May 2024
Condominium corporations operate as a democracy with directors elected to govern on behalf of owners. Having every owner involved in every decision is unworkable.
Board members have the right to make decisions on behalf of the community based on facts and sound decision making
A condominium community is an unincorporated association of owners. It is not a business organization and not governed by the same federal or Ontario legislation as incorporated business enterprises or non-profit corporations. It is created upon registration of a declaration and a description in the Land Registry Office. A condominium corporation elects representatives to act on their behalf but only to the extent stated in the corporation’s governing documents. A condo board is authorized to maintain and govern the common areas of the corporation, and can only act if the corporation’s governing documents say it can.
Things become less clear when something happens within a unit. An owner or tenant may fail to maintain the bathroom allowing water to leak, causing damage to other units and common areas. There may be problems in common elements affecting one or a few units. These are matters where the condo board needs to get involved.
The Business Judgement Rule
Condo boards will make decisions that, at times, are not correct. Condo directors are protected against incorrect decisions that are not criminal.
Condo directors are protected against incorrect decisions that are not criminal
Condo boards are expected to act with informed judgement so long as the individuals uphold their fiduciary duty. This does not protect individuals from fraud or negligence, or where they fail to uphold rules and regulations in condo documents. Directors who fail in their fiduciary duty can be held personally liable for their actions.
The Business Judgement Rule states that board members have the right to make decisions on behalf of the community based on facts and sound decision making. As long as decisions are made in good faith, this rule protects directors from potential liability resulting from their decisions. This rule does not protect directors who have conflicts of interest, who fail to undertake due diligence before acting, violation of contractual obligations or breaking the law. Within these limits, board directors are safe from being held personally liable for their actions.
