June 2024
The last resort for a damaged and dysfunctional condominium community is a court-appointed administrator. A Superior Court of Justice judge will make this appointment to fix the extreme circumstances – political, social or financial – that needs to be corrected.
This is the remedy of last resort when owners have been found unable to self-govern. It is difficult to obtain, and intended to save a condominium corporation from the worst form of governance. It is a warning to owners that they must change or face even more dire consequences. In most situations, this requires significantly increasing condo fees, dramatically reducing expenses, or both. It is likely there is a high degree of mistrust between condo directors and owners that must be resolved.
When directors elected to manage the affairs of the corporation have failed abysmally, an administrator replaces all Board members and is empowered to make some or all decisions on behalf of the corporation. Their compensation is determined by the court and paid by the condominium corporation. If the community was a profit-making enterprise, this court-appointed individual would likely be dealing with the threat of bankruptcy.
Indicators of extreme circumstances in need of a court-appointed administrator:
- Operating deficit in the hundreds of thousands of dollars
- Mortgages in the millions of dollars
- Illegal use of reserve funds to pay expenditures other than major repairs and/or replacement
- Failure to undertake necessary repairs and maintenance
- Underfunded reserve fund
- Misuse of operating fund
- Uncollected common expense arrears
- Unaudited financial statements
- Unaddressed city work orders
- Unpaid water charges
- Frequent meeting requisitions to remove directors
Lesser concerns that can signify growing problems include verbal and physical threats, lack of adequate security, murders, widespread graffiti, silencing of owners during elections and proxy fraud.
Requests for an administrator are not taken lightly by the court. If granted, the court determines the role and powers of the administrator based on identified problems in the affairs of the condominium corporation:
- Recognized inability to manage the corporation
- Significant or substantial misconduct or mismanagement
- Inability to bring order to the affairs of the corporation\A struggle within the corporation among competing groups that impedes proper governance
- A reasonable prospect that appointing an administrator will bring order to the affairs of the corporation
- Costs and benefits of appointing an administrator being reasonable based on the circumstances
The length of an administrator’s appointment, their powers and authority are determined by the court. A board of directors may lose all authority during the period an administrator is in control. Owners or directors can lose authority to determine a proper level of condo fees or decide on how these funds are utilized. In short, powers of the board of directors can be suspended along with the right of owners to elect directors.
Terminating the administrator can be as difficult as their appointment. The court needs to be convinced that problems are resolved possibly including a corporation’s creditors, fire department or other city services, and even an engineering service if the building’s structure has become compromised due to failures in maintenance or repairs.
The best approach to dealing with an administrator is to not require one. Deal with problems when they are minor, ensure condo fees are at a proper level to ensure maintenance and repairs are being undertaken, and maintain a fully funded reserve fund.
