Governance

January 14, 2019 Published by Toronto and Area Chapter - By John DeVellis

Fill Out Those Forms, or Else …?

From the Winter 2018 issue of the CCI Toronto Condovoice Magazine.

The other today one of the classic anthems of the hippie era came on the radio. You remember it- the one where a young man laments the state of modern society: "Sign, sign, everywhere a sign."

But anyone working in the condominium industry over the last year or so will be forgiven for thinking maybe the Five Man Electrical Band got it wrong. Maybe all those divisive signs aren't so bad; the real scourge of modern life is- mandatory forms.

As most who work in the industry know by now, among the many amendments to the Condominium Act passed in November 2017 were a number of new obligations on condominium corporations. For example, corporations must prepare and distribute a number of information certificates to owners at various times in the year, and annual returns to the Condominium Authority of Ontario. As well, new directors must undergo mandatory director training provided by the Condominium Authority of Ontario.

As everyone was busy preparing to comply with the flurry of new requirements under the Condominium Act, one important issue got lost in the shuffle: what happens if a condominium corporation doe

First, most of these obligations will fall to management. Managers who fail to advise the board of the corporation's obligations may be subject to disciplinary action for breach of their (new) professional obligations under the Condominium Management Services Act. The managers may also be in breach of their management agreement and so may face liability for any costs incurred by the condominium corporation.

Nonetheless, it's important for corporations, and directors, to know what the ramifications are – for their corporations and, possibly, for them personally – for not complying with the new statutory requirements.

With respect to the information certificates, such as the Periodic Information Certificate, Information Certificate Update, and New Owner Information Certificate, the surprising answer is there is no specific penalty in the Act for failure to comply.

The omission is surprising, since there are specific consequences in the Act for failing to provide other documents. There are, for example, specific financial penalties for failing to provide owners with corporate records. In the case of status certificates, a corporation that does not provide the certificate on time is deemed to make certain admissions, such as that there is no default in common expenses for the unit and there are no special assessments levied against the unit.

The Act does make it an offence to fail to comply with the Act, but, contrary to popular belief, the offence section does not apply to the entire Act. It is limited to certain specific violations, mainly having to do with a declarant's disclosure and turnover obligations, failure to keep moneys paid by purchasers held in trust, misuse of corporation's money and, interestingly, failing to allow political canvassers access to the premises. But none of that means that corporations can just ignore the new requirements with impunity. Under section 17 of the Act, a condominium corporation is required to ensure that everyone- including the corporation itself, complies with the condominium's governing documents and the Act itself. That means that a corporation that fails to provide the new certificates could face itself with an application for a compliance order from a unit owner.

Board members also have an obligation to manage the affairs in good faith and in a manner of a reasonably prudent director. That means that Board members who in bad faith simply refuse to issue the new certificates and who cause the corporation and owners to incur legal costs fighting a compliance order, could find themselves faced with personally liable for the costs.

The other documentary requirements have to do with returns to the Condominium Authority of Ontario. Condominium corporations are required to file annual returns with the CAO that provide basic information such as the number of units, names of directors and address for service. Unlike the situation with information certificates due to owners, there are specific consequences in the Act for failure to comply. Corporations who do not file on time could face late filing fees, and an application for compliance under the Act. As well, any corporation with unpaid fees or assessments from the CAO is not able to commence any legal proceedings without leave of the court.

Lastly, we come to mandatory director training. Under the Act, new directors are required to complete mandatory director training course within six months of being elected (directors elected prior to November 1, 2017 are exempt, but must take the training within six months of reelection). The training course is provided online, free of charge, by the CAO.

Once the training course is completed, the director is required to provide evidence of completion to the corporation. A director who fails to complete the training on time is deemed immediately cease to be a director. That in turn triggers an obligation to file a notice of change with the CAO and also to provide owners with an Information Certificate Update.

What happens in the rare occasion that a director is notified of disqualification but keeps acting? The director may not be eligible for indemnity under the corporation's directors' insurance policy, and any decisions made at meetings where that director's vote was decisive may not be valid (although the decision could be ratified at a later meeting, assuming there is quorum and assuming a majority of the new directors agree).

If you recall the ending of Sign, the hero is able to find some measure of relief from