February 2019
Some condo corporations have been operating poorly for so long that residents are unable to see when someone does the right thing.
Here are two Toronto-area examples of how condo corporations have chosen to operate when a conscientious director seeking to comply with their fiduciary obligations infiltrates a condo board.
One Toronto-area condo corporation had kept condo fees too low for too long. Over a fifteen year period necessary work was not getting done, a large special assessment implemented and a lawsuit filed against a property management company. Successive condo boards kept condo fees low, failed to adequately fund the reserve fund and allowed reserve fund studies to under-represent the scope and cost of work necessary to maintain their building. Residents continuously failed to seek and elect directors with sufficient financial and other expertise to recognize and willingly address these problems.
Willful ignorance can only remain in check for so long. A new condo director began inquiring about recent financial inconsistencies and manipulation of funds. Two years later, by the time that director became treasurer, it became clear that major reserve fund study items were understated by as much as 50 percent. The corporation was one major project away from financial problems. Upcoming major projects included roof replacement and parking area repairs. Reserves were inadequate to fund these two projects and everything else required of the reserve fund.
It took six months to gather irrefutable proof that reserve fund study items were not adequately funded. Still, the reserve fund study preparer and some directors failed to acknowledge the problem.
In the end that director forced a recalculation of reserve fund items known to be underfunded and pushed the board to raise condo fees to a full funding level. This required monthly condo fee increases of $100 or more for many of the condo owners.
The director was not re-elected. The reserve fund preparer was not replaced. The condo corporation reverted to past ways.
Another Toronto-area condo corporation was more successful. That nearly 30-year old condo corporation had an original building deficiency that included inadequate insulation in the roof. Resulting damage required numerous repairs over many years. In an effort to save money this work ended up being done improperly. Saving money on these repairs resulted in more damage to the roofing structure. This problem had depleted much of their reserve fund.
The current President had acted to build up the reserve fund over the past five years. A multi-year plan was implemented to fully resolve ongoing roofing problems.
Some owners objected to having significant funds sitting in the reserve fund not earning income. Others wanted the roofing project to be sped up yet did not want to incur a special assessment or increase in condo fees.
This culminated in a requisition meeting to remove the President. At the meeting, a majority of owners supported the current President and plan. A director seeking removal of the President was replaced. As this relates to a multi-year plan, owner concerns and opposition are anticipated until the plan is fully executed.
Conscientious condo directors that comply with their fiduciary obligations may need to make hard decisions in opposition to nearly everyone else. Being effective may require that they knowingly bear the brunt of blame for past actions if a condo corporation is to move forward. Condo owners failing to support these directors commit their corporation to repeating past mistakes and a problematic future.
