Executive Summary: Key Legal and Evidentiary Issues

• Section 61(3) of the Condominium Property Act was interpreted to permit payment of the corporation’s debts and expenses from insurance proceeds and reserve funds during condominium termination.

• Several mortgage lenders objected to the use of insurance funds for debts, arguing it subordinated secured interests, but the Court disagreed.

• Structural deficiencies discovered post-fire and the resulting evacuation necessitated urgent financial measures to preserve the property.

• The Court held that the Act prevails over the condominium bylaws where inconsistencies exist, rendering bylaw restrictions ineffective in this context.

• Although a special resolution to terminate the condominium failed, the Court found sufficient grounds to grant termination-related orders in equity.

• Holding back funds for potential claims against directors, future litigation, and carrying costs was found reasonable and prudent.

Fire damage reveals structural deficiencies and leads to evacuation

The building known as Castledowns Pointe, constructed in 1999 or 2000 and comprising 83 units over 3.5 stories, suffered a fire in March 2023 that destroyed the roof and fourth floor of approximately half of the building. Water damage from firefighting impacted all floors. As a result, 44 units were damaged and 39 were rendered uninhabitable.

Following the fire, consulting engineers retained by the Corporation reported structural deficiencies predating the fire. These findings led the Board to determine on September 1, 2023, that all units should be evacuated. The City of Edmonton subsequently issued an evacuation order. All occupants vacated the building by December 15, 2023.

Repair estimates provided between November 27, 2023, and January 5, 2024, indicated:

• $7,099,050 plus GST to remediate structural deficiencies

• $607,782 plus GST to demolish the building

• $349,652 plus GST to install a new roof

In January 2024, the Board convened a vote on a special resolution to terminate the condominium status. Although 66% of owners or mortgagees representing 64% of unit factors voted in favor, it fell short of the 75% required under sections 1(x) and 60 of the Condominium Property Act. Despite this, the Corporation proceeded with a court application seeking, among other things, orders for termination, sale, and direction on distribution of proceeds.

Court permits listing and later authorizes sale

On May 3, 2024, Justice Bercov granted an order permitting the Corporation to list the entire property for sale. Offers were received in July 2024. The Corporation applied on August 2, 2024, to accept one of these offers. Four additional offers were received on October 8 and 9, 2024. On October 9, 2024, Justice Dunlop approved the acceptance of an offer with a closing date of November 28, 2024.

The October 9, 2024, Order allowed proceeds to be used for:

• CRA GST payments

• Real estate commissions

• Property taxes

• Legal fees up to $15,000 (plus GST and disbursements)

• Payments to First General Services Edmonton and GPS Security Group Inc.

• Legal fees to Willis Law ($230,286.04)

• Other vendor payments up to $100,000

The Order also directed that insurance proceeds be held in trust by High Clouds Inc. and preserved mortgagee security interests against unit owners’ shares of the net sale proceeds, including insurance and litigation proceeds.

The sale did not close on November 28, 2024. The Corporation agreed to two extensions; the closing date was moved to January 31, 2025.

Debts, insurance coverage, and financial shortfall

As of January 31, 2025, outstanding debts included:

• $130,197.23 to First General

• $346,089.04 to GPS Security

• $427,918.42 to Willis Law (assessed and approved by a review officer)

The Corporation’s operating account held $48,008.57 as of January 2, 2025. More than half the units were in arrears on contributions. Reserve fund balances dropped from $533,692.28 (Dec 31, 2023) to $62,072.88 (Jan 2, 2025). A GIC of $34,212.65 was non-redeemable until December 5, 2028. Insurance funds totaling $2,912,875.17 were held in trust.

Insurance policy sub-limits included:

• $10,000 for security costs

• $10,000 for professional fees

• $50,000 for extra expenses

• $50,000 aggregate “catch-all”

These limits were exceeded by actual expenditures. The Corporation also pursued—but had not yet resolved—a claim for pre-existing structural defects. It was unable to renew directors’ and officers’ insurance past December 1, 2024, despite efforts by its broker.

Interpretation of the Act and Court’s ruling

Justice Dunlop ruled that section 61(3) of the Act empowered the Court to authorize payment of the Corporation’s debts and ongoing expenses from insurance proceeds and reserve funds. He reasoned:

• Section 47(5) makes such payments “subject to sections 59, 60 and 61”

• “Adjusting as between the corporation and the owners” includes paying debts before distributing funds

• The Act makes no specific provision for mortgagee payments; their rights are derived through the owners

• The Court’s discretion is broad under section 61 and is not constrained by the bylaws

• The Corporation could otherwise levy special assessments with similar effect, including priority via caveats under section 39.2

The Court rejected arguments based on section 43(c) of the bylaws, noting the resolution to terminate was not passed within 100 days of the fire, nor did it pass the required threshold. Therefore, the clause requiring direct payment of insurance to owners and mortgagees was not triggered.

Final outcome

On January 17, 2025, Justice Dunlop granted the Corporation’s application to:

• Relist the property if the sale did not close

• Use insurance proceeds and reserve funds to pay debts and carrying costs

• Hold back funds for potential director and officer claims and future litigation

The Court held no costs were awarded for the application. Justice G.S. Dunlop delivered the written reasons dated January 24, 2025.