Residents of a boutique Hamilton condominium are contemplating selling off the entire building and terminating the condo corporation as a way to ward off a financially ruinous special assessment for repairs.
According to some of the building’s owners, studies commissioned by the condo board show a series of construction issues have created the need to raise as much as $3-million. Because there are only 12 units in the building and 11 owners, even if the bill for repairs was spread out, each unit-holder could end up on the hook for as much as $250,000.
“It’s insane. It’s the worst real estate transaction I’ve done in my life,” said Nancy Forrester, a Hamilton real estate agent and a former member of the condo board, speaking of her decision to buy in the building at 35-43 Duke St. in 2014. “I look at the worst-case scenario: either we can’t sell [the building] for enough, or we make 12 people go bankrupt and then the property is worth nothing.”
Built in 1856, the limestone building is a federally and provincially recognized heritage property known as Sandyford Place. It’s comprised of a row of four, triplex townhouses, and is done in a Renaissance Revival style typical of this era of pre-Confederation Hamilton. The row was formerly owned by the City of Hamilton and was converted into a single condominium corporation following its 1979 heritage designation. None of the owners from that time remain in the building, but, according to property records some residents have been there for decades. The current condo corporation, Wentworth Condominium Corp. No. 96, was registered in 1984.
The most critical repairs relate to a balcony on the rear of the building: installed by the City of Hamilton, the balcony provides rear-access for several units. There’s an often-broken elevator for accessibility, the repair schedule for which has been the subject of Human Rights Tribunal hearings and complaints in recent years.
“There had been plans to do work on the balcony pretty much most of the time I’ve been there. They were originally talking about repairing it, but we’ve gotten to the point where that repair doesn’t seem to be enough,” Ms. Forrester said. The steel and concrete structure apparently has significant corrosion and water damage. “The problem is in getting people to agree what needs to be done. We got different opinions from engineers and we put it out to tender, results came back with $1.4-million to $1.8-million.”
Under Ontario’s Condominium Act, condo boards must perform reserve fund studies to ensure the corporation has the money to pay for needed maintenance to a building’s common elements. When the funds are short, the board can issue legally binding special assessments that owners must pay. Failure to pay can result in a condo board taking back a unit and reselling it. Residents say Sandyford Place’s most recent reserve fund study suggests the corporation needs to raise close to $3-million.
“In principal, I completely approve of selling the building,” said Philip Gardner, a reverend with West Plains United Church. “It’s not that I don’t love the place … the building has aged and we’ve ended up financially on the hook for it. There’s coping with the $20,000 variety [of special assessments], which I’ve had to do twice in three years, but what happens when a special assessment is catastrophic? Selling the building to some agency with deeper pockets seemed to be the only way out. My personal bill was $280,000 … there’s no way I can borrow that.”
The process the board is contemplating is found in section 124 of the Condominium Act. It allows for a corporation to dissolve itself and distribute the proceeds of a sale of all the units and the land the building sits on. This procedure has only been used once before in Ontario, in 2017.
The first step is to find a buyer. In November, the board listed the entire building for sale for $4,999,999, and according to Ms. Forrester it was conditionally sold, but negotiations on price and other issues are currently ongoing.
Section 124 requires that 80 per cent of owners and lenders in a building agree to the terms of the sale. And the process differs in other ways from a typical real estate transaction. For instance, “on closing, there’s no discharge of the mortgages – they are just wiped off title,” said Greg Marley, a real estate lawyer who worked on the sale of 39 Roehampton Ave. in Toronto, a 27-unit condo and the province’s only prior Section 124 transaction. “There was no process in place to address it. We gave comfort letters to each of the banks letting them know the loans would be repaid. A couple had some issues and we had to walk them through the process.”
Mr. Gardner bought his unit in 1999, making him the longest-tenured resident after Joan MacDonald, who has been in the building since 1989. Ms. MacDonald, formerly the condo board’s president, has brought a number of legal actions against the condo board in recent years and is currently embroiled in litigation with the corporation. In 2017, the corporation filed a lien for $12,529 against the title of her townhouse in relation to a previous special assessment. The lien remains on title, and Ms. MacDonald is disputing it in court.
The current condo board president is Sam Nash, a partner in Hamilton’s George Street Law LLC, and head of its commercial litigation group. Mr. Nash, who bought his townhouse in 2014, was unavailable for comment. Chris Kernjeta (who purchased his unit in 2014), is also on the condo board, but didn’t respond to attempts to contact him. Anna Procwat, who with her husband, Eugene Miner, owns two townhouses (one purchased in 2003 and the other for well-below market price in 2018) in the complex and was recently added to the condo board, declined to comment when reached. Ms. Procwat’s brother, Alex, also owns a unit in the building, purchased in 2008.
Donna Bacher, a local realtor, believes the individual condos could fetch as much as $750,000 on the market and she has heard from some residents who worry any offer might not reflect fair value.
“I can see this is a very vulnerable group of people; they don’t live extravagant lives, Ms. Bacher” said. Some of the units in the complex are 2,000 square feet in size. In a tightening downtown Hamilton market people might be taking on new debt in retirement or near-retirement to move into a condo apartment half that size in a new building such as the nearby Connaught on King Street.
Greg Evans, a broker with Behar Group Realty Inc. who worked on the Roehampton deal, has consulted on a number of Section 124 attempts since 2017, but none have come to fruition. He predicts that more will happen, particularly to smaller condo buildings on land with great development potential and where it’s not as difficult to wrangle all the parties. The trickiest part, he said, is managing expectations.
“I think there’s an immediate response from the owners: they think it’s a lottery ticket. … This land is worth a fortune because they are going to build a condo here and they don’t know the timelines and economics and the risks involved from the development side," Mr. Evans said.
“[In Roehampton] we were able to educate the owners and manage their expectations, while at the same time give them the confidence they weren’t being taken advantage of by the big bad development community.”
In the case of Sandyford Place, the motivation to sell seems to be the stick of a special assessment more than the carrot of a developer’s offer. But Mr. Marley suggests there is a third way: “Loans are an option: the act requires if you’re going to borrow any money [as a corporation] you have to pass a by-law.” Paying off the loan would raise the condo’s fees, but it might not require an enormous special assessment.
Sandyford’s condo board has yet to present any finalized purchase offers to its membership for a vote.
Editor’s note: An earlier version of this story said the lien on Ms. MacDonald’s property had been paid out. In fact, the lien remains on title, and Ms. MacDonald is disputing it in court.
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