Corporate Governance of Condominium Corporations in Alberta; Director's Duties

     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.

                Bylaws 

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.

Obligations of Boards of Directors and Property Managers

It has been some time since I lasted posted to my blog.  My not regularly blogging is unfortuneately illustrative that "the road to hell is paved with good intentions".  On a go forward I will try to be more diligent.

I am proud to say that I am still not too old a dog to learn new tricks and recently learned how to set up RSS feeds.  From this the Morris v. Condominium Corporation No. 074 0215, 2012 ABQB 265 decision was delivered to me via my reader Feeddler.

This case is noteworthy because Master Smart appointed an inspector pursuant to section 67 of the Condominium Property Act (Alberta) (the "CPA").  The case now clearly establishes the principle that if condominium corporations fail to honor the obligations imposed by the CPA that the Court will intervene by appointing an inspector.  This is a serious remedy which Boards and Property Managers should avoid.
There is curious language in the Morris case indicating that property managers should not stand by and allow the obligations under the CPA to be ignored.  Though no relief was granted against the property manager the case may be relied on to establish the standard of care which a property manager owes to owners in condominium corporations.  I would encourage property managers to review the case and be careful to advise their condominium corporations accordingly.

Evicting an Owner of a Condominium Unit for Improper Conduct

In 2010 both the Alberta Court of Queen's Bench and the Alberta Court of Appeal provided guidance to condominium corporations in respect of when the remedy of eviction of an owner would be available.  This blog will provide the judicial history of the remedy of eviction of an owner and comment on these recent decisions.  It is important to distinguish eviction of a tenant which is expressly provided for in section 54-57 of the Condominium Property Act (Alberta) ["CPA"] from eviction of an owner. 


Eviction of an owner is not expressly provided for in the act and Courts have accepted that eviction of an owner is a remedy which can be granted when an owner's conduct is found to have been improper ("improper conduct") in accordance with section 67 of the CPA.  The remedy of eviction of an owner was first granted in 2003 in the OCP #0221347 v. N.Y.   This case was relied on by lawyers in Calgary since 2003.  Though not expressly indicated in N.Y. it was generally  understood that eviction of an owner was a serious remedy and the Court would only grant an eviction Order in the most  serious of circumstances.


In 2010 the Alberta Court of Appeal in CC #8110264 v. Farkas  concluded that the Honourable Mr. Justice Burrows of the Alberta Court of Queen's Bench erred in not granting the condominium corporation some relief and in stating this expressly recognized the availability of the remedy of eviction of an owner:

There having been breaches of the bylaw, the condominium corporation is entitled to a remedy, although the record does not justify the remedy of eviction. The appeal should accordingly be allowed, and an order granted that the respondent cease making any noise that unreasonably interferes with the use and enjoyment of other units. In the event that there is any breach of that order, the condominium corporation may apply on notice to the Court of Queen’s Bench to determine what further procedures or remedies are appropriate.

In a 2010 decision of the Honourable Madam Justice Veit of the Alberta Court of Queen's Bench in OCP #8222909 v. 837023 Alberta Ltd., 346804 Alberta Ltd., and 1139897 Alberta Ltd. the Court did a thorough review of the case law relating to the remedy and provided guidance as to when the remedy will be available.  Justice Veit metaphorically entitled one section of her written decision: “How should breaches by condominium owners be treated? Is a condo owner more like a bee in a hive or a queen in a castle?”  In this section Justice Veit reviewed Canadian and U.S. case law and articulates a general caution in applying U.S. legal principles to Canadian condominium law.  Justice Veit then went on in a further section entitled "What is the appropriate sanction for the breaches?" to clearly identify what is now the most specific statement of the law as to when the remedy of eviction will be available to a condominium corporation against an owner.  Justice Veit stated that the remedy of eviction is a serious remedy and should only be granted as part of an incremental approach to improper conduct:

As indicated above, I am of the view that the Condominium Property Act proposes an incremental approach to improper conduct. Eviction, as proposed by the applicants, is not an incremental remedy. Some opportunity should be given to the restaurant owner to remedy the breaches before the most serious relief possible should be invoked.

Justice Veit then went on to state:

Even though this condominium’s by-laws do not anticipate the eviction of owners, and even though the legislation does not expressly authorize the eviction of owners, there may well be situations in which the extreme sanction of eviction would be appropriate. For example, if, an owner allowed dangerous substances to escape from his unit and, after an appropriate warning, refused to stop the offending conduct, eviction may the only safe and reasonable option. A breach of a by-law that caused structural damage to condominium property may justify eviction. Indeed, even a serious breach that was not dangerous might, if repeated despite warnings were unavailing, justify eviction. This restaurant owner has been a nuisance to the other owners, but there is no evidence that his breaches were dangerous either to the other owners or to their tenants or to the structure of the condominium itself. Just as, in criminal law, the most serious sentence available is not reserved only for the most serious offence committed by the most serious offender, it is not necessary to reserve eviction for the most serious breach by the most culpable condo owner.

As this case did not deal with conduct of a residential owner, instead dealing with the conduct of an owner of a restaurant and commercial condominium, its application to the conduct of residential owners may be limited to the general application of the principal of incrementalism and the Courts will likely continue to have to assess the seriousness of the impugned conduct.  The writer is motivated to make two comments as a result of Justice Veit's written reasons.  First it is prudent for condominium corporations to amend their bylaws to specifically provide for the remedy of eviction and in this regard to detail the basis upon which the remedy ought to be granted.  Second, condominium corporations should be sure to detail over time the efforts expended to gain the compliance of a recalcitrant owner with the bylaws of the condominium corporation; that is detailed notes of all incidents should be kept, fines imposed if the bylaws allow same, and demand letters be sent.  Condominium corporations cannot expect to be granted the remedy of eviction without first having followed an incremental approach.


Though not binding on Courts in Alberta, the Ontario Superior Court of Justice also issued a decision in 2010 dealing with egregious conduct of an owner.  In the case Metropolitan Toronto Condominium Corporation No. 747 v. Korolekh the Court granted the remedy of forced sale in favour of the condominium corporation against a recalcitrant owner; to the best of the writer's knowledge this remedy has not sought and has not been granted in Alberta.  However, section 67 of the CPA appears to be broad enough to allow for this.


It will be curious to see how serious the conduct of an owner will need to be for the Courts in Alberta to grant either the remedy of eviction of an owner or even possibly the remedy of forced sale of the owner's unit in light of these cases.