While it is routine for money to flow from condominium corporations to their managers for payment of regular management fees, there are few valid reasons for other such transfers. It is, for instance, completely improper for a management firm to “borrow” its clients’ funds to finance its own operations or to “lend” funds to its other condo clients.
A recent Ontario Superior Court decision highlights precisely such a scenario and brings several important lessons for condominium directors.
In 2005, York Region Condominium Corporation No. 890 (better known as Pacific Mall in Markham) brought a lawsuit for damages against its property manager, RPS Resource Property Services Ltd. (“RPS”) and William Garland (“Garland”) who was RPS’s principal, for breach of fiduciary duty, breach of trust, conspiracy, fraud and breach of their obligations under the Condominium Act, 1998.
The condo also named Royal Bank of Canada (“RBC”) and sought damages for breach of contract, negligence and conversion.
The trial took place over several days in June 2010 and the ruling was released this month. The full decision is now reported here. We will reproduce some of the highlights here, but time-starved readers can skip to the bottom to see the important lessons.
After hearing all the evidence, the court’s findings about the unauthorized transfers were as follows:
1. If a condominium management firm or manager deals improperly a condo corporation’s money, it can and will be held to account in a court of law.
2. Succeeding in court is not necessarily a victory. After spending five years and untold thousands in legal fees and hours of board’s time, this condo corporation made a large recovery from its manager, but will likely not recover 100 cents on the dollar.