It is rare for us at Ontario Condo Law Blog to beat up on an underdog, but the owner-occupied reserved position on condo boards is decidedly worthy of that honour.
That reserved position (set out in the Condominium Act, 1998, subsections 28(3), 46(3) and 51(5) to (8)) surely is an underdog - it enjoys little or no support and no one (at least publicly) takes credit for its creation. While at least one of the Condo Act Review working groups is currently considering the fate of the owner-occupied position provision among many other much-needed improvements to our condo law, today’s post lends support to eradicating it. We also ponder what lessons the creation of that now universally reviled provision can usefully teach us as we amend the Condo Act this time around.
For the past 12 years, Ontario condo managers, directors, unit owners and lawyers have bemoaned the unfortunate and ill-advised creation in the Condominium Act, 1998 of the owner-occupied reserved position on condo boards. That position, which is mandatory in condominiums where at least 15% of the units are “owner-occupied units,” is reserved for voting by the owners who occupy their units, and only the those owner-occupiers can vote to remove such a director.
The concept behind the reserved position was two-fold. First, to protect owner-occupiers where the declarant would otherwise control the board during the first year or two of the condo’s life. Second, the position would provide counterbalance in cases where the majority of unit owners are non-resident investors who might elect a board to serve their own interests (presumably to the exclusion of the owner-occupiers). While admirable, these concepts are not particularly compelling, for the following reasons:
1. Neither of these two scenarios is terribly likely;
2. Off-site owners generally don’t vote, let alone conspire to stack the board;
3. All condo directors have a duty to act in good faith and balance the interests of competing stakeholders and could always be held to account for being oppressive to any class of owners, including owner-occupiers; and
4. One position on a 3 or 5 member board does not a majority make!
In over ten years of working with hundreds of condo corporations, I have yet to see a single instance where the owner-occupied reserved position served any useful purpose. In fact, each of the condos I’ve worked with who fill that role would eliminate it in a heartbeat if they had their way.
Though it was intended to protect unit owners, the reserved position has arguably created more trouble than it has solved. In addition to the need to hold two separate elections in some years and other procedural messes that invariably arise to confuse and confound people attending their condo AGM, the creation of the owner-occupied reserved position gives rise to a few rare but very serious problems. These problems illustrate the poor conception and implementation of the reserved position and, we say, cement the fact that it must be eliminated.
First: There may be a dispute as to which owners are owners of “owner-occupied units,” which are defined in subsection 50(5) of the Act as:
a unit of an owner who is entitled to vote in respect of the unit at a meeting to elect or to remove a director where the unit is used for residential purposes and the owner has not leased the unit within the 60 days before notice is given for the meeting, as shown by the record that the corporation is required to maintain under subsection 83 (3).
The record referred to in subsection 83(3) is, of course, a register of the notices that the condo corporation receives from owners who have leased their units and that specifies the tenant’s name, the owner’s address for service and a copy of the lease or renewal or a summary of it. Despite the clear statutory obligation to file these notices upon leasing their units, owners seldom do and this provision is far more honoured in the breach than in the observance. The inevitable result of this and the 60-day requirement in ss. 50(5) above is that which owners are eligible to elect or remove a director to or from the owner-occupied position is difficult to administer, particularly where the manager or board know that a particular owner does not occupy their unit.
Related to this first problem is the distinct possibility that the number of owner-occupied units in any condominium can wildly fluctuate in even a short period of time. There might be 250 owner-occupied units today, but only 100 a month from now. The threshold for removing a director holding the owner-occupied reserved position may be constantly shifting, and there is no effective means to accurately determine the number of qualified electors at any given time, seeing as how clause 76(1)(o) requires a status certificate to contain:
a statement of the number of units for which the corporation has received notice under section 83 that the unit was leased during the fiscal year preceding the date of the status certificate;
This information is basically useless and the Act contains no other obligation for the corporation to advise any person as to the number of owner-occupied units. The safest course is to assume that, in the absence of a current section 83 notice, all units are owner-occupied units, but this is hardly an accurate measure.
Second: While subsection 46(3) specifies that a requisition for a meeting to remove directors must state whether any of the directors to be removed holds the owner-occupied reserved position, it does not specify that the requisite 15% of the owners signing the requisition must be eligible to vote for the removal of that owner-occupied director. It is therefore possible for 15% of the unit owners to properly requisition a meeting for the removal of the owner-occupied director, even if those owners do not own owner-occupied units and are therefore not entitled to vote for that director’s removal. Cue the head-shaking.
Third: If the sole item of business to be conducted in a requisitioned meeting is the removal of the director holding the owner-occupied position (where only owners of owner-occupied units have the right to vote), the board is obliged to give notice of the meeting to all of the unit owners, including those who do not reside in their units. While this is not necessarily a bizarre concept, it is certainly incongruous.
Fourth, and perhaps most telling: The minimum requirement for quorum at any condominium owners’ meeting is 25% of all of the units. In the weirdest case where even 100% of the owner-occupied units is less than 25% of all of the units, it would be impossible to reach quorum at a meeting where the sole business is removal of the director holding the owner-occupied position, unless a number of non-resident owners show up or file proxies to reach quorum, which is probably unlikely if those offsite owners cannot vote on the sole item of business at the meeting.
While these four problems are, admittedly, technical and seemingly trivial, there are actually condominium corporations grappling with these very issues in 2013 and whose owners are frustrated and confused with the process and with the fact that their condo corporation is spending money dealing with these issues. In a world where some unit owners feel compelled to make preposterous allegations and to challenge the most insignificant item that appears slightly out of order, the last thing a condo corporation needs is another potential ground for owners to challenge condo elections. The reserved position creates precisely the type of procedural hiccup that malcontents and conspiracy theorists can seize upon and hold up (incorrectly) as a sign that something’s rotten at their condo.
When the government of the day ignored the recommendations of the people and groups who work in condominiums daily and proceeded to implement the reserved position in the Condo Act 1998 without the help of those condo people, the creation of a substantial blunder was inevitable and, indeed, condo meetings for election and removal of directors from 2001 to this very day in 2013 remain unnecessarily complex, confusing and sometimes costly.
And for what? By any measure and after listening to any condo manager who has run an annual general meeting and has seen the confused look on people’s faces when explaining the need to hold the owner-occupied election, the problem is a live one that needs to be addressed in the only way that makes sense: The owner-occupied reserved position must be eliminated, period.
Those involved in the Condo Act Review process now underway and the lawmakers who ultimately consider the results of that process during the legislative deliberations to come must remember the lesson of the owner-occupied position, which can be summarized thusly:
Don’t mandate a solution that we did not request to fix a perceived problem which does not actually exist, especially where that solution will cause more problems than it would ever solve.
While the Condo Act necessarily and unquestionably constitutes a delicate balancing of various competing interests and should provide the basis for a strong democracy, the interests of the unit owners as a collective must always come first when it comes to how condominium corporations govern themselves. The concept of recognizing separate classes of unit owners or allowing fewer than a majority of all the owners to remove directors has no place in Ontario’s condominiums.
Creative solutions are required to address some of the serious persistent problems in condo-land, but the fundamental precepts of democracy and fairness cannot be overridden. To this end, government must guard against the temptation to deliver an "answer" to a question that no one asked and be doubly sure not to create more problems than they solve with the next Condo Act.