Legal

November 1, 2023 Published by Golden Horseshoe Chapter - By Dave Williams

A Plastic Shovel to Build a Condominium – Auditor General’s Report: A Business look at some solutions for the industry

From the Volume 17, Fall 2023 issue of the CCI GHC Condo News Magazine

Our summer article attempted to provide an abbreviated look at the AG’s report on the industry. During the writing of the article, I discovered that many industry people had not read the report so decided to include the “Coles Notes” version of the AG report which in turn made the article a bit long.

What follows now are some suggested solutions to some tough problems. These solutions are partially good business practices, some needed legislative re-jigging of condo law taking ideas from the US and finally, some strong desire on the part of the various non-government participants in the industry to change; it is now 2023.

CAO…….. is in touch.

In response to the summer article, I had a pleasant conversation with a representative of the CAO. Among other things I was reminded that Condos are intended to be “self-managed.” I had forgotten this but got curious about what it meant. In part it means that the board of directors are empowered to make the important calls with respect to governance. Apparently, it can also mean a condo that is managed by the board “without a property manager.” If anyone out there has a clearer interpretation, I am all ears.

Is there an enemy here?

No……….there is no enemy here! The person on the other end of the phone or email or letter is your customer………full stop. If they are yelling at you then they are likely frustrated by lack of information, lack of understanding, or a bunch of poor or no communication. This person does however pay the bills, wait for it…..finances the industry. He/she is the resident owner or renter.

Of course, they can be difficult… but who doesn’t seem difficult when they are kept in the dark and fed “nothing.” Remember, when they bought their unit, the salesperson told them………. condos are great……. all the lawn cutting, snow removal, roof repairs are done. All you need to do is relax.

What is never explained, at least in my experience, is that all those activities still need to be financed with their money. Worse still, no one clarifies that as the building(s), common areas, infrastructure ages; repairs are more frequent and more costly. It is the same as owning your own home with the exception that some of these services are “shared” (landscaping, snow removal).

Some ideas (Solutions)

If you have followed this column over the last couple of years, you will probably know that I am nuts about communicating. Having owned condos in both Florida and Ontario, communications are the first important difference in the two jurisdictions.

Florida’s Sunshine Law (Yes that is what it is called)
This is a very robust law. Here is an abbreviated definition. The “law” provides a right of access (for residents) to governmental proceedings at both the state and local levels. It applies to 2 or more members of the same board meeting, to discuss community business.

Specifically. Florida Statutes 718.112(2)(c) provide that meetings of the board are open to all unit owners, who may tape record or videotape such meetings. The law states that unit owners have the right to speak at such meetings on all designated agenda items.

Whenever an item of board business is put to a vote, the person making the motion for approval of the item should be identified in the minutes, as should the name of the person who seconds the motion.

Both Condominium and HOA Acts require the vote of every director to be recorded in the minutes.

It is believed that most US States have similar laws.

So, what does this mean? There are no dark areas, no secrets and board business, is out there for everyone to see and digest.

My experience here (in Ontario) is the opposite……..there is little if any transparency. I did sit on boards in both countries. The big difference is in “the level of frustration” amongst unit owners. It is agreed that many residents don’t want to hear the day to day “stuff,” but many do. Those that don’t may be afraid of admitting they don’t understand the financial issues, or the local laws or the challenges faced by their board.

On the other hand, many do want to know. You will always hear that there is always the guy that makes all the noise. Rest assured that there is a dozen or so others behind him with the same questions.

Here is the rub. In the US, rarely are there more than 2 or 3 (out of 700) who will show up at a meeting without a reason. Often, they raise good points or suggestions and are very orderly in doing so. They are given the floor and often are happy to let the board deliberate and get back to them. So, if in your community/building, you fear disruption by owner attendance……….. get over it.

In fact, Ontario Boards of Directors; I challenge you to open your meetings and give it a try. If you have a personal matter to discuss, you can always go “in camera” for 15 minutes.

Annual Elections (Nominating Committees)
In Florida we always had a nominating committee. The committee was established 6 months ahead of the annual meeting when 2 or 3 board people would be elected. I can’t remember the terms for board members; I think it was probably staggered ie 2 and 3 years.

What is important to understand is the nominating committee had two important roles. First, to identify probable interested and qualified parties but secondly, to explain very carefully, what is involved. This often allays some fears that potentially good candidates might have.

Here (in Ontario), the property manager would publish a one liner that the annual meeting was coming and interested parties should submit their names. No preamble or advance discussion………. period.

I always felt in our board in Ontario, that directors preferred to appoint new board members when someone died or resigned. This practice, which is legal, can prevent boards from fresh idea development and participation from folks that might be professionally well suited to be a director. This is as opposed to appointing someone who is friendly to the current board members.

At this point I need to pause and say clearly that there are many boards here that are in fact well managed and conducting business in a good and business-like manner………way to go!

Board Makeup
The make-up of a condo board is critical to long-term good management. If you can find people with professional experience….. so much the better. Accounting, legal, construction, psychological/sociological and business…….to name a few.

You cannot always find people with designations but folks that may have developed a career in the industry would be great. Why? They know where to go to get information or help that is needed from time to time.

Reserve Fund Management
Your building does age as does any other asset. So, managing your corporation’s annual Reserve Contribution at an annual level with published inflation factors does not cut it. The annual “Reserve Contribution” requires a lot of study.

First, major asset replacement values do not necessarily vary with inflation. If, for example, you have been funding at the rate of 2% to 3% per year, we just went through 2 years of +6% inflation. Secondly, wood planking as an example went crazy a couple of years ago and has settled back a bit but not to its original pricing.

A third consideration is always the “unexpected catastrophic event.” Under this heading are such things as foundation leaks, unexpected sinkholes in roadways, early failure of a roof or roadway. It is best to plan for and fund these possibilities because inevitably……..they will happen.

So often we hear of boards that don’t want to put too much money into the reserve because they don’t want to have future residents benefit from their contributions.

That said, boards need to remember that any money put into the reserve generates interest, albeit at 1% or 2%. So, in the longer term, they and all their residents, both past and future, are benefiting.

Communications
My favorite and a big deal. There are many ways to improve the transparency of your board.

As mentioned before, open your monthly meetings to residents. I get that the first time you do this might attract a lot of people but as time goes by, only those that have an issue to discuss will show up.

To help residents understand the finer points of condo corporation management, offer some seminars on reading financial statements. Bring in speakers that can address important issues like Reserve Management.

Institute a practice of having one well executed “Town Hall Meeting per year.” This can be a great time to engage residents in corporation issues you are facing to get their input. Remember to thank them for their input and remind them that the final decision on any issue must be a board decision.

A monthly bulletin is always a great tool for communicating with residents. In our community here in Ontario, there was always a monthly “activity” bulletin which contained nothing about the business of the community. In fact, at one board meeting the president said he had run out of things to say in his monthly presidents’ report. What??????

It is very likely I am missing many other opportunities, but the foregoing are the main ones.

The Plastic Shovel Issue
So, a few years ago, the Ontario government of the day established two regulatory bodies to oversee the condo industry. “The Condo Authority of Ontario,” and “The Condo Managers Regulatory Authority of Ontario.” The first and most obvious question is why the word “regulatory” was left out of the CAO. Mm!

If you ask enough questions, you will find that these authorities have very little influence (spelled authority) over the industry. Here is a simple example. The CAO set up the 23-module training course for new board members. One of the auditor’s findings was that “26% of directors sitting on Condo Boards did not spend sufficient time on the training modules.”

Further, “the audit identified 316 individuals and 156 companies that did not hold licenses but were listed in the Condo Authorities public registry.”

There is a lot more, but you get the point. In an interview with an MLA a few months ago, this person basically said that since COVID, governments are somewhat reticent to tell people what to do……….or words to that affect.

A few years ago, I tested the mettle of the Tribunal that oversees mediation. First and foremost, a mediator does not act like a judge or arbitrator. The mediator’s charge is to bring two sides to an agreement. In this case, the mediator told me of his decision.

So here is the issue of the plastic shovel. The government set up the authorities “sans clout.” That is not a knock against the people that work there who are I am sure doing their best to provide information, training, guidance and on and on. Once again, at least given the information before all of us……..the government equipped these folks with plastic shovels to build communities……. either high-rise or otherwise. Not fair to anyone; the authority people, the residents, and to a point the condo board members, lawyers and property managers trying to do what they think is the right thing.

Unless and until all the folks occupying the 890,000 units here in Ontario make contact with their MLA’s with either good or bad reports………nothing will change.

Note from Dave. If you didn’t read the summer article on the same subject, “Here Comes the Judge,” please do so as well as this one. I would love to know your thoughts regardless of whether you are an industry worker, a resident or an authority employee. You can reach me at the email address below. I would also love to hear from some of the well managed condo boards.

References:
Value for Money Audit – Condominium Oversight in Ontario. Office of the Auditor General for Ontario.
Condo Sector Needs Improved oversight, Toronto Star February 27th, 2023.
Aleks Dhefto – Condo Authority of Ontario

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Dave Williams is a retired business executive and graduate of York University. He can be reached at williamsdavem7@gmail.com.

Important note: I also reached out to the CMRAO (Condo Managers Regulatory Authority of Ontario) for comment. I even provided the questions and the deadline date which they asked for. If you guessed that I am still waiting you would be correct. September 26th 2023