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The Limits of Democracy in Ontario Condos

We often think that democracy is the ultimate decision-making process in condominium corporations in Ontario. True, but it is not that simple. The first challenge to the general tenet that majority rules the governance of condominiums is that numerous decisions require a varying degree of approval from the owners. For instance:

  • Quorum to hold an AGM is presently set at 25%, unless increased to 33 1/3% with a by-law (such by-laws would no longer be valid under the “new” Condo Act);
  • A special meeting of the owners can be called on the requisition of only 15% of the owners;
  • The corporation’s annual budget, which can involve many hundreds of thousands of dollars, is never submitted to a vote of the owners, but is adopted by the board only;
  • A rule can become enforceable without any vote of the owners, unless owners requisition a meeting to vote on it. And even then, all that is required for the rule to be approved or defeated is 50%+1 of the owners present at the meeting;
  • A by-law, on the other hand, requires the support of 50%+1 of all registered owners;
  • As for an amendment to the declaration, it requires the support of 80% or 90% of the registered owners (depending on what the change entails) or a ruling of a judge (where, naturally, no vote is taken);
  • A corporation can make a non-substantial change to common elements without any vote of the owners unless owners requisition a meeting on the question within 30 days of receiving notice of the change. If a meeting is called, the majority is calculated only on the owners present at the meeting. Substantial changes to common elements, on the other hand, require the support of 66 1/3 % of all registered owners;
  • Finally, keep in mind that courts ultimately trump the vote of owners. In the Grigoriu case, a court ordered a change to the declaration despite the contrary vote of the owners. In another case, CCC 375 was prevented from submitting to a vote the required changes to accommodate the owner of a commercial parking unit**. In Boily, a court ruled that allowing owners to vote on what to do with the corporation’s landscape constituted a collateral attack on a prior judgment ordering its reinstatement.

As demonstrated above, we are far from having the pure rule of democracy dictate the governance of condominium corporations.  In practicality, a far lower number of owners truly control the corporation. Indeed, since the Condominium Act provides that the board shall consist of at least 3 individuals and since quorum at a board meeting is reached with a majority of the directors, day to day decisions pertaining to the condominium can really be made by as little as 2 single individuals.  Thankfully, both the “current” and the “new” Acts provide that a corporation can adopt a by-law increasing the number of directors on the board.  But this only marginally increases owners’ representation and you have to find sufficient candidates to fill these positions.

Still, most are prepared to let an elected board of directors manage the affairs of the corporations.  After all, aren’t these representatives elected by a majority of the owners? Well, not so fast.

Directors are elected at the annual general meeting of the owners. The required quorum for an AGM to proceed is 25% of the owners. This means that 13 % of the owners can elect the board who will run the affairs of the corporation.  The owners required to elect a board will be further reduced under the “new” Act since quorum to hold an AGM will be reduced to 15% of the owners on the third or subsequent attempt to hold the AGM after having failed to reach quorum in prior attempts.  So, 8% of the owners will be able to elect a board of directors. In fact, an even smaller number could end up electing the board should the vote be divided between many many candidates. Indeed, it is the candidate with the most votes (not with the majority) who gets elected.

But wait, a director can be appointed with even less scrutiny of the owners. Indeed, when there are vacancies on the board (should a director not complete his or her term), the balance of the board can appoint someone to fill the vacancy (assuming that the board still has quorum). The appointed director is therefore not elected by the owners at all. And if the directors step down in cascade, always allowing the board to keep quorum, a corporation could end up with a board on which no directors have been elected by the owners… at least until the next AGM.

It is also interesting to note that to remove a director in the middle of his or her term, you require the vote of 50%+1 of all owners. So, this director who could have been elected by 13% of the owners or less will require 50% +1 of the owners to be removed.

Lessons learned

So, what lesson are we learning from this? That it is crucially important for all owners to get involved and for all owners to attend and vote at AGMs. AGMs are not just a mundane or social event.  AGMs are truly the opportunity for all owners to have their say and to carefully select the few who will run the ship for the next year or so.

There are numerous court cases where owners are warned that they better get involved or risk having to assume the consequences of a board having gone astray.  On this, Justice Aitken in Ballingall wrote the following after having imposed on the corporation legal costs for the actions of a director:

This award also provides a strong message to condominium owners to take an interest in the management of their corporations and to seek leaders who are able to work constructively and effectively with all owners in seeking reasonable resolutions to difficult issues.

A similar warning was given by the Court of Appeal in Boily. It recognized that the faulty actions were those of directors, but the court reminded the owners that they were the ones who had elected them.

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** This decision was reversed on appeal in August 2016