New rules around condo board oversight

New legislation regulating condominiums that began rolling out in September will impact how condo boards are run by imposing disclosure obligations on directors and is geared at providing condo owners with more information.

New rules around condo board oversight
Deborah Howden says under new legislation there’s the potential for boards and their lawyers to draft bylaws on new disclosure obligations for directors.

New legislation regulating condominiums that began rolling out in September will impact how condo boards are run by imposing disclosure obligations on directors and is geared at providing condo owners with more information.

The move is aimed at protecting the consumer and is a long time coming, says Laura McKeen, a partner with Cohen Highley LLP in London, Ont.

“Condo corporations can control very significant budgets and the rules and regulation that directly impact peoples’ daily lives. If you have a board that is not effective or if there are difficulties in that governance structure, you can have issues in terms of compliance with the act and regulations; you can have financial issues that can result. There are a lot of things that can happen if you have a board that’s not properly regulated and involved,” says McKeen.

And those problems could well be magnified by the type of owner the new market has bred: the investor who may buy one unit or several. 

As off-site owners, they are likely to have reduced knowledge of the operations of the board. That situation would be complicated when the board is not transparent with its business.

Condo owners expressed concerns during the two-year Condo Act review process about not receiving enough information or that they felt their condo board wasn’t being as transparent as it should be.

In Ontario, there are an estimated 750,000 condo units and 10,000 condominium corporations. There was also a heightened awareness about the lack of transparency since media reports earlier this year revealed that three men were elected to several Toronto-area boards when, often, they were not listed as owners or residents of units in the buildings.

In one situation, they were accused of commandeering the board of a luxury condominium corporation and taking control of its $2.6-million budget and reserve fund. Residents of the downtown Toronto condo complex eventually managed to force their resignations. 

The old legislation required that directors be individuals, not corporations, can stand for election, that they be 18, not be bankrupt and be mentally competent and capable of managing property.

“Now we see a whole bunch of new layers over that, specifically related to disclosure,” observes Deborah Howden, partner with Shibley Righton LLP Barristers & Solicitors in Toronto. 

The new Protecting Condominium Owners Act introduces sweeping new reforms of the 1998 Condominium Act. 

Condo board directors are now required to disclose whether they have any conflicts, such as maintenance contracts with the board. They must also own a unit within that complex and disclose if they are 60 days or more in arears of common expense contributions, if they have convictions under the condo act, whether they or family members have any legal proceedings involving a condo corporation and if they have interest in a contract or transaction with the corporation or developer.

Howden says the idea is to equip unit owners with the information they require to make an educated decision when voting in board members.

“[T]his new regime creates a statutory obligation for directors to disclose certain personal information deemed relevant to the role of the director,” she says.

The corporations are also now entitled to draft bylaws requiring directors to disclose other information. That could include whether directors sit on any other condo boards or have been recently convicted of a criminal offence involving money.

With that statutory backing, Howden sees the potential for boards, and their lawyers, to draft bylaws on new disclosure obligations, adding to existing codes of ethics and qualifications of directors. Lawyers will also play more of a role advising directors on their obligations.

The comprehensive requirements, however, might be daunting for smaller condo corporations, says McKeen.

A volunteer board of directors that manages the corporation itself without the expense of a manager might have difficulty with the increased obligations, such as issuing regular notifications within the statutory time limitation.

“This means hiring of property managers, who now need to be licensed, and you have condo corporations that are smaller, like we do outside of Toronto, that could be a not very cost-effective proposal,” says McKeen.

The sheer volume of the increased requirement, including that information certificates be issued periodically, may well be daunting, says Christopher J. Jaglowitz, who practises condominium law and dispute resolution with Gardiner Miller Arnold LLP in Toronto. 

Jaglowitz, who sat on two of the government’s working groups that made recommendations as well as on the expert panel that vetted the recommendations, expects that preparing certificates throughout the year will cause more work for condo managers and will likely increase management fees for condo corporations and their owners.

“I think the concept is positive, but the volume of the information and the frequency in which it must be delivered is excessive,” says Jaglowitz. “It will be interesting to see how unit owners will value the content and frequency of these certificates.”

Condo owners who are engaged and concerned will have access to a lot more information about their boards and directors. That will help them be more informed prior to board elections. The owners have the ability to get information routinely and have that information when they want it.

That addresses the concerns of unit owners who feel that decisions are made without their knowledge, says Craig Robson of Robson Carpenter LLP in Ayr, Ont.

But there has to be a balance, he adds, because every condo owner in a 300-unit building, for instance, can’t be involved in every board decision. The point of the board is to make decisions on behalf of the other owners.

“A real focus of the new legislation is information and communication, so unit owners have a lot more information coming to them . . .” says Robson.

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