September, 17 2020 - CCI Original Content Published by CCI National
Part 3: The Director’s Responsibilities and Governance
Provincial Legislation is created largely as consumer protection legislation designed to protect the rights of owners. As such, it has many sections setting out insurance, maintenance and repair, creation of its Declaration, by-laws and rules.
The government recognizes the need to protect owners’ interests and to provide rights and guarantees to prospective owners. This legislation is what makes Condominium ownership a viable housing option. Directors should become familiar with the structure and process of their Provincial Legislation. This section reviews the Directors’ responsibilities and the governing documents that secure the rights and expectations of the owners and residents.
A Director’s role and responsibilities are not subjective; they are clearly identified in the Provincial Legislation and it is the Provincial Legislation that should be referred to for guidance.
A Condominium Corporation is governed by an elected Board of Directors, typically drawn from the unit owners. The business decisions of the Board are not generally subject to owner approval unless the Provincial Legislation specifically requires the owners’ involvement, such as when the Condominium wishes to borrow money or make a substantial addition, alteration or improvement to the common elements.
Minimum standards apply to the number of Board members. There must be at least three individuals. The minimum qualifications provide that a person shall not be a Director if under the age of majority, an undischarged bankrupt or mentally incompetent.
Every Director and officer of a Corporation shall exercise the powers and duties of his office honestly and in good faith. Acting “honestly and in good faith” encompasses many things, such as an honest belief in the action one takes, the absence of malice and the absence of intent to defraud or to seek an unconscionable advantage over another.
Acting in the best interest of the Condominium Corporation involves a fiduciary duty which is often misunderstood. A fiduciary is a person who has agreed, or has undertaken, to act for, or on behalf of, or in the interest of, another person in a manner that will affect the interest of that other person in a legal or practical sense. In common law, Directors of business corporations have long been held to owe a fiduciary duty to the Corporation itself. Similar considerations apply to Condominium Corporations. A Director does not owe a fiduciary duty to individual unit owners but does owe this duty to the Corporation.
A Director upholds and abides by the decisions of the Board even if they individually did not vote in favour of the decision. This is a very challenging duty as personal feelings are hard to ignore. A successful Board speaks as a complete unit regardless of a split decision. The owners never need to know the split and who was for or against, as it is irrelevant.
The Provincial Legislation requires that not only must Directors of Condominium Corporations act, “honestly and in good faith”, but they must also, “Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances”. This is identical to the standard of care imposed upon the Directors of Corporations under most Provincial Commercial Legislation. This is an objective standard meaning, as it relates to Condominium administration, the degree of care of a Director in one Condominium Corporation may be compared to the degree of care exercised by Directors in other Condominium Corporations who are faced with similar circumstances.
Most Provincial Legislation states that if, in making a decision, the Directors rely on the opinion of a lawyer, engineer, auditor or other individual whose profession and experience lends credence to their opinion, that Directors cannot be held liable if the decision that was based upon that opinion does not turn out well. Conversely, if a Board makes a decision that is contrary to a professional opinion received, and the outcome does not turn out well, there is a risk that the Board members acted in a manner that is contrary to that of a reasonably prudent person.
In short, when in doubt, a Board should make use of the best resources available to it through the manager, solicitor, engineer, auditor, etc. Good governance includes making informed decisions, taking proactive measures to rectify existing or potential problems, having organized and timely Board meetings, reviewing financial/banking documents, and taking advice provided by professionals. Bad governance can result from ignoring problems, not obtaining professional advice, ignorance about or disinterest in the affairs of the Condominium Corporation, putting other interests ahead of the interests of the community and not adhering to the standard of care required of a Board member.
Declaration, By-laws, Rules and Policies
The Act provides the Corporation the ability to create by-laws, and rules. The documents have a hierarchy:
- The Act
- The Declaration
- The By-laws
- The Rules
The Declaration is the document that creates the Condominium Corporation in a similar manner to Articles of Incorporation giving life to a business Corporation. It contains certain mandatory provisions legislated by the Provincial Legislation, such as: a specification of the boundaries of the units; the proportionate interest of each unit in the common elements; and the percentage used to calculate the monthly common expenses for each unit.
The Declaration also stipulates those areas of the common elements, if any, that are allocated to the “exclusive use” of a particular unit such as parking spaces, storage lockers, balconies or rear yards. These exclusive-use areas remain part of the common elements and their use is governed by the Condominium’s Declaration, by-laws or rules.
The Declaration may also contain provisions regulating the use and occupation of the units and common elements, including the requirement existing in most residential Condominium Corporations that owners may not operate businesses out of their units. It usually allocates the responsibility for the maintenance and repair of the common elements and units between the owners and the Condominium Corporation. For example, a unit’s internal HVAC (Heating Ventilation and Air Conditioning) system may be part of the “common elements”, though the owner may be obligated to carry out routine maintenance on it or it may be entirely the responsibility of the unit owner. Restrictions on the unit, specifically in Vacant Land Condominiums, will be found in the Declaration.
In some cases, the Declaration may impose other limits on the use of units such as restrictions on pets or that certain conditions must be met before an owner may lease his or her unit.
Under the Provincial Legislation, a Declaration can be amended by a court order if the Declaration contains an obvious typographical error or a less obvious error or ambiguity, (e.g. the declarant failed to make the unit balconies “exclusive use”). Alternatively, the Corporation would be required to obtain the written consent of owners who represent 90% or 80% of the units. The percentage required is determined by the significance of the change, as outlined in the Provincial Legislation.
By-laws are passed by the Board of Directors and must then be approved by owners representing more than 50% of all the units (depending on the requirements in the Provincial Legislation) within the Condominium Corporation. The approved By-law must then be registered on title to the Condominium Corporation before it becomes effective.
By-law No. 1 sets out the basic organizational and administrative functions of the Condominium Corporation, including the duties of its Board of Directors and officers, provision for calling owners’ meetings and provisions for the election and qualification of the Board of Directors.
By-laws cannot be contrary to the Provincial Legislation or the Declaration. The Board of Directors may make, amend or repeal by-laws for the sole reasons specified in the Provincial Legislation.
Rules/Common Element Rules
All Condominium Corporations have rules, which define the standards of behavior for the community. These rules govern the day-to-day use of the units and the common elements.
Rules are developed and approved by the Board and then distributed to all owners. Owners have 30 days to petition the Board to amend the Board-approved rules, failing which the rules become effective.
Rules must be reasonable and consistent with the Provincial Legislation, Declaration and By-laws. Rules may only be passed for the purpose of promoting the safety, security or welfare of the owners and of the property and assets of the Condominium Corporation, or to prevent unreasonable interference with the use and enjoyment of the common elements, the units or the assets of the Condominium Corporation.
Most Condominium Corporation rules contain provisions that: prohibit excessive noise or other nuisances, prohibit alterations to common areas, prohibit storage of commercial vehicles, boats, trailers and similar equipment/vehicles and require the removal of pets that become a danger or nuisance to other owners. They can also deal with many other issues such as the use of swimming pools, spas and other recreational amenities, the use of elevators for moving and the use of barbeques.
To review: the Provincial Legislation sets the minimum standards and they are not negotiable; the Declaration is the constitution that secures the rights of the owners and can be relied on by purchasers as it is very difficult to change; and the By-laws extend the minimum and require more than 50% of the owners to approve them and rules govern the safety, security and welfare of the community. So, where do policies fit in? Policies are what every Corporation requires to ensure continuity of process and application of procedures.
Boards of Directors should have approved policies for, amongst many other areas, collection of fees, employee benefits, party room bookings and fees, and the heat on/air conditioning off schedule. Think of a policy as setting the process. The lack of an approved and published policy can easily create misunderstandings and conflict between the Board, the owners and the manager. Without a policy on how the Board expects fees to be collected, as an example, the manager will carry out the task in the best way they know. This may mean that interest may not be collected on arrears, or no second notice sent. However, without an approved policy on arrears collection, issues will arise if there are differing presumptions on how the process is to be handled. Creating a policy manual setting out the decisions of the Board with respect to process is most useful when the Board changes as processes are supported by prior recorded decisions.
See Appendix 1 for sample policies.
Enforcement of the Declaration, By-laws and Rules
Owners and the Board of Directors have the right to insist that the governing documents be complied with by all other unit owners, tenants or other residents of the condominium complex. Written notice of non-compliance should be provided promptly when the Board is made aware of non-compliance. In most instances, this corrects the non-compliant behaviours.
Under Provincial Legislation, disagreements between the Condominium and unit owner regarding the Declaration, By-laws or rules that cannot be resolved through normal interaction is to be submitted to mediation and arbitration for resolution.
The Provincial Legislation is very clear in that the Board shall not transact any business of the Corporation except in a meeting of Directors at which a quorum of the Board is present. The requirement is, unfortunately, one of the most often disregarded sections, as many Boards operate by email consensus. To protect the integrity of decisions reached via email consensus, Directors should ensure that any such consensus be recorded as an item in the minutes of the next Board meeting.
The Corporation’s operational by-law, will guide you to understand the process required for calling and holding Directors’ meetings. The by-law may provide specific guidance on regularly scheduled Board meetings as well as the type of business to be dealt with at such meetings. If the by-laws do not provide for regular meetings, or if a special meeting must be called, the following procedures must be followed:
- The meeting must be authorized by a quorum of the Directors;
- Written notice of the meeting must be given to every Director personally, by prepaid mail, courier, fax, or email at the address shown in the records of the Corporation;
- The notice must be given at least 10 days before the day of the meeting unless the by-law states otherwise;
- The notice must state the time and place of the meeting and contain a general description of the business to be dealt with.
Furthermore, every Corporation must have a President and a Secretary. The Directors elect from amongst themselves a President and elect or appoint a Secretary, unless their Declaration or by-laws state differently. They may also appoint and or elect any of the other officer positions. The same person may hold more than one office.
The Corporation by-laws will set out any other officer’s positions that a Board may consider. It is common to see the position of a Treasurer, Vice-President and Director-at-large. The usual practice for a three-member Board is to have a President, Secretary and a Treasurer, a five member Board to have a President, Secretary, Treasurer, and two Vice Presidents or a Vice President and a Director-at-large. The by-law may also include other positions such as a general manager, a position most often used when there is no professional manager.
Annual General Meetings (AGM)
The AGM is different from an owners’ meeting as the meeting content and timing is legislated whereas other owners’ meetings can be for many other purposes and may be called at any time.
The AGM must be held as prescribed by Provincial Legislation but often within six months of the end of each fiscal year-end. Practically speaking, the meeting is most often held in the 5th or 6th month after year-end to provide enough time to perform the audit, prepare the agenda and assemble all the required documents.
The agenda for an AGM may include other items of business but is required to include the approval of any previous owners’ meeting minutes not yet approved, presentation of board-approved audited financial statements, the auditor’s report and the election of Directors.
The notice for an AGM must be in writing and specify the place, date and hour of the meeting as well as the business to be addressed at the meeting. The notice must include: all proposed changes to the Declaration, by-laws, rules or agreements to be addressed at the meeting; the name and address of any person who has notified the Corporation of their intention to run as a Director; and the board-approved financial statements and auditor’s report.
A quorum for an owners’ meeting is provided in the Provincial Legislation and references to percentage of all the units within the Condominium Corporation, in person or by proxy.
Owners who are in arrears of any contributions owing for their units, for 30 days or more prior to a meeting, will not be entitled to vote or count towards quorum. If such owners pay their arrears before the meeting is held, they will be entitled to a vote. Voting is done based on one vote per unit. Wherever the Provincial Legislation states that the approval of owners representing a “majority”, or a specified percentage of the units is required, that majority or percentage refers to all the units in the complex and not just those present at the meeting. For all other matters the voting will be based on owners representing a majority of the units at the meeting.
The use of proxies for all matters requiring a vote is permitted. A proxy may only be given for a specific meeting, which must be identified in the proxy form. Samples of proxies are set out in the regulations, but their use is not mandatory.
No votes can be taken at a meeting on any matter, other than “routine” procedural matters unless the matter to be voted on was “clearly” disclosed in the notice. However, any owner is entitled to “discuss” any matter relevant to the affairs of the Corporation.
Owner Expectations, Communications, Complaints
Unit owners generally have a better relationship with the Board and the manager if they are kept well-informed of decisions that affect their home. ‘Informed’ does not mean seeking their approval on matters that are not for their approval, but rather involving them in the process. Many corporations have developed tools to accomplish this task. Most popular is a newsletter.
Corporations should develop a policy to assist homeowners in communicating to the Board and or the manager. For example, communication in writing is important to ensure proper follow up. Whether it is a central email address or a suggestion box, owners need to know who and where to send their communications.
Most communications can be dealt with quickly and should be submitted to the manager in a timely manner for them to respond. Communication that requires Board input can be acknowledged and put onto the Board agenda for discussion.
It is quite normal not to hear from a resident or owner until they have a complaint. Complaints provide information on what needs correcting or attention. If handled properly, the complaint process can be a positive experience for all.
Condominium Corporation web sites have become more popular; however, there will always be a challenge if this is the sole source for communicating, unless all owners are computer literate and have access to a computer, and the website is updated frequently.
Without effective communication, it is difficult for owners to appreciate or understand the costs to operate their community of homes. If they do not understand, they may be prone to form opinions based on miscommunication, or incomplete facts which then can lead to resistance to necessary fee increases. Communication should be reasonably frequent, and the Board should seek to avoid surprises to the unit owners. Only with effective communications will owners’ resistance to fee increases be minimized.
To discuss service standards and the prices for the various levels of service, Directors should hold budget information meetings, and town hall meetings to introduce new policy, get owner feedback, and to introduce renovation projects. Owners are far more accepting of changes when they have an opportunity to “buy in”. As such, having town hall meetings to discuss possible by-law and rule changes almost always give the Board a better chance for success when the rules or by-laws are finally presented for approval.
A town hall meeting is a meeting for discussion, where there are no decisions, a quorum is not necessary, official notice is not given; however, an invitation and the agenda should always be at least posted in the building and sent to offsite owners.
DISCLAIMER, USE INFORMATION AT YOUR OWN RISK
This is solely a curation of materials. Not all of this information is created, provided or vetted by CCI. Some of the information is only applicable to certain provinces. CCI does not make any warranties about the reliability or accuracy of any information found in the materials on this website. The information is not updated to reflect changes in legislation or case law and therefore may not always be current and up-to-date. We suggest you seek professional advice with respect to your specific issues or regarding any questions that arise out of the material. We will not be liable for any losses or damages in connection with the use of any of the material found on the website.