If you have reached an impasse or a breakdown in negotiation in a dispute involving legal matters, your first impulse is to call an attorney. Disputes often develop into serious conflicts between tenant and landlord (commercial or residential), vendor and purchaser (conflicts over title, hidden defects), syndicates and co-owners, franchisors and franchisees, etc. Conflict is inherent in the human condition, however the manner in which we diagnose the conflict and determine the most appropriate process for solving it, can greatly affect the outcome. There are ways to deescalate a dispute and resolve it in a way that is collaborative, less costly and perhaps even less stressful. Indeed, there is a spectrum of possible processes that can be selected. These include but are not limited to moderated settlement conference, early neutral evaluation, mini-trials, mediation-arbitration, arbitration, ombudsman etc. In fact, there are times when the conflict can be resolved and/or managed in a way that the parties can continue a valuable business or personal relationship.

In order to comprehend what the problem is, it is necessary for the professional to actively listen to the client and to gather as much information as possible. Information may be difficult to retrieve initially, especially if litigation has not commenced, since the initiation of litigation comes with pieces of evidence i.e. exhibits. Furthermore, litigation often involves examination of opposing parties where they are often asked for further information which can then be substantiated by documents that are produced. This is a long and expensive process.

As an attorney for over 35 years and an accredited mediator, I can attest to the fact that the appropriate process is not always litigation. Litigation is often costly, time consuming and emotionally draining. However, sometimes there is no other choice, as when there is a breakdown in the negotiations and there is a limited time period to enforce the rights before the courts due to prescription or statute of limitations. For example, if a homeowner was in a dispute with a general contractor over shoddy and/or incomplete work done on his or her home, there is a limited time period in which the homeowner may legally sue the contractor. If they wait too long, they will have no legal recourse. I will now briefly outline some of the other options available.

Moderated Settlement Conference (Court-Assisted Mediation)

Even if the lawsuit has begun, it is possible to have a mediator, such as an active or retired judge intervene, who may assist the parties to enter into an agreement on their own volition. In Quebec quantitatively this has meant a great reduction in the number of cases that actually go to trial, saving costs, time and often preserving relationships. One of the advantages is that if litigation has already begun, the mediator is paid for by your taxes, i.e. no additional cost to the parties. However, if the mediation takes place pre-litigation, the parties must pay the mediators for their service. Mediation is not binding which can be an advantage or disadvantage.

Mediation- Arbitration

Another possibility is that the parties foresee that should mediation fail, they agree to go straight into arbitration, which is binding, with no right to appeal. Often the arbitrators will be experts in their field which is the subject of the conflict, such as engineers in cases of hidden defects. The advantage at this point is that the experts might already be aware of the issues if they have participated in the mediation. This would further reduce costs. However, the arbitrators need not have been involved in the previous mediation, and in that case, would have to come up to speed on the issues at hand, with a fresh set of ears.

Early Neutral Evaluation

This possibility will depend on the neutral evaluators’ expertise and personal qualities. The parties must behave in a collaborative manner in selecting an evaluator with subject matter expertise, experience, and a good reputation. One of the key elements is neutrality. Traditionally, former judges, academics, private practitioners or experienced mediators are selected. Early neutral evaluation identifies the main issues, analyzes the relative merits of each party’s case and forecasts the likely outcome and scope of damages. This process will hopefully lead the parties to come to a mutually agreed settlement.

Mini Trial

A mini trial is more conducive to solving business-related disputes but can be adapted to be used in resolving areas of conflict. It converts a legal dispute from a court-oriented problem to one focused on the parties themselves by putting the resolution of a legal dispute back into the hands of the litigants. It is the litigants that resolve the dispute together with their litigant representatives (attorneys, experts, etc.) who are cognizant of the strengths and weaknesses of each case and have the authority to settle the dispute. The lawyer and expert present the summary arguments (legal arguments) before a jointly selected neutral advisor. The litigant representative may ask questions and perhaps cross-examine witnesses, in their attempt to negotiate a settlement. If the parties are deadlocked, the neutral advisor can provide an incentive by indicating the likely trial outcome. The neutral advisor issues a nonbinding opinion to each side, assessing the strengths and weaknesses of each side. The mini trial is confidential and non-binding. There is no written transcript. Most of the preparatory work having already been done, reduces the cost of litigation and may hasten a quick result.

Anyone who has taken the route of commencing litigation will tell you that the degree of emotion or temperature is high. In order to deescalate the situation there are techniques involved that will successfully reduce the combined tension so that it can be managed and lead to a satisfactory resolution. As previously mentioned, there is a wide spectrum of options beginning with negotiation and ending with litigation. Common elements may be found among the different options, and the process selected should be adapted to suit the situation at hand. Weaved into the various processes are negotiation techniques in order to determine the common interests, and underlying motivations, fears, etc. of the various parties, so that they can be addressed, and the parties can collaborate jointly towards achieving a mutually satisfactory result. Once the ice is broken, further progress is possible. Much will depend on the contextual situation, that is the facts, the law and the professionals engaged, who must clearly analyze the situation and provide numerous and creative options that are sustainable.

The post The Advantages of Alternative Dispute Resolution first appeared on Montreal Lawyer, Michael Concister, Real Estate Expert.

In divided co-ownership, an immovable (your unit) is divided between your own exclusive or private portion and a share of the common (undivided) portions e.g. corridors, elevators, swimming pool, which are in principal shared by all the co-owners. Undivided co-ownership is a concept that will be discussed in a future article.

OBLIGATIONS OF THE CO-OWNERS:

The key document that governs all the co-owners and that should be read in advance of finalizing the promise to purchase (a condition precedent before going to the notary) is the Declaration of Co-ownership. In it, you will find out what your obligations and duties are towards the other co-owners, what you can do, and cannot do and how you may go about making possible changes. In other words, it contains the rules that must be respected in order to   properly manage the whole i.e. the ensemble of co-owners or syndicate.

There are 3 parts to a Declaration of Co-ownership: Constituting Act of Co-ownership, By-laws of the property and Description of the fractions.

WHAT IS A DECLARATION OF CO-OWNERSHIP?:

Each syndicate has its own distinctive Declaration of Co-ownership that must be registered in the land registry where the property is situated in order to have a “condo”; this is done by a notary and although there are numerous clauses that are similar, no two are identical. Hence, there is no boiler plate “declaration” where you can find out what your rights are. Each one must be read in its entirety as they are drafted to suit the situation of the condominium. Indeed, there may be a number of syndicates at the same location with distinct Declarations of Co-ownership.

CONSTITUTING ACT:

The Constituting Act establishes the purpose of the condo i.e. commercial, residential, mixed, industrial and its private and common parts. This is important in establishing who is responsible for such obligations as maintenance, insurance, repairs etc. In this part you will find the enumeration of common parts with a restrictive usage which are spaces specifically reserved for the co-owner or of a few co-owners such as an elevator serving not all the co-owners but a few of them.

Another key concept is the relative value of each fraction that will determine the number of votes which a co-owner has vis-à-vis voting at the general assemblies of all the co-owners and making minor and/or significant changes to the Declaration of Co-ownership that inevitably affect all or some of the other co-owners. Among the decisions made are the condo fees paid for each private or exclusive portion. Non-respect of these agreements and the by-laws will often result in penalties.

In order to amend the Constituting Act, a majority vote of the co-owners is required, representing three-quarters of the votes of all the co-owners. Once decided, these changes must be notarized.

THE BY-LAWS:

The By-Laws are usually the second part of the Declaration of Co-ownership and contain the rules for the administration of the Syndicate. The By-Laws deal with the use, enjoyment and maintenance of the exclusive and common portions. Examples are parking, balconies as well as permissible renovations within your own unit. This must be read carefully before embarking on expensive renovations.

In a recent case, a co-owner sharing the premises with one other co-owner, wishes to do renovations to his exclusive portion. The two parties are in disagreement and this with regard to the interpretation of the Declaration of co-ownership. In order to ascertain the rights and obligations of the parties, it was necessary to hire legal counsel to look at all three (3) sections of the Declaration. Should the parties continue to disagree on their respective interpretation, the matter will be brought before the Court, which is both time consuming and costly.

The By-Laws also contain the rules with respect to the functioning and administration of the co-property. They detail how elections take place, the composition of the board of directors and how often they meet, as well as when general meetings of the co-owners are convened and how they are run. In addition, there are the By-Laws concerning the payment of condo fees and the procedures in order to recover amounts owing in case of default.

In order to amend the By-Laws, a decision can be taken by the majority of co-owners present or represented at a meeting. Once decided, these changes must be notarized.

DESCRIPTION OF FRACTIONS:

The description of fractions is the third and final part of the Declaration of Co-ownership which is highly technical in nature. It provides for the legal existence of the Syndicate i.e. the designation of the exclusive and common parts by their cadastre number. It is here that you will find the existence of servitudes, or other real rights registered against the property e.g. rights of passage given to have access to services. In order to amend the description of fractions, a majority vote of the co-owners is required, representing three-quarters of the votes of all the co-owners. Once decided, these changes must be notarized.

CONCLUSION:

When purchasing a condo (divided co-ownership) whether acting for yourself or using a real estate broker, make sure that you have read the governing document, the Declaration of Co-ownership. If you have questions on certain potential situations, a lawyer or notary should be consulted for the legal interpretation of the Declaration of Co-ownership which outlines the duties and obligations of the individual co-owner.

The Declarations of Co-ownership granted before 1994 do not have the same standing as today. There can be clauses that due to the change of law are no longer valid. Hence, a review by a legal professional will help to avoid any conflict of interpretation.

As Benjamin Franklin stated ,“An ounce of prevention is worth a pound of cure.”

The post Condo Ownership in Montreal first appeared on Montreal Lawyer, Michael Concister, Real Estate Expert.

Montreal Real Estate Lawyer discusses commercial lease in Montreal. . .

Commercial lease is a delicate dance between the landlord (owner) and the tenant (lessee). In order for the parties to succeed, they must collaborate with each other, in good faith, enhancing a symbiotic relationship. This involves, among other things, having the right mix of clientele (tenants), ensuring adequate provision of services, marketing and in the final analysis drafting of a proper commercial lease (contract) that embodies not only the above, but many other subjects that govern this important commercial relationship.

Good faith is a legal concept that is mentioned in several passages of the Civil Code. Essentially, every person is bound to exercise his civil rights in good faith. One of our basic rights is the right to enter into a contractual relationship (e.g. commercial lease). Moreover, the law stipulates that the parties (in our context owner / tenant) must act in good faith between the time the obligation arises and when it ends. These concepts should be applied to the basic premise underlining the concept of lease as described in Article 1851 C.C.Q. “The lease is a contract whereby a person, the lessor, undertakes to provide another person, the lessee, in return for rent, quiet enjoyment of furniture or a building for a certain period of time.” We have to look at the different phases of a lease to assess the contractual relationship (training) – promise rent, execution (commercial lease) and its extinction.

PRE-CONTRACT OR PROMISE TO RENT:

In undertaking the negotiations, the two parties must negotiate in good faith in order to come to the signing of the lease. Even if no contract was concluded, the parties may be subject to a demand for extra-contractual damages. For example, during the negotiations, confidential information can not be misused by one or other of the parties. In addition, if the landlord writes the leases such that they contain clauses that are in bad faith, they may be canceled or, if sufficiently serious, lead to the termination of the commercial lease. Each case must be evaluated for its own facts.

IMPLEMENTATION OF COMMERCIAL LEASE:

This is not just a question of the content of the lease, but how the obligations contained therein are executed. The collaboration between the owner and the tenant means watching all existing relationships to determine the legitimate and reasonable objectives of commercial lease.

In one case, the new owner of a commercial building wished to carry out non-urgent renovation. He had a duty to ensure that the work is done so as not to cause harm his tenant. The execution of the work proved chaotic. It did not give the tenant a notice different stages of renovations. The tenant has negotiated with the workers for accommodation to absorb the impact of work affecting its business operations. A fundamental principle was violated by the landlord, in that he must give the tenant the peaceful enjoyment of the premises.

Through the commercial lease between the tenant and the landlord, it is possible that either party may cause damage to a third party (someone other than the tenant or the landlord, such as a sub-lessor or deductible). If this happens, the party that has suffered damage can continue in extra-contractual damages. In considering this question, we find that the duty of good faith may go beyond the two parties to the commercial lease.

TERMINATION OR RENEWAL OF THE COMMERCIAL LEASE:

There is a shared responsibility between the owner and the tenant or a partnership, i.e. a mutual collaboration on termination (breaking) of the lease.

A corollary or extension of the concept of good faith is the obligation of both parties to minimize damages should one of said parties be in default. Article 1855 of the Civil Code stipulates that the lessee is bound to pay the agreed rent and to use the property with prudence and diligence during the term of the lease. While in strict law it means that rent should be paid to use and enjoy the property, it is not absolute. Where a tenant is in default for non-payment of the rent, the landlord must make sufficient efforts to rent out the premises to another tenant, thus mitigating his damages.

Even if the commercial lease gives rise to a right of resiliating (breaking) a commercial lease or asking for a specific execution of an obligation under said lease e.g. payment of complete rent for the duration of the lease, there is still an obligation of good faith i.e. to reduce one’s damages.

In an ongoing case, the landlord is seeking to resiliate the lease between the parties for non-payment of the rent and abandonment of the premises. The landlord according to his interpretation of the lease is seeking to enforce a (12) month penalty clause as well as a clause within the lease giving the landlord the right to appropriate the movables in the premises (which in this case are tanning machines). The tenant in his defence claims that he was ill due to a heart attack and that he was never notified of the landlord’s intentions. Furthermore, he claims not to have understood what he was signing and that the terms and conditions (contract of adhesion) were imposed upon him. In the meantime, the landlord has rented the premises to the former manager of the tanning salon who is using the equipment, thus mitigating his damages. Were there abusive clauses within the lease? Did the parties collaborate in good faith? These are questions that will be decided in a court of law in 2017.

It should be noted that the obligation to negotiate in good faith is not unlimited. In 2014, the Court of Appeal of Quebec, speaking on the extent of the collaboration between the landlord and tenant refused to impose on a commercial landlord an obligation of reviewing the conditions of the lease because of financial problems of the tenant. Good faith only extends so far.

CONCLUSION:

Mutual respect must exist in the negotiation, drafting, execution and / or termination of a commercial lease. What seems clear from a reading of a lease can sometimes be different, in reference to the conduct of the parties, as interpreted by the courts.

The post Montreal Commercial Lease first appeared on Montreal Lawyer, Michael Concister, Real Estate Expert.

… Montreal Real Estate Law expert discusses having the property inspected prior to sale/purchase –

In nine of the ten provinces of Canada, including Quebec, there is no regulatory agency authorized to train building inspectors for the pre-purchase inspections of  buildings in commercial and / or residential. The only exception is British Columbia. Indeed, inspection of a building is not legally recognized as a profession by the Professional Code, and is not restricted to a particular group of individuals.

Anyone can practice in Quebec as an inspector, but most of them are either engineers, architects, industrial designers, certified appraisers, former promoters or handymen. Their formation is not uniform, and while everyone may possess some knowledge in the area, it is often not sufficient to conduct a pre-purchase inspection. There are associations of home inspectors. However, these are not regulated by the provincial government. Some of these associations adhere to standards of practice and their own code of ethics. On the other hand, professional bodies such as architects, engineers or technologists are regulated by the government, but not necessarily vis-à-vis the building inspection.

What is a non-destructive visual inspection and when is it required?

This is an inspection before buying a building to visually identify any obvious defects (see my article on hidden defects) that can be seen by a prudent and diligent buyer without being assisted by a expert. While the government has not seen fit to require a prospective buyer to use a home inspector, who is basically unregulated, the spirit of the Quebec real estate law is that the buyer be aware – caveat emptor – ( buyer beware) if he / she is involved in an expensive transaction. Consequently, there is a common practice to hire an expert to fulfill the obligation of the purchaser to act prudently and diligently. There is a practice whereby a prudent and diligent buyer has recourse to the inspector service that can discern the obvious potential defects with his expert eye. While the services of a real estate broker are useful, it is required under the Real Estate Brokerage Act (i) to recommend to the potential buyer to conduct a comprehensive inspection by a professional or building inspector that has:

1. has professional liability insurance covering fault, error or omission;
2. uses a recognized inspection contract;
3. performs inspections according to the standards and
4. submits a written report to the party who retained his services;

This regulation is ambiguous at best, since no standard or inspection standards have been established as to how to conduct an inspection, as defined by law. Therefore, to define the requirements above, we must reflect current industry practices and examine by case law.

In addition, the Real Estate Brokerage Act Ethics Code requires that dealers provide their customers with a list of names of more than one professional or one home inspector who meet the criteria mentioned above, so that there is no bias or conflict of interest.

What is an inspection? Can it be destructive?

An inspection, either destructive or non-destructive, can only take place with the consent of the seller. The majority of residential inspections are not destructive and comprise detecting visible defects usually visible to the naked eye. No part (especially in the residential area) of the building is destroyed to determine the presence of a defect. For example, the destruction of the foundations by drilling holes in them to analyze the concrete, or pounding parts of the roof to look beyond cracks and spots is not permitted without the express permission the seller. The normal home inspection is to verify the five major systems: plumbing, foundation, heating and ventilation, roofing and electricity. The average duration of a home inspection is between one and four hours, depending on the size of the residence. However, in the case of a commercial building, most financial institutions insist that there are destructive investigations, where there is a concern for environmental issues or defects that could decrease the property value, which can be rather complicated and expensive.

In conducting non-destructive visual inspection, the inspector that follows the standards will be unable to detect hidden defects. This can only be done (except for instrumentation) using destructive means. However, an inspection that is done correctly can lead the buyer to request further or specialized expertise. When the inspector indicates, either orally or in his report, that he identified apparent defects and suggests further inspection (i.e. the fireplace or the electric panel), and the buyer does not follow up this suggestion, then the seller in this particular situation, will not be responsible thereafter for any kind of hidden defect. The only exception to this rule is that the buyer and / or inspector having been reassured by the answers given by the seller, has come to the conclusion that there was no reason to conduct an inspection and that ‘there was no indication by the inspector that a further inspection (expertise) is necessary. However, if the seller has exaggerated, concealed or lied about a defect, he / she would be civilly liable. This may not be sufficient to exempt an inspector  who may have been required tp pursue further their investigation. This can be found by an independent expert who will assess whether the service provided by the pre-purchase inspector was prudent and diligent to the extent provided by law (jurisprudence).

Thus, hiring a home inspector to conduct a pre-purchase inspection does not relieve the buyer of extra responsibility, and this is where Pandora’s Box opens.

(1) Real Estate Brokerage Act; (RSQ, chapter C-73.2) Regulations – Conditions of exercise, brokerage requirements, professional conduct and advertising; Section 81;

The post Montreal Real Estate – Before Buying first appeared on Montreal Lawyer, Michael Concister, Real Estate Expert.

When buying a commercial or residential real estate, it is not rare that the buyer discovers a hidden defect shortly after purchase. What recourse does the buyer have according to Quebec law?

What is a hidden defect?

A hidden defect is a defect that is invisible to the naked eye.

More precisely:

1. A latent defect is a defect existing at the time of the sale.

2. It is not apparent or obvious to a prudent buyer or inspector conducting nondestructive pre-purchase routine inspection. They should not have been discovered.

3. The defect is such that it makes the building unfit for the use for which it was intended, or reduces the usefulness of it in such a way that if the buyer was aware of the defect, he would not have given such a high price, or would not have bought the building.

These three conditions or criteria must be present together to make the “problem” to be designated as a hidden defect.

Can the buyer sue the seller? What about the inspector who was hired to perform a pre-purchase inspection?

The legal warranty or guarantee against hidden defects has its origins in the Civil Code of Quebec and is automatically included in the sales act as a guarantee for the buyer. However, this guarantee may be expressly excluded, reduced or enhanced during the negotiations between the parties. Note however that a professional seller or promoter can never exclude or reduce this warranty. In any case, if the seller knew of the defect or could not ignore it, whether it is apparent or hidden, and that he failed to disclose it, it may be liable to the buyer. In addition, the seller must compensate the buyer for a hidden defect, regardless of whether or not he was aware of it before the sale. Even if the guarantee is expressly excluded, the seller remains liable to the buyer if he knew of the defect and he did not divulge the buyer before the sale.

Pre-purchase inspection

Although it is not required by law to conduct an inspection of a property, it is recommended to do so in order to avoid potential problems. Often the first time, the buyer does not know what to look for in assessing a property. The pre-purchase inspection that is performed is generally (and more so in the residential area) visual and non-destructive in nature. The duty of the inspector is to identify any apparent defects and ask the seller to make certain declarations in respect to the property. Also, if the inspector does not disclose obvious defects at the time of the inspection, the buyer will be able to pursue the pre-purchase inspector in a court of justice.

What the buyer should do?

When the buyer begins to suspect the seriousness of the situation, he must notify the seller in writing as soon as possible, indicate the fault of the seller and give him the opportunity to hire his own expertise and / or repair himself default or pay for it. The case law indicates that the notification period is generally not more than six (6) months from the moment the fault severity is known to the buyer. This period varies depending on the defect and whether or not it gets worse. The seller must be able to determine the severity of the defect and determine whether or not it was hidden at the time of purchase. If the time between the knowledge of fault by the purchaser and the notice given by him to the seller in this sense is too long, and the fault has been repaired, it will be difficult for the Court to assess the extent to which the seller is to blame. No repairs should be carried out until the seller has time to assess the situation. The only exception to this is if the defect is of an urgent nature.

The buyer has a period of three (3) years from the time he / she discovered the seriousness of the failure to prosecute the seller and / or the inspector for the damage. This should have result in a post-fact reduction of the selling price or the cancellation of the sale due to the severity of the defect.

SUMMARY

Procedure following the discovery of a latent defect

1. Immediately take pictures of the alleged defect, dating them.

2. Send a letter of formal notice to the seller, allowing him to assess the alleged defect.

3. Do not make repairs until the first measures have been met.

4. Consult a lawyer to proceed with the selection of an expert such as an engineer or an architect to jointly determine the true nature of the fault.

The post Hidden (Latent) Defects first appeared on Montreal Lawyer, Michael Concister, Real Estate Expert.