Court restrains requisition meeting, orders cooling-off period
The Ontario Superior Court recently restrained a meeting called by unit owners after the condo failed to respond to a duly-filed requisition for calling a meeting to remove directors.
Finding itself in the midst of serious financial trouble and facing stiff resistance by owners after making several tough choices, the board decided in December to apply to the court for the appointment of an administrator. The application was not commenced until three months later, in late March, a few weeks after receiving a requisition by owners to hold a meeting to remove the board.
Because the board did not call a meeting in response to the requisition they received in early March, the owners exercised their right under s. 46(5) of the Condo Act to call the meeting themselves. In the days before the scheduled owners’ meeting, the board brought a motion to restrain that meeting until the application to appoint an administrator could be heard. The motion was heard the day before the meeting and the court released its decision on the day of the meeting.
After assessing the circumstances and applying the legal test for granting an injunction, the court found:
1. There were was a serious issue about whether an administrator should be appointed on account of “the financial problems of the corporation, coupled with the factionalism amongst unit owners and significant governance difficulties”.
2. There may be irreparable harm if the owners’ meeting proceeded. “The holding of a meeting to elect a new board of directors has the potential to add further instability and uncertainty to an already difficult situation.” Further, the owners calling for the meeting (and, presumably, those planning to run for the board) had filed no plan to deal with the financial crisis.
3. The balance of convenience favoured delaying the owners’ meeting. “To permit the meeting to proceed inevitably would only add a further layer of litigation to this dispute and increase legal fees.”
Finding that the legal test had been met, the court granted an injunction restraining the requisition meeting, but ordered a two week “cooling-off period” and gave this helpful suggestion:
I encourage the unit owners to put aside their personal disputes and obvious differences and to use the next two weeks to meet informally to try to come up with a realistic plan to address the real financial problems that are staring them in the face. Hard decisions must be made – either significantly cut expenses, or significantly raise common fees, or both. Inaction is not an option. If the level of distrust amongst the unit owners is too high to permit reaching a solution, then perhaps they should think about appointing an administrator who can make the tough decisions for them. I will give the unit owners two weeks to engage in this kind of “reality check” and to explore a common solution.
While sensible, it is unclear whether the cooling-off period will be beneficial or whether the parties at this condominium could ever solve their own problems. Here are three reasons why I would be pessimistic:
First: The opposing owners might not see reality as the rest of us do. The court noted that the unit owners appeared to misapprehend the role and function of the administrator – They seemed to think that the administrator would follow the wishes of the owners. The court also noted that the owners appeared not to fully appreciate the severity of the financial issues facing their condo. While they opposed the board’s decision to download electrical costs to the units, the owners provided no alternative solution to the looming cash crunch.
Second: Indecision, slow action and poor transparency by the board. While the court had little to say about the board, part of the “distrust” by the opposing unit owners likely came from the board being unresponsive to requisitions, which often gives the appearance of being secretive or uninterested in the owners’ concerns. Similarly, the board’s delay in commencing the application for appointment of an administrator probably allowed the situation to fester, adding more fuel to the conflict.
Third: The desperate situation facing this condo probably arose, in part, from apathy. The most recent AGM, for example, did not proceed because quorum was not met, which seems incredible considering that the condo is almost $5 million in the red and had posted a quarter-million dollar loss in its most recent year-end. Owners being asleep at the switch often leads to catastrophe.
In all the circumstances, it seems wise for the court to have ordered the application appointing an administrator to be heard prior to any vote for removal of directors. It is just regrettable that the animosity between these parties made these steps necessary, adding further woe to a community already in crisis.
See: MTCC 710 v. Unit Owners, 2010 ONSC 1873 (CanLII)
Chris - I like this language from the court, but it raises three questions for me.
1. Will the cooling off really work? In our collective experiences, I am not always sure more time is the best medicine for these problems.
2. Was the cooling off period something that the parties (or one party) asked for or was it of the judge's own devise?
3. Would the cooling off period ever be something that you asked a court for on behalf of an association client in this situation or other similar circumstances?
Thanks for your comment, Roger.
Here are my thoughts, which might answer all three of your questions:
I don’t think that the cooling-off period itself is very significant, seeing as how the application to appoint an administrator could probably not be heard for a few weeks anyway. In its reasons, the court indicates that complete advance service of all the application materials had not yet been made on all of the owners. The court was therefore not in a position to appoint an administrator immediately. What was more significant, however, was the judge sending a message in his reasons telling all of these people to give their heads a shake and start working together to find a common solution to help heal the divides in their community. It’s that commentary which is the important part of the story.
Judges should give this kind of commentary to condo parties whenever they can, especially since most of the actual players won’t be in the courtroom. The judges’ decisions are the best way to send a strong and clear message back to the parties directly.
I suspect that judges will become more inclined to send strong messages to condo parties over time, as more and more condos with serious trouble appear in their courts for appointment of administrators. Here in Toronto, our oldest condos are now reaching 40 years in age and some of those are now in serious state because of poor budgeting and bad management over the years. Our courts will be seeing more cases like this in the future, so their collective experience will increase as well, with the result that judges will probably be more inclined to give stern warnings to parties who appear to need it. I would not hesitate to ask a judge to give the parties a frank assessment of what’s happening and what needs to be done to avoid catastrophe.
Thanks again for your comments and for reading!
Wow! Another condo horror story. Like other ones that have been reported I wonder where were the professionals when this place began to experience problems? Was this place self-managed, if so, it shows how self-management is a recipe for disaster. If it was "professionally" managed somebody was acting as a rank amateur. Where was the auditor? Doesn't that professional have a duty to inform the board of dangerous practices? If it comes down to owner apathy then the owners have gotten what they deserved. If it comes down to the board why didn't they try to find solutions to what must have been a myriad of problems.
Mr. Jaglowitz -
Is there any new news about this condo corporation?
What has happened since this blog?
Is the being run by an administrator?
Have they turned things around?
Hi Jason.
The news about MTCC 710 is sketchy, but there are some updates. See our entry of April 29, 2011 on Inspectors, here:
http://www.ontariocondolaw.com/2011/04/articles/legislation-regulation/condominium-act-1998/condo-act-amendment-on-inspectors-coming-into-force-soon/
It looks like they're not out of the woods yet.
Thanks for reading our blog.
I am glad to see that the Judge recognized the need to have an alternate solution, and not just get rid of the Directors.
With the recent submission with suggestions to changes to the Act, i was very disappointed not to see a minimum amount of time before owners can organize a requisition in the case where multiple requisitions seems to be common place - 5 in 3 years.
Owners are fearful that going to court to request an administrator will force property values to drop - but what of the psychological effect of living in an unstable community where interruption with one's personal enjoyment of their unit is at risk on a regular basis?
I had submitted a suggestion in regards to this when CCI and ACMO were accepting comments, but unfortunatley, perhaps this type of situation is not 'commonplace' enough to make it worth protecting the rights of owners caught between fighting factions in a condo community.
Would you care to comment?
Thank you Chris!