Boards of directors for condominium corporations are typically comprised of volunteers. Depending on the eligibility requirements in the corporation’s bylaws, these are more often than not members of the corporation, that is, unit owners. For residential condominiums, this means that the directors are also often lay people, with no particular specialized skills or professional knowledge. Most board members I’ve met are certainly not well-versed in the nuances and intricacies of condominium law, and many have little to no appreciable background in building maintenance, or even accounting. As a result, many condo boards tend to rely on experts, such as property managers and engineers, to provide them with advice and guidance when problems arise.
As the board of directors is the directing mind of the condo corporation, endowed with all the corporation’s legal powers and duties and tasked with making all its decisions, the board is also legally responsible for all the actions it takes, including those of its employees and volunteers. Because of this ability to control the affairs of the corporation and affect its interests, board members are also fiduciaries to the corporations they serve.
The duties of a fiduciary to a beneficiary (the condo corporation, and by extension, the individual members or unit owners thereof) are broad. In Alberta, these duties are codified by the Condominium Property Act. The Act provides that board members shall act honestly and in good faith, with a view to the best interests of the condominium corporation, while exercising the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (see section 28). Generally, so long as the members of the board act in accordance with this statutory standard, they will generally not attract any personal liability for their conduct even where it may have an adverse effect on an interested party such as an individual unit owner. However, a recent decision by the Alberta Court of Queen’s Bench confirms that acting honestly and in good faith is not a complete answer when a claim of improper conduct is brought against the condominium corporation itself.
In Lauder v The Owners: Condominium Plan No. 932 1565, 2021 ABQB 145, a ground-floor unit owner in an apartment-style condominium had been living with severely leaky windows for several years. Initially, the board was responsive to the owner’s concerns and attempted to perform some minimal repairs. Thereafter, unfortunately, communications broke down, and the board, operating under the (in my view, unreasonable) belief that its repairs were effective, declined further investigation despite continued complaints received from the unit owner that the leaking windows had not yet been fixed.
There is a section of the Act (section 67) known as sort of an “all-terrain” vehicle that provides relief for interested parties such as unit owners. This section may apply to various situations involving different conduct by a variety of listed actors, and because of this, I often refer to it as simply “the improper conduct section”, as that is the catch-all phrase used in the Act. in particular, section 67 may apply when a board of directors has exercised its powers and duties in a manner that is oppressive, or unfairly prejudicial to or that unfairly disregards the interests of a unit owner. This is the specific subsection was relied upon by the owner in the Lauder decision.
The Court concluded that while the board of directors had not been deliberately prejudicial in its dealings with the unit owner, the conduct of the board nonetheless had the effect of being oppressive to that owner. The board’s failure to respond to or properly investigate the unit owner’s concerns in a timely fashion (which turned out to be legitimate), coupled with a failure to take seriously the owner’s complaints of a potentially dangerous problem involving the building envelope (which turned out to be a rather large construction deficiency in the common property), constituted conduct that unfairly disregarded the owner’s reasonable, legitimately-held interests.
There was evidence that the board may have misunderstood the corporation’s legal obligations, perhaps as a result of being misinformed by its agents, including the property manager. The Court acknowledged that it is possible to misunderstand one’s duties without acting in bad faith and while still acting honestly with a view to the best interests of the corporation. But the fact that the board members were acting in good faith, and had been relying on advice from purported experts, such as the property manager (which advice was incorrect), is not a complete answer. Ultimately, this did not shield the corporation from being found liable to the unit owner.
The Court ordered the corporation to complete the final window replacement in the owner’s unit (recommended by the corporation’s engineer three years earlier), and perform all necessary repairs and/or replacements of any other windows that continued to leak. The corporation was also directed to repair all interior damage to the unit caused by the leaking windows. The entirety of these repairs are to be completed within a fixed period of time. This direction by the Court was not surprising, as it is in line with the general duty of condominium corporations to maintain and keep the common property in a state of good and serviceable repair.
The Court further points out that this duty necessitates more than simply preserving a state that could be deficient or maintaining the status quo, especially if it might pose a danger to the health and safety of occupants. The corporation’s duty to maintain the common property actually extends to an obligation to correct deficiencies, or at the very least, to investigate and bring the conclusions to a meeting of the owners. In the Lauder case, not only did the board fail to investigate until the owner engaged legal counsel, 3 to 5 years after first reporting the leaks, but it actually prohibited the unit owner from raising the issue of the leaking windows at an Annual General Meeting where it could be discussed by all the members of the corporation.
The real surprise in this case was that the Court also ordered the condominium corporation to pay general damages to the unit owner, in the amount of $5,000. This was determined to be appropriate compensation for the inconvenience and stress that the owner had suffered as a result of the extreme delays by the board in effecting the necessary investigation and repairs to her unit, among other things (such as entering the unit without permission, and improperly suggesting the owner was responsible for interior repairs to the unit for damage caused by the leaking windows, etc.)
All of this highlights the importance of board members informing themselves as to their own legal powers and duties as well as the obligations of the corporation as a whole. Condo boards are tasked with making all kinds of decisions on behalf of the corporation and this necessarily involves having some understanding the content and limits of their duties and authority. Effective decision-making must be informed, and decisions must at all times be made in accordance with the policies and bylaws of the corporation, and within the scope of the law. Board members need to familiarize themselves with the Act and the bylaws, and cannot simply rely on a manager who may or may not be providing them with accurate information and advice.
Serving on a board means embracing a philosophy of proactive involvement. The following are some tips for board members and condo unit owners who may be considering a position on the board of their condominium corporation:
- Regularly review and familiarize yourself with and the Act and Regulations, as well as the corporation’s foundational documents, such as the plans, bylaws, and any rules or policies approved by the board.
- Develop and implement proper policies and practices for board members, including codes of conduct, confidentiality, human rights, occupational health and safety, and privacy.
- Understand the corporation’s contractual obligations and ensure that the board approves contracts via a board resolution passed at a properly convened board meeting after an informed discussion recorded in the minutes.
- Maintain careful, complete minutes of all meetings of the board and the corporation, and keep the minutes in a secure location.
- Distinguish carefully between roles, where the role of a board member may overlap with another role as a service provider for the corporation, and know where to draw the line and declare potential conflicts of interest.
- Stay informed by reading minutes, agendas and supporting materials, attend meetings regularly, and arrive prepared for meetings ready to vote on issues. Dissenting or abstaining on a vote may not be a complete defence to potential liability, so include reasons in the record of the meeting (the minutes).
- Fiscal Responsibility and sound financial management does not mean keeping monthly condo fees artificially low by deferring needed maintenance, repairs and replacements. A wait-and-see or self-help approach that avoids investigating and making proper repairs is not always in the best interest of the corporation simply because it might save money in the short-term. This only ever results in large, unexpected special levies to pay for such repairs, which are almost always more expensive because of having been deferred.
- Listen to unit owners and consider their interests when making decisions that affect them. At all times, deal fairly and consistently with unit owners. Don’t be accused of “hearing without listing”.
- Don’t focus overly on consensus-building at the board level. The board’s job is to make decisions on behalf of the corporation, and board members should not feel forced to vote so that decisions are unanimous, or feel held hostage by one or two members who do not agree with the majority. Conversely, once a decision is made, the board should speak with one voice.
Board member service is not for everyone, and can often be a stressful, thankless position. And as the Lauder case shows, even when members are generally discharging their duties of good faith and acting with a view to what they honestly believe is in the best interest of the corporation, decisions by otherwise well-meaning boards can still create liability for the condominium corporation. That said, having a proper and thorough understanding of the roles and duties of board members can make serving on a condo board significantly easier and more satisfying. Learning to recognize and avoid the kinds of decision-making that may trigger liability for the corporation or for the board, such as that demonstrated in the Lauder case, will go a long way toward providing greater protection for both.
If you have questions about the conduct of your board of directors, or questions about this case, please contact a member of our Condominium Group.