Unruly Directors

Gerry Hyman has another column in the Saturday May 18th 2013 edition of the Toronto Star.  Here are some of my thoughts from questions raised in his article:

Q. One of our directors made derogatory comments about other directors at a board meeting attended by all of the directors.

The board member now maintains that there should be no minutes of the meeting setting out those remarks, as the meeting was not properly constituted because the 10 days notice of the meeting was not given. Is he correct?

A. The Condominium Act provides that a director who attends a meeting shall be deemed to have waived the right to object to a failure to give the required notice, unless the director expressly objects to the failure at the meeting.

Mr. Hyman’s response is correct, with regards to notice for the meeting.  However, he does not touch on the issue of the director’s remarks.  These remarks are obviously unacceptable.  The other directors should demand that the director either apologize or resign.  Directors can have disagreements with each other (and if their meetings are run according to democratic principles, every director is entitled to his or her own opinion) this does not mean that a director can make derogatory statements.

However, debate should not be entered into the Minutes, only the name of the mover, seconder (if the group so chooses), the motions brought up (in their exact words), and what occurred to them.   A brief statement of why the decision was made could also be entered into the Minutes for historical purposes, but remarks should not be unless the Chairman has ordered a director to refrain from making the remarks and the director refuses.  Also, the Chairman sounds like he/she was not doing his/her duty and calling the director to order during the meeting – and the other directors should have backed up  the Chairman.

Another question asked was:

Q. Is it a good idea to limit the number of terms a director may serve in order to prevent the president from becoming too close to professionals serving the condominium, such as its law firm or property management company?

A. There are disadvantages in passing a bylaw limiting the number of terms a director may serve.

It is sometimes difficult to find the required number of people prepared to serve on the board, and strong directors who have served the corporation well will be lost.

If the concern relates to the president, a bylaw could limit the number of consecutive years a person may hold that office, without prohibiting the person from being elected for further terms as a director.

The board may replace the president with another director without affecting the former president’s status as a director. I believe that few corporations have chosen to limit the number of terms a director may serve.

There is an obvious advantage to imposing term limits – something that was originally in current Condominium Act, but left out at the last minute – that the same people cannot always be on the Board.  The obvious disadvantage is that a good director must step down for a specific time period and therefore the community misses out on the person’s experience and expertise.  There is an easy way to deal with this:  limit proxies to no more than two per person.  That way no small group can control a vote.  Then an individual director can be more easily held accountable and not relay on proxies to assure re-election.

Limiting the number of consecutive terms a person may serve in an individual office does not help here – the same person is still a director.  Perhaps an Ombudsman or Tribunal can help – that way the owners could get an independent review of the situation and a determination if the relationship is appropriate or not.  An appropriate relationship and working relationship is an assistance to the condominium, but if members are using the situation to their own personal gain and not for the benefit of the condominium then it is time for new directors.

A third question was:

Q. The entire board of our 18-unit condominium is resigning. No other owner wishes to become a director. Can we continue to operate as a condo corporation with just our management company?

A. No. The management company cannot replace the board and cannot make substantive decisions. Nothing of significance can be done. Contracts cannot be entered into and steps cannot be taken to enforce payment of common expense contributions.

It is unlikely that a responsible management company will remain if there is no board, especially if cheques in payment of its management fees must be signed by one or more of the directors.

It should be pointed out to the owners that, without a board, the value of their units will plummet. As the functioning of the condominium grinds to a halt and the building deteriorates, one or more owners, or perhaps a unit mortgagee, will find it necessary to make a court application for the appointment of an administrator in accordance with the Condominium Act to carry out the functions of the board.

The administrator’s fees and expenses will be payable by the corporation and will be part of each owner’s common expense contributions.

I do question how the value of the units will decrease.  With only 18 units, I doubt that the condominium requires more than three directors – the minimum requirement in the Act.  As the Board can function with a quorum, or two directors – I would recommend finding at least one of the other unit owners to step up and to elect the property manager as well.  This is a less than ideal situation, but it would take care of the situation at hand in the meantime.  Also, non-owners, as well as non-residents, can be elected to the Board so in the long run it should be easy to find three people to stand for election.  An administrator should only be called in if, after an exhausted search, no one is interested in being  director.

I am normally against a staff member being a Board member, but for a short period of time the property manager could be elected to ensure the operation of the condominium.  Then when enough other people are found, the property manager could simply step down as a director.

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