Though most condo management firms carry on honourable businesses that well-serve their clients (often under the direct leadership of their top brass who are personally involved in the operations and take ownership of problems), some firms demonstrate little or no commitment to accountability and transparency, whether in their operations or their ownership structure. The CMSA throws open the curtains by requiring condo management providers to disclose significant information about themselves, their backers and to put forth a specific individual with whom the buck stops.
As reported in Part 4 of this series, an applicant for a condo management provider license must submit information needed for the regulator to assess the application against the disqualifying factors in section 37 of the CMSA, namely whether there are grounds to believe that the applicant, its principals or “interested persons” cannot reasonably be expected to operate in a financially responsible way or operate within the law and with honesty and integrity. The information needed to conduct this analysis will include details about the applicant firm, its officers, directors, shareholders and “interested persons” behind all of them.
The CMSA contains a number of ways in which the regulator can gain meaningful information needed to make the critically-important decision as to whether or not to grant or renew a condo management provider license. Let’s explore them.
Beyond the names of officers and directors of corporate applicants for management provider licenses, section 46 goes on to require that names of persons or groups of persons who hold 10% or more of the shares of a corporate applicant be provided to the regulator. This is a big change considering that shareholder information is typically not required for the public record and there are relatively few circumstances where a small business corporation must disclose its shareholders. The most likely rationale for requiring condo management firms to disclose this info is to fend off organized crime, money launderers and individuals with suspended or revoked licenses, and to help trace misappropriated money and assign civil or criminal liability to responsible individuals behind a corporately sophisticated criminal enterprise.
If implemented correctly, this mapping of the firm’s ownership may provide a highly effective screening and investigative tool and a major deterrent to keep shady individuals from entering this space. Given that condo management firms are fiduciaries to their clients and handle homeowners’ hard-earned money in large sums, these heightened information requirements are perfectly appropriate.
While laudable, the requirement to disclose shareholders is fatally flawed if it does not properly utilize the “interested persons” concept to go behind the shareholders (and their shareholders if necessary) of a corporate applicant for a management license. In other words, it may be possible for a rogue to incorporate a second company to hold shares of the company that will apply for a condo management service provider license. Unless section 46 is sufficiently robust to require disclosure of the shareholder’s shareholders, a rogue may successfully mask the true controlling mind of the licensee simply by interposing an additional company, and thereby defeat the useful concept of mapping a license holder’s shareholders. Though it’s possible that the wording of clause 46(1)(b) or its interplay with section 37 covers this scenario, it is not immediately apparent.
Here some additional provisions in the CMSA as to the information to be provided by licensees:
Subsection 37(3) permits the registrar to ask an applicant to provide “information” (and verification of that information by affidavit or otherwise) that is relevant to the decision as to whether or not to grant a license or renewal. And an applicant who fails to provide the requested information is dis-entitled to the license or renewal as per clause 37(1)(e).
Section 47 requires corporate license holders to notify the registrar within 30 days of significant changes in its shareholdings.
Section 45 also requires corporate licensees to obtain consent from the regulator before changing officers and directors and to notify the regulator once the change is made.
Section 34(4) provides that a partnership holding a condo management provider license is deemed to become a new partnership (which will therefore require a new license) if the members of the partnership change.
Section 50 requires management providers to file financial statements when demanded that address issues specified by the registrar, presumably to help the registrar assess whether the provider’s financial position presents a greater risk of a problem, as contemplated by section 37(2). These financial statements will be kept confidential, meaning that they will not be part of the public record or accessible database of licensees or otherwise under section 75, which contemplates regulations to establish precisely what information about licensees is made public, and how.
Aside from all these new information requirements, section 49 requires management firms to designate a licensed manager to be the “principal condominium manager” who “shall ensure that the condominium management provider complies with this Act and the regulations.” In the case of a sole proprietorship, the sole proprietor shall be designated as the principal condominium manager. This position is akin to the “broker of record” required for real estate and business brokerages governed by REBBA and is based on the concept that companies don’t do bad things, it’s people who do them. Conversely, it takes people to ensure that companies don’t do bad things and to implement sensible practices and controls, all of which is appropriate for a business that handles significant sums of client money.
Having a specific responsible individual (with their license at risk) to ensure that a firm honours its obligations should bring comfort to unit owners and directors who entrust the affairs and assets of their condominiums to a management provider.
Considering the present sad state of affairs, these new information and responsibility requirements may seem onerous and intrusive, but from greater transparency and accountability comes greater oversight, stronger deterrents and therefore better protection for condo unit owners. Bravo.
Our next instalment will examine additional new requirements the CMSA imposes on licensees.