The Court of Appeal has ruled that the business judgment rule should apply to condo corporation board decisions.
Ontario’s top court sided with an Ottawa building’s board in a dispute over a condo owner’s proposal to start charging hourly for parking spaces in the property’s garage.
The owner filed a claim against the condo corporation in 2014 after the board rejected the proposal, which would convert monthly parking spaces into a “pay and display” hourly system and would require changes to the building’s common elements.
The board cited security concerns, insisting the owner employ a security guard to oversee the operation.
A Superior Court justice sided with the owner, but the Court of Appeal ruled that the board’s decision should be given deference.
“The question in such circumstances is not whether a reviewing court would have reached the same decision as the board,” Associate Chief Justice Alexandra Hoy wrote in the decision.
“Rather it is whether the board reached a decision that was within the range of reasonable choices. If it did, then it cannot be said to have unfairly disregarded the interests of a complainant.”
The Condominium Act allows for unit owners to file what are called oppression actions in court if they feel a certain board decision is unfairly prejudicial.
The Court of Appeal decision — 3716724 Canada Inc. v. Carleton Condominium Corporation No. 375 — could make it harder for these applications to be successful in the future, condo lawyers say.
“It’s a high hurdle to overcome,” says condo development lawyer Harry Herskowitz, of DelZotto Zorzi LLP.
Herskowitz was not involved in the case.
“The fact that this board makes a decision against the interests of the unit owner doesn’t necessarily mean that the unit owner is going to be able to succeed in court in overturning that decision.”
In the past, courts have issued decisions that agree condo board decisions are entitled to deference, but this was one of the first that applied the business judgment rule, lawyers say.
The rule maintains the autonomy of corporations and the fact that their directors are in a better position to make decisions concerning their company rather than courts are after the fact.
“As long as there’s some rationale reason they made that decision and it’s not just coming out of the blue sky, it should be given some type of deferential treatment, because they’re in a better position to evaluate what’s in the best interests of the condominium as a whole and the collective unit owners as a whole than the courts are,” says Herskowitz.
While it’s predominately applied in cases concerning for-profit businesses, it has also been applied to not-for-profit corporations as well.
Christy Allen, the lawyer who represented the condo corporation in the case, says applying the corporate principle lays out the test for courts asked to review a board decision.
“It’s one thing to say your decision is entitled to deference, but it’s another thing to say this is the line at which you’re entitled as a court to step in and review that decision,” says Allen, a lawyer at Nelligan O’Brien Payne LLP.
She added that applying the rule is important so that condo corporations can act without fear that every decision they make will be reviewed in court.
“It enumerates what the standard is and what the test is that should be applied by courts when they’re reviewing decisions of boards, especially when there’s a claim of oppression,” she says.
The unit owner in the case originally requested approval from the board to make the changes in May 2012.
The owner required approval from the condo board as the new system would require changes to the common elements. In addition to asking the owner employ a security guard, it decided to treat the proposal as “substantial,” meaning it would need approval from a vote of all condo owners in the building.
The owner agreed to pay for a security guard to watch over the parking facility, only if they would not have to pay security fees that all unit owners were required to pay, or if the board would share the costs of the employee.
The board rejected this request and the owner filed the oppression application.
The application judge acknowledged that while having a full-time security guard was the best option, it was not viable.
The Court of Appeal, however, determined that the board had acted reasonably, “honestly and in good faith.”
In the decision, the Court of Appeal said that as elected representatives of the unit owners as a whole, the directors of the board were better placed to make judgments about their building than the courts.
The decision also said that the board was transparent in voicing its concerns.
“The Board did not prohibit the appellant from engaging in this business of changing its business model,” Hoy said.
“The Board merely put in place certain preconditions for approving changes to the condominium’s common elements in order to address the increased security risk that would be caused by the changes that the respondent wanted to make.”
Hoy added that the board’s decision rendered the proposal less profitable, but that does not mean it unfairly disregarded the owner’s interests.
Denise Lash, a lawyer at Lash Condo Law in Toronto, says lawyers who act for owners will want to keep this decision in mind when a client approaches them with an oppression application.
“It’s going to make it a bit more challenging if you’re representing the unit owner’s side,” says Lash, who was not involved in the case.
Nadia Authier, the lawyer who represented the owner on the appeal, declined a request for comment.