… Landmark Decision
pointed a mediator and scheduled the mediation with- out consulting with the unit owners; hired its own engineer to provide a report that there could be no ‘perfect seal’ rather than a report on possible solu- tions; left halfway through the mediation due to ‘another appointment’; and tried to make the unit owners pay for the entire mediation costs despite a provision in the condo’s by -law that the costs should be shared. Also, when the condo did pass a no- smoking rule with a grandfathering provision, it re- fused the unit owner’s application on the grounds that he no longer lived in the building, despite the owners having moved out only temporarily to ensure no smoking in the unit while the dispute was being ad- dressed. Section 37 of the Condominium Act, 1998 requires that “Every director and every officer of a corporation in exercising the powers and discharging the duties of the office shall, (a) act honestly and in good faith…”. There is also the Business Judgment Rule, which the Ontario Court of Appeal (in the decision 3716724
Canada Inc. v. Carleton Condominium Corp. No. 375 ) found applies to condominium corporations. That Rule states that if a decision by a Board is made hon- estly, prudently, in good faith and on reasonable grounds, it will not be second-guessed by the court. The converse of that Rule is that Boards of Directors are required to act honestly, prudently, in good faith, and to make decisions on reasonable grounds. The Court found that the condo had breached the provision of its by-law which required the condo to use best efforts to resolve any disputes, and was not protected by the Business Judgment Rule, because it did not act in good faith. As a result, the Court or- dered that:
The lien was to be discharged;
The sales proceedings of the unit were stayed;
The unit owners would pay no part of the en- forcement costs, aside from those costs be- coming part of the common expenses for the condo and the unit owners continuing to pay their common expenses; The unit owner would be grandfathered for the no-smoking rule; and The condo had been oppressive and was there- fore to pay the unit owners the amount of $9,679.75 for damages incurred by them as a result of the condo Board’s bad faith actions. This decision should be noted and taken very serious- ly by condominium corporations. It is clear from the Court’s findings in this case that Boards of Directors have a serious obligation to work in good faith with unit owners to come up with solutions to conflicts, rather than moving aggressively and unilaterally to- ward enforcement. If a Board fails to comply with its duty to negotiate in good faith, there could be serious financial implications for the corporation, which then impacts all unit owners. It further speaks to whether or not to add legal costs for compliance matters to an owner’s common expenses without a court order to do so. The answer to that is: Don’t do it. The Court’s decision is not yet available online. If you would like a copy of the decision, or if you have ques- tions about this bulletin, you can contact Laura Glithero or Stephanie Sutherland.
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