean you have a building that’s code compliant.”

He and real estate lawyers said that even when a condo board discovers building code violations, it is often reluctant to alert city officials because the board then becomes responsible for correcting the problem as well as for paying any fines.

James P. Colgate, an assistant commissioner at the Department of Buildings, says that condo boards are not under any obligation to report code violations. But when they do, the department may decide to investigate whether an engineer or architect improperly certified work at the building.

As for problems like water leaks, Mr. Colgate said that a certificate of occupancy was not the same thing as a guarantee. Such a document “certifies that the building is substantially in compliance with rules governing its construction,” he said, “and even if workmanship in a building may not be superb and you get those kinds of issues, the building might still be in compliance.”

When a building is clearly out of compliance, talk quickly turns to lawsuits.

Steven D. Sladkus, a real estate lawyer at Wolf Haldenstein Adler Freeman & Herz, said that he represents an Upper East Side building where the developer put only one layer of wallboard between the floors, instead of the two layers required by city code to create a fire-resistant barrier. “The board knows that’s a serious code violation, and it’s prepared to do the work and sue the developer and hope for reimbursement,” he said.

Mr. Sladkus said that the board hoped that the New York State attorney general’s office, which oversees condominium offering plans, would press the sponsor to do the work.

It will be expensive and disruptive, he added, since contractors will have to remove ceilings and recessed lighting to install the fire-stopping materials.

At the Slate Condominium, a 12-story glass-walled tower in Chelsea where in 2007 one-bedroom apartments sold for as much as $1.4 million and two-bedrooms for as much as $1.9 million, the condo board filed a lawsuit in March accusing the sponsor, Chelsea Luxury Condos, of using defective materials and of not living up to promises made in the offering plan.

“The unit owners have not only personally observed a number of defective and unsafe conditions in the building, but they have suffered a plethora of dangerous conditions,” the suit states. The complaint lists incomplete fire-stopping in hallways, and uneven floors and water damage in various places. Problems common to individual units include warped floors and balcony doors, nonworking electrical outlets, rusted kitchen faucets and water leaks.

Most people moved into the 26-unit building in 2007, and the apartment owners took control of the condo board in April 2008. Debra Guzov, the lawyer representing the condo board, would not comment on the case.

Anna A. Higgins, the lawyer representing the sponsor, said the sponsor had hired its own engineer to inspect the building, and “our position is that the problems listed are mostly punch-list items and are not considered defects, but things that are under warranty and therefore the responsibility of the subcontractors.”

The sponsor has, in turn, brought several of its building and electrical contractors into the suit as third-party defendants, charging they were negligent. “This is a reputable building and company,” Ms. Higgins added. “And they take these matters very seriously.”

The sheer volume of new buildings that went up during the condo construction boom is the main reason for the increase in defective buildings, lawyers and engineers said.

“It happens in every cycle,” Mr. Saft said. “At the beginning of the cycle, workers are underemployed, then suddenly they’re busy, and at the height, there are too many projects and not enough workers. Then what happens is shoddy workmanship, and when you have sponsors running out of money, they start to cut corners.”

Andrew P. Brucker, a real estate lawyer with the New York law firm of Schechter & Brucker, said that the boom had prompted people with no experience in real estate to start building condos. “When the market was hot,” he said, “anybody who had a couple bucks suddenly became a developer, thinking they’d get rich. When the market was strong, if you complained about something, sponsors would fix it, but then the market started to tank and brand-new buildings aren’t selling out, so there’s no money to do that anymore.”

The more unusual problems that Mr. Brucker has encountered include a building whose developer built an illegal pool and another whose developer put the building’s electrical system in a closet inside an apartment. The pool, he said, was never approved by the Buildings Department and may have to be removed. The electrical closet may also be illegal, because it may not be easily accessible in an emergency. In both cases, the solutions will entail costly projects.

When it becomes clear that a building has problems that go beyond punch-list items — a kitchen drawer, say, that won’t stay shut or a closet door that sticks — the first thing owners should do is hire an engineer.

“You have to get a top-to-bottom assessment of the building — the interior, the exterior, all the systems,” Mr. Sladkus said. “That creates a record and tells the board where things stand.”

The sooner this is done, the better, he added, because it takes away a sponsor’s potential claim that problems were caused by the apartment owners. Depending on the size of the building, an engineering report could cost $10,000 to $50,000.

Filing a lawsuit is usually a last resort because it can be costly and take years to resolve. Lawyers say the condo board’s first course of action should be to try to negotiate with the sponsor, with a goal of having the sponsor make the repairs or pay a settlement to get the work done.

If that fails, lawyers said, a condo board can file a complaint with the attorney general’s office, which can help to mediate a dispute and press developers to make repairs. The office can, but rarely does, file its own lawsuit against a developer. But lawyers say that the attorney general has been inundated with complaints; it can take months just to find out if the office will take on a building’s case.

“The attorney general will look at life, health and safety issues and things like whether a temporary certificate of occupancy is current,” said Jeffrey S. Reich, another real estate lawyer at Wolf Haldenstein. “But it’s hard to get them motivated to roll up their sleeves on minor issues.”

Lawyers believe that the attorney general’s office is more likely to act on behalf of smaller buildings, because it recognizes that litigation could be prohibitively costly for buildings with relatively few unit owners.

That presumption is well illustrated by one case in which Mr. Reich represents the owners in a large luxury building that he had hoped the attorney general would see to. But, he said, “the sponsor’s attorney went to the attorney general and said they should not take the case because the apartments are larger than regulation basketball courts and the owners are titans of finance who are fully capable of pursuing it in court.”

Mr. Reich said he was able to persuade the office to keep pursuing the complaint only because an aspect of law was involved that could not be addressed in court because it fell under the attorney general’s jurisdiction.

A spokeswoman for the attorney general encouraged condo owners facing building problems to contact the office’s real estate finance bureau.

The attorney general’s Web site states that when the office receives a written complaint about a building, “we usually demand that the sponsor provide a written response to the allegations. Sometimes, this alone causes the sponsor to repair the defects.”

If that fails, the site states, the office may send its own engineers to inspect the property or have the two sides jointly hire an engineer or architect to evaluate the building and suggest solutions.

Sometimes, even when an early settlement offers the promise of resolution, unit owners still end up in court.

At the Broadway Arms, a 12-unit building that opened in Williamsburg, Brooklyn, in late 2004, the owners took control of the condo board fairly quickly. When they noticed the leaking roofs, shoddy balcony railings and a faulty ventilation system in 2005, they hired an engineer to review the building.

By July 2006, the condo board had reached an agreement with the sponsor, Broadway Driggs Associates, to fix many of the problems the engineer had found. But Alan Winkler, the condo board’s lawyer, said that the work was never completed and that the board decided to sue the sponsor in late 2008 for failing to live up to the offering plan and the settlement agreement.

Mr. Winkler said that the sponsor had repaired the balconies and done some work on the building’s upper roof, but that a lower roof still had leaks, and various problems persisted in the common areas. “At this point,” he said, “there shouldn’t be any contention as to whether this work needs to be done.”

The sponsor denied the charges in court filings and has accused its building contractor of walking off the job. The contractor in turn has denied that in court papers and has claimed that the sponsor owes him $200,000.

Charles L. Mester, the sponsor’s lawyer, said, “A lot of the problems were fixed and it’s just an opinion of some other experts that what was done should have been done another way.” He added that the $200,000 figure “has no basis in anything.”

Five years after they moved into the building, the owners “would like to resolve this quickly,” Mr. Winkler said. “But they want to make sure they get the value they were promised for their units when they bought it.”


Artist Michael Zheng has a message for developers of leaky rotten condos

Art installation intrudes like leaky condos wrapped in tarps     

Micheal Zheng's art installation, The STOP, in Vancouver is supported by concrete donated by Ocean Cement as are many leaky rotten condo buildings.

The False Creek Elementary School in the background is one of many leaky rotten schools in British Columbia.

Artist Zheng wants us to consider the meaning of "stop", something developers of leaky condo developers in British Columbia were not interested in doing as long as they could keep making money by selling defective condominiums.

We are hopeful that Zheng's jarring intrusion upon the landscape will removed soon.

Unfortunately the owners of leaky rotten condos will be forced to pay for repairs for many more years after Zheng's message on aluminum and steel has been recycled as scrap.

red_side

Michael Zheng’s The STOP has been installed in two locations in Vancouver to kick off the 2009-2011 edition of the Vancouver Biennale!  These arresting and thought-provoking pieces can be found in Charleston Park and Vanier Park and have already attracted lots of photographers and commentary from people passing by.red_side

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