Reforms to the Condo System

September 2015

The Condo Bible for Canadians, by Dan Barnabic, includes suggestions to reform the condo system.

Change the Quorum Required to Call a Special Meeting of All Unit Holders

General meetings of unit holders are infrequent while the need to address important matters can occur at any time. Current condo rules require the assembly of a certain number of unit owners for a special meeting. This percentage, called a quorum, is currently 25% in Ontario which is consistent with Mr. Barnabic’s recommendation. It can be as high as 85% in other jurisdictions.

He goes on to suggest that condo corporations be required to hold a general meeting at least once every quarter.

Mandate a Rainy-Day Fee to Be Paid by Low-Equity Unit Holders

Condo corporations should have a mandatory rainy day fee, or RDF – a monthly surcharge to be paid by low-equity condominium buyers – added to monthly maintenance fees. This fee would be payable by any buyer of a condo unit with less than a 25% down payment.

Those buyers who purchase with less than a 25% down payment are more likely to be unable to meet their financial obligations to the condo corporation over an extended period of time. Should this occur, the condo corporation must undertake costly and time consuming efforts to collect monies owed.

Funds would reside in a separate interest-bearing account maintained by the condo corporation. These monies would only be used if the unit owner fails to honour their financial obligations to the condo corporation.

The recommended amount for this fee is 25% of the monthly maintenance fees payable each month.

Restrict Borrowing

Borrowing beyond one’s means is not uncommon. For a condo corporation, borrowing obligates all unit owners to repay principal plus interest and fees. Restrictions on borrowing should be mandated and enacted by the Condo Act or condominium by-laws.

Compensate the Board of Directors

Most condominiums in Ontario are governed by a volunteer board of directors. Developers do not generally include a by-law allowing for such compensation and it is not typical for this by-law to be added.

The reasoning for having a volunteer board of directors may be to avoid inequity among unit owners. However, corporations have found that fair compensation for a board of directors is often the best way to receive value from them.

Any unit owner who has been on a condo board of directors has learned that it requires more personal sacrifice, time and effort than anticipated. Long hours and responsibilities eventually take their toll. Board members find ways to limit their time and responsibility or become disenchanted with their roll. Those most capable of managing the condo corporation will eventually find a more financially rewarding way to spend their time which is to the detriment of the condo corporation.

A condominium corporation is unlikely to find someone more capable of monitoring the activities of the corporation’s property management company than a competent owner with a vested interest in the corporation. Lack of such an individual creates opportunities for potential fraud, theft and unnecessarily high expenditures.

A property management company is not always inclined or capable of looking after the interests of a condo corporation to the same degree as condo owners.

Assuming that a property management company, a vendor providing services to the corporation, has the same long term interests as the condominium corporation may not be consistent with contractual obligations.

Compensating a board of directors makes it more practical to obtain the best quality individuals and to require that they dedicate more time to the management of the corporation. The financial benefits of compensating the board of directors should exceed the cost for most high-rise condominium buildings. “Good governance comes at a cost, but the lack thereof comes at a much higher cost.”

The Condo Bible delves into aspects of condo living that most people do not consider.

Click here for information on The Condo Bible for Canadians.