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Auditor General’s Scathing Report on Condo Industry in Ontario

As part of its annual report, the Auditor General of Ontario issued, yesterday, a scathing report on Ontario’s condo industry and specifically on the lack of industry oversight.  The “Value for Money Audit“ on the condo industry is nearly 80 pages long and is worth a careful read.

In this blog we provide a summary of some of the findings and conclusions reached by the Auditor.

Summary

The Auditor found that many of the reforms expected to take place with the adoption of the Act to Protect Condominium Owners, five years ago, have yet to be implemented. The existing model for the condo sector does not provide, according to the report, effective consumer protection and does not address the risks that exist for condo owners and buyers.

The report concludes that the Condo Authority of Ontario (CAO) does not have the ability to inspect or investigate potential abuse or misconduct by condo boards, or to investigate and/or enforce compliance with the relevant legislation. The CAO was also found not to be mandated to get involved in the challenges of effective board governance, such as ensuring sound elections to the board and effective financial management of the corporation.  Without this oversight, some boards are left unchecked.

The  jurisdiction of the Condominium Authority Tribunal, created in November 2017 to provide a quick and inexpensive dispute adjudication, was found to be too limited.  Despite its recently enlarged jurisdiction, the Tribunal was found to only be able to hear about 11% of all of the condo disputes that have been adjudicated by our provincial courts in the last 50 years.The Auditor found that an effective dispute resolution process for the significant legal challenges involving condo community has yet to be established.

The Auditor also found that the Condo Management Regulatory Authority of Ontario (CMRAO) did not effectively address nearly half of the complaints sampled. The Auditor also found that it did not exercise its authority to inspect condo managers and management companies proactively .

Survey

Because neither the CAO, the CMRAO or the Ministry were found to have collected sufficient information to allow the Auditor to understand the condominium sector, the Auditor conducted two surveys, one of selected condo owners and another of selected condo boards. The following were some of the findings emerging from that survey.

  • Developers typically understate condo fees and many developers do not budget sufficient contributions to the reserve fund to pay for future major repairs and replacement of the corporation’s assets and common elements. As a result of this, condo owners have been required to make unexpectedly higher contributions to the reserve funds, which some times has resulted in undue financial hardship.The majority of corporations surveyed were required to increase reserve fund contribution by an average of 50%.
  • The ministry enforcement powers are used infrequently and are weak;
  • There are hundreds of unlicensed individuals and companies who continue to provide condo management services, despite it being illegal. The Auditor identified 316 individuals and 156 companies listed in the CAO’s public registry providing management services despite the fact that they do not hold a license;
  • The CMRAO took limited action on nearly half of the owner’s complaints sample by the Auditor.  The CMRAO’s inspection efforts were found to be mainly reactive;
  • Over 6,000 condo directors (or 17%) continue to serve on boards despite not having completed the training within the six month required timeline. Only approximately 52% of these directors were advised by the CAO of their disqualification;
  • Directors can complete the mandatory online training without actually reading the materials. Indeed, it was found that approximately 26% of the condo directors spent significantly less time going through the 21 educational modules then required to be able to read and properly review their contents.  At least 50% of the directors who completed the training took between 0 to 10 minutes to complete the majority of individual topics. Approximately 7% took less than an hour to complete the entire 21-module program, which is expected to take between 3 to 6 hours to complete;
  • Information on the interests of directors who serve on multiple board is not transparent.  The auditor found that over 1,000 directors served on multiple condo boards [some serve on up to 30 boards!]. Of the boards surveyed, 95 directors were found to serve on the board of at least five different condo corporations.  This was found to be worrisome as the interest of investors and commercial business owners can differ from and compete with the interest of resident condo owners. Investors and commercial business owners were found to primarily want to ensure a reasonable financial return for themselves, whether in the short or long-term. In opposition, resident owners primarily want to live in a place that is clean and safe with affordable condo fees. Condo residents would typically be interested in decisions made to benefit the condo corporation in the long-term.
  • The auditors sampling showed that some 20% of condo boards are reporting a number of directors which is below the required Quorum!
  • Condo owners face difficulties and barriers in accessing condo corporation information;
  • Condo owners are not on a level playing field with condo boards when appearing before the Condo Tribunal.  The auditor found that in 84% of the cases condo owners were self-represented; whereas in 91% of the cases corporations were represented either by a lawyer, an agent or a condo manager; and,
  • The CMRAO has not established targets to assess its performance of most of its mandate activities.

Conclusion

Overall, the Auditor concluded that the mandates given to the CAO and the CAT are limited and do not sufficiently protect owners against common issues that they may encounter in their daily condo living. Many of the relevant 2015 amendments to the Condo Act (that would provide enhanced consumer protection to condo owners and that would give boards a stronger ability to manage their responsibilities effectively) are not proclaimed and therefore not in force.

The  CAO was found not to have effective and efficient processes and systems in place to carry out its mandated responsibilities

The CMRAO was found not to have effective processes in place to resolve complaints against licensed condo managers and management companies. It was also found not to conduct proactive inspections of licensed condo managers and management companies.

In our next post, later this week, we will summarize the 20 recommendations made by the Auditor.