Loss in a Condominium: Who is to Pay for the Depreciation?

A recent decision1 regarding the application of depreciation is worth better knowing. This case especially concerns the relationship between a co-ownership syndicate, a co-owner and her liability insurer. It concerns two fundamental principles of our indemnification system in Quebec: 1) complete indemnification of the victim and 2) the unjust enrichment of the person causing the prejudice.

In 2018, the rules governing insurance law regarding divided co-ownership were amended. Articles 1074.1, 1074.2, 1074.3 and 1075.1 were added to the Civil Code. The purpose of the new act2 was to enhance discipline in the financial field, including insurers. The informal objective, but not the least, was to maintain peace of mind in co-ownerships by reducing litigation and subrogation between the syndicate and the co-owners. The legislator wanted to reduce the financial and probably the emotional consequences for co-owners and directors, often volunteer co-owners, once the damage is sustained and the repairs are completed.

In the decision Syndicat de la copropriété du 7250 Boulevard les Galeries-d’Anjou (“Syndicat”), rendered by Honourable Justice Gilles Lareau of the Court of Quebec, it is not the amount at issue, $18,077.22, which is of interest, but rather the concurrent interpretation of the above- mentioned principles of indemnification and enrichment.

The co-owner caused water damage to the floor of her private unit. The Syndicate, which was obliged to do the repairs, actually did so, but wanted to be indemnified. The Syndicate’s claim, in two parts, was instituted against the co-owner and her liability insurer. The first amount concerned the cost of the repair work on the basis of replacement value, in an amount of $9,783, while the second amount claimed was for the extrajudicial fees of $7,294.22.

The circumstances of the loss, the scope of the damage and the amount of the replacement value repair work were all admitted. On the other hand, the co-owner and her liability insurer contested the Syndicate’s right to obtain the replacement value indemnification. The co-owner’s liability insurer deposited the amount of the repair work for a depreciated value of $8,863.20 with the Court office. The insurer submitted that its obligation toward a third party was to restore things as they were on the day of the loss, without causing any enrichment.

The only issue that is of interest to us is whether the Syndicate may obtain an indemnification for replacement value or if it must support a depreciation, which will ultimately be paid by all of the co-owners as part of the common costs.

Under Article 1074.1 C.C.Q., the Syndicate had the obligation to pay for the replacement value repair work, which it did. Because the amount was less than the deductible, the Syndicate did not claim it from the insurer of the co-ownership.

As a general rule, the victim of a prejudice, in this case the Syndicate, cannot be enriched by the replacement value indemnification. Accordingly, it would be logical that the Syndicate should receive the depreciated value.

On the other hand, the Court was of the opinion that to reimburse the Syndicate for the amount of its loss, that is, the amount actually disbursed by the Syndicate, would not enrich it.

On the contrary, authorizing a reimbursement to the Syndicate only in depreciated value would have the effect of giving the liable co-owner a new floor financed in part by all the co-owners.

In addition to applying the principles of the Civil Code, the judge also based his ruling on the co-ownership declaration, which provided that any co-owner remains liable to the other co-owners and the syndicate for the damages which he caused by his fault.

What We Learned

The expression “damages” in article 1074.2 C.C.Q. must be interpreted according to the principle of complete reparation for the victim against the co-owner who caused the prejudice.

In practice, a syndicate is entitled to receive the reimbursement of the total amount spent to repair the damage or the replacement value. As a corollary, the co-owner who caused the damage and his liability insurer must reimburse this same amount, without reducing it to take depreciation into account.

Lastly, it is useful to have a look at the governing Co-Ownership Declaration to determine if any clauses stipulate additional contract obligations for a co-owner, while keeping in mind that the new provisions of the Civil Code may have the effect of invalidating certain inconsistent clauses.

1 Syndicat de la copropriété du 7250 Boulevard les Galeries-d’Anjou v. Villagran, 2023 QCCQ 10229.

2 An Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions, SQ 2018, c-23.