Fiduciary Responsibility

May 2017

Condo board directors have a fiduciary responsibility to govern fairly and to make decisions in the best interest of the community.

A fiduciary duty is a legal duty to act solely in another party’s interests. It is a special obligation to act in the broad interest of a larger group of people that generally does not apply to individuals.

This is not a responsibility fully understood by many condo owners. It should not be taken lightly.

Governing Authority
Authority of condo boards is provided for in the Condo Act and condo documents. It is supported by the courts. There is an expectation that condo directors be aware of the contents of these documents and to seek advice when they lack this knowledge. Advice may come from a property manager, lawyer or other specialist with sufficient familiarity.

Problems tend to arise when directors choose to ignore the documents and identified processes. This can happen when directors fail to follow proper rules of conduct for their meetings.

When Problems Arise
Problems arise when condo directors fail in their fiduciary duty. This may involve making self-serving decisions rather than considering their condo community. It can involve a failure to follow accepted rules of conduct for directors as identified in the Condo Act and other sources.

Condo boards make decisions by a majority vote. When the board acts in good faith, their decisions cannot be legitimately challenged. Overturning a board’s vote to spend money, for example, is difficult to challenge so long as proper rules have been followed.

Acting based on personal interests or bias can conflict with fiduciary duty.

Declaring a conflict of interest, when appropriate, is part of a director’s fiduciary responsibility. This allows a director’s comments and suggestions to be considered in an appropriate light. Full disclosure is the best way to avoid conflict of interest. Another approach to avoiding a conflict of interest is to not participate in a vote where such a conflict may exist.

Conflict is not a Problem
Good condo boards will always have conflict. Directors will always have disagreements with condo owners or even other directors. Disagreement and conflict are part of the process of making good decisions.

A more troubling concern is apathy among directors. This can allow a single director to control the entire agenda of the condo corporation. Another common problem is when some condo owners receive preferential treatment. Other problems include failure to adequately fund the reserve fund or collect sufficient fees to support the operating budget.

Avoid Problems
Directors who fail in their fiduciary duty can be held personally liable for their actions. When one or more condo directors fail in their fiduciary duty it is up to condo owners to replace them. The Condo Act identifies how this can be done. The most common way is to replace directors by voting for someone else once their term expires.

The best way to avoid problems is to make all board activities visible. Include full disclosure in meeting minutes and make these minutes available to all building residents. Hold regular information meetings to make residents aware of upcoming decisions and allow for their input. Be fair and transparent.

Advice for Condo Owners
When condo directors act in good faith, undertake research and rely on outside expertise, it is advisable to recognize their decisions as best for the community even if you disagree. Quality directors willing to put in the necessary time, undertake research and volunteer for you are hard to find.