I have put off writing this blog about the responsibility and duties of Directors of Boards of Directors of condominium corporations for some time. Whenever I tried to distill a principle worth communicating my mind wandered. Today a basic principle coalesced. From my experience as a lawyer I have concluded that many owners do not truly appreciate the basis upon which condominium corporations where developed. This lack of appreciation forms the basis of many a misunderstanding between owners and in many cases is the source of many unnecessary disputes. My objective in writing this blog is to summarize the statutory regime upon which condominium corporations are built and how they are managed and then offer some observations related to how boards of directors of condominium corporations can satisfy the legal obligations which the Condominium Property Act (Alberta) imposes on Directors and at the same time manage the expectations of owners of units.
The development of the legal concept of the condominium occurred in the second half of the twentieth century and as such it is a relatively new concept. In respect of residential dwellings, the concept of a condominium ownership allowed owners to share responsibility for their dwellings and the property which was commonly used by owners (“common property”). Notwithstanding the sharing of responsibility, at the root of all condominiums are individual owners who, like all persons, want to be heard and want to be respected. However, the sharing of responsibility limits the ability of individual owners to directly influence the management of their dwellings. In comparison to non-shared responsibility dwellings (ie. single detached homes), owners of condominium dwellings delegate responsibility for the management of their dwellings to a board of directors. In Alberta the legislation which governs the creation of condominiums and the management of condominium dwellings is the:
Condominium Property Act, RSA 2000, c C-22 (the “CPA”)
Section 25 of the CPA establishes that condominiums shall be constituted as corporations though not identical to corporations established for business purposes (condominium corporations are generally treated as non-profit corporations) and establishes that the condominium corporation shall consist of “owners of units”:
Condominium
corporation
25(1) On the registration of a condominium plan, there
is constituted a corporation under the name “Condominium Corporation
No. ” and the
number to be specified is the number given to the plan on registration.
(2) A corporation consists of all
those persons
(a) who are owners of units in the parcel to which the condominium plan applies
(5) The Companies Act and
the Business Corporations Act do not apply to a corporation.
Though not a business corporation, every condominium corporation has a legal personality and is owned by the owners of the units. In contrast to business corporations which issue shares to the business corporation’s shareholders and which shareholders liability is generally limited to their investment, ownership of the common property in a condominium corporations is a function of “unit factor”, also referred to as unit entitlement, and owner’s liability is not limited to their investment (ie. the purchase price paid for a condominium unit). Section 6 of the CPA provides that:
Certificate to show share in common property
6(1) The Registrar, in issuing a
certificate of title for a unit, shall certify on it the owner’s share in
the common property.
(2) The common property comprised in a registered condominium plan is held by the owners of all the units as tenants in common in shares proportional to the unit factors for their respective units.
Similar to business corporations where shareholders do not typically actively manage a corporation and shareholders instead elect or appoint a board of directors to control the corporation, condominium corporations also elect a board of directors to control the condominium corporation; the CPA states this in section 28:
Board of directors
28(1) A corporation shall have a board of directors that is to be constituted as provided by the bylaws of the corporation.
The board of
directors is responsible for CONTROLLING, MANAGING and ADMINISTERING the
condominium corporation and enforcing the condominium corporation’s bylaws;
section 37 and 32 of the CPA address this:
Control and management
37(1) A corporation is responsible for the
enforcement of its bylaws and the control, management and administration of its
real and personal property, the common property and managed property.
32(1) The bylaws shall regulate the corporation and
provide for the control, management and administration of the units, the real
and personal property of the corporation, the common property and managed
property.
(2) The owners of the units and anyone in
possession of a unit are bound by the bylaws.
All owners of
units and anyone in possession of a unit are bound by the bylaws of a
condominium corporation. The duties and
responsibilities of directors of condominium corporation’s board of directors
is prescribed by section 28(2):
Board of directors
28 (2) Every member of a board, in exercising the
powers and performing the duties of the office of member of the board, shall
(a) act honestly and in good faith with a view to the
best interests of the corporation, and
(b) exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
Ironically,
even though a condominium corporation is expressly stated to not be subject of
the Business Corporations Act, this language mirrors that of section 122
of the Business Corporations Act (Alberta):
Duty of care of directors and officers
122(1) Every director and officer of
a corporation in exercising the director’s or officer’s powers and discharging
the director’s or officer’s duties shall
(a) act honestly and in good faith with a
view to the best interests of the corporation, and
(b) exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
In summary, the CPA provides that the owners of units are to elect
a board of directors who are delegated responsibility for the enforcement of
the condominium corporation’s bylaws and delegated responsibility for the
control, management and administration of the condominium corporation’s real
and personal property, the common property and any applicable managed property
(this concept emerges from bare land condominiums which is beyond the scope of
this blog).
Board members, and in aggregate the board of directors upon which
they serve, must act honestly and in good faith (this obligation being informed
by the obligation to act in the best interests of the condominium corporation)
and must not act negligently (that is, exercise the care diligence and skill of
a reasonably prudent person in comparable circumstances). Often disputes between owners and Boards of
Directors (or the property managers retained by the Boards of Directors to
assist in the enforcement of the condominium corporation’s bylaws and the
control, management and administration of the condominium corporation’s real
and personal property, the common property and managed property.
Section 67 of the CPA establishes the boundary of “improper
conduct” by which all Board members and boards of directors must govern their
conduct, by which all owners must govern there conduct and provides that an
“interested party” may make application to the Court for relief in respect of
the “improper conduct” of, amongst others, a board member, board of directors
or an owner:
Court ordered remedy
67(1) In this section,
(a) “improper conduct” means
(i) non‑compliance with this Act, the regulations or
the bylaws by a developer, a corporation, an employee of a corporation,
a member of a board or an owner,
(ii) the conduct of the business affairs of a corporation in
a manner that is oppressive or unfairly prejudicial to or that unfairly
disregards the interests of an interested party,
(iii) the exercise of the powers of the board in a
manner that is oppressive or unfairly prejudicial to or that unfairly
disregards the interests of an interested party,
(iii.1) the conduct of an
owner that is oppressive or unfairly prejudicial to the corporation, a member
of the board or another owner,
(iv) the conduct of the business affairs of a developer in a
manner that is oppressive or unfairly prejudicial to or that unfairly
disregards the interests of an interested party or a purchaser or a prospective
purchaser of a unit, or
(v) the exercise of the powers of the board by a developer in
a manner that is oppressive or unfairly prejudicial to or that unfairly
disregards the interests of an interested party or a purchaser or a prospective
purchaser of a unit;
(b) “interested party” means an owner, a
corporation, a member of the board, a registered mortgagee or any other person
who has a registered interest in a unit.
(2) Where on an application
by an interested party the Court is satisfied that improper conduct has taken
place, the Court may do one or more of the following:
(b) direct that the person carrying on the improper conduct
cease carrying on the improper conduct;
(c) give directions as to how matters are to be carried out
so that the improper conduct will not reoccur or continue;
(f) give any other directions or make any other order that
the Court considers appropriate in the circumstances.
To be clear section 67 does not
just impose obligations to act properly on board members and Boards of
Directors but also provides, among other things, that the failure of an owner
of a unit to comply with the CPA, the regulations or a condominium
corporation’s bylaws or actions of an owner of a unit which are “oppressive or
unfairly prejudicial to the corporation, a member of the board or another
owner” are “improper conduct”. This is a very significant point and one which
is not appreciated by many owners of units.
Owners of units expecting to be treated reasonably by boards of
directors owe a reciprocal duty to be reasonable towards board members and
boards of directors.
Owners of unit must understand that, generally speaking, the
Courts in Alberta will defer to decisions made by Boards of Directors [see 934859
Alberta Inc. v. Condominium Corporation No. 0312180, 2007 ABQB 640 (CanLII)]:
[55]
In my
view, as a matter of general application, Courts do defer to duly elected
condominium boards. However if improper conduct is alleged and a Court is
satisfied that improper conduct has taken place, the Court, pursuant to Section
67(2) of the Condominium Act, may then direct and/or grant any of the remedies
set out therein.
The CPA thus imposes clear
obligations on boards of directors and individual directors to act reasonably
and in good faith. If this obligation is
not satisfied the Court can conclude that “improper conduct” has occurred. This obligation is matched by the obligation
on owners of condominium units to not act in a manner which is in breach of the
bylaws or is oppressive or unfairly
prejudicial to the corporation, a member of the board or another owner.
This blog is being written in August of 2020. Condominium corporations are facing a changed
operating environment because of the impact of Covid-19 on our society
generally and economically. Recently I
have seen the expectations of owners increase due to this dynamic. Owners must appreciate that board members and
boards of directors have obligations which take priority over the interests of
any particular owner. That is, directors
and boards of directors must act in the best interests of the condominium
corporation which the board of directors serves.
For example, it would not be appropriate for a board of directors
to permit owners to not pay the monthly condominium contribution required by an
owner of a unit; payment of condominium contributions by owners is the economic
life blood of condominium corporations.
Failure to require owners to pay may be considered to be a breach of the
obligation to act in good faith, negligent and, accordingly, improper
conduct. This does not preclude a board
of directors agreeing to a deferral on arrears in condominiums contributions
which have accrued. However, boards of
directors must impose a reasonable timeline (usually not more than 6 months) to
allow owners of units in arrears to bring the owner’s contribution account into
good standing.
By way of one further example, boards of directors must be sure to
review the bylaws of their condominium corporation prior to making decisions
which impact any particular owner. The
bylaws of a condominium corporation, supplemented by the CPA and the
regulations, provide instruction on how various issues are to be handled; ie.
breach of rules, breach of bylaws, chargebacks for damages due to insured and
uninsured perils which are in breach of a condominium corporation’s bylaws,
collection of insurance deductibles. Often
important steps are missed by boards of directors and could lead to owners
suggesting that boards of directors have acted improperly.
Boards of directors must understand that decisions of boards of
directors are either made by an ordinary resolution at a duly convened meeting
of the board of directors or by a resolution in lieu of a meeting signed by all
board members. Boards of directors
cannot enforce the bylaws of the condominium corporation without satisfying
this basic corporate governance principle; boards of directors make decisions
by resolution. Too often boards of
directors act causally and make decisions by circuitous email chains or
verbally; if decisions are made in this manner, which is not recommended but
specifically discouraged, then such decisions should be ratified at a duly
called board meeting or by a resolution in lieu of a meeting signed by all board members.
If boards of directors govern themselves as I have encouraged the
likelihood of a dispute occurring with owners will be reduced, not eliminated. Moreover, it behooves boards of directors to
carry on in a manner which satisfies the basic principles of corporate
governance and to act in the best interests of the condominium corporation.
