Condominim Act Review Stage 2

Canada’s Public Policy Forum has released it’s second stage review of Ontario’s Condominium Act.  I’d like to discuss a number of issues in the report:

1)  The report calls for mandatory testing for property managers.  This is a good step forward.  Many property managers do not have years of experience as owners and residents before becoming a property manager which means they tend not to understand condominiums properly, nor how to make them better.  Sure, those who have had training will know ‘the law’ but this does not mean they actually understand the issues that come up in condominiums nor do they necessarily have the empathy required.  However, this will only work if oversight occurs and owners can file complaints with the realistic chance that a property manager will lose his/her license.

2)  Condo Office.  The report calls for a ‘Condo Office’, essentially an Ombudsman’s Office for which I have previously called for.  To work properly, mediation, arbitration, and the courts must be tossed from the Act, and the Condo Office becomes the ‘law of the land’ staffed with people who truly understand condominiums.  The report does call for dispute settlement, education, registry, and property manager licensing.  With registry, that means everything to do with condominiums (description, declaration, by-laws, etc.) plus copies of all financial statements, and the reserve fund study.  Unfortunately the report calls for a “Delegated Administrative Authority” to oversee property managers.  This is just a fancy term for what we have – no support thanks to the “Old Boys’ Net”.

3)  Owner’s Guide for purchasers.  The goes to educating owners, especially new ones.  However, this too has its issues.  For example, what if people do not read the guide.  Plus, the issue, at least in my opinion, has always been ‘the system’ which has supported Boards and managers doing what they want with little (actually more like no) power for the owners to decide upon the operation of the condominium.

4)  Training for directors.  New directors (i.e. ‘first time directors’) will be trained on the operation of condominiums.  This is a great idea for all directors, as many think they are ‘The Boss’ and not the owners.  Directors need to be taught about what they are and are not allowed to do, and their responsibilities.  But they also need to be trained that the owners are the ones in charge and have the ultimate power to dictate what happens.

5)  Access to records.  Current records would now be available within seven days (i.e. records from the current fiscal period.)  Older records would be available within 14 days.  And records should be stored electronically.  All this is great, but the report still allows for many older records to be destroyed after a number of years (i.e. seven years for financial records.)  This is unacceptable.  All records should be retained indefinitely.  There is no need for them to be disposed of.  With a Condo Office, this means that anytime records are not provided, then the Condo Office can handle the issue.  Although the Office should be able to fine the directors, not the condominium, for not providing records as the directors are the ones who are not doing their job and they need to ‘suffer the consequences’ of not respecting the owners they represent.

The report also suggest that a standard form be used for owners, purchasers, mortgagees, etc. requesting a record to ensure that they are doing so for a legitimate reason (i.e. the owners’ list so they can get signatures for a requisition, and not to solicit business for the person’s business.)  I do not necessarily have a problem.  But as I  believe that copies of several records should be sent to the Condo Office for reference (i.e. the Declaration, Description, By-laws, Rules, Financial Statements, Budget), so if there is an issue the Condo Office can quickly see if there is an issue.  But the Condo Office should be able to quickly instruct the Board on an issue with regards to providing a record.  And copies of the Minute of Board meetings should be provided on request, and for easy reasons such as learning about the operation of the condominium, the decisions that are being made, etc.

6)  Charges for records.  The report discusses this but does not really provide a clear cut, simple answer.  I recommend that many records should be available for free: The current Financial Statements and Budget, the previous Minutes of the AGM, Minutes of Board meetings for the last year.  Costs could be allowed for another copy of the Declaration, By-laws, and Rules as each owner receives a copy when they purchased their unit or when they are updated (if they are updated, then a new copy should be sent out to owners of the entire document.)  Other documents should also be charged for, especially older Minutes.  However, labour charges should not be accessed, especially as records get saved electronically, as they should be readily available.  Copy charges should be kept to an average of what one would be expected to pay if they went to a printing centre.  That means roughly 7-10 cents per page plus HST at today’s rates.  If the records are electronically stored, and the requester is willing to accept an electronic copy, then there should, of course, not be any charge.

7)  Insurance.  At the moment, if damage occurs to the common elements or another unit because of something that occurs in the owner’s unit (a flood for example), the owner is responsible for the condominium’s insurance deductible plus damage to the other units.  The other option is that owners must carry insurance on their units.  I am of the opinion that the deductible for a condominium should be capped at a ‘reasonable’ amount (such as $10,000 to $15,000) and that owners should be required to carry insurance on their unit and for damage.  The only option an owner should have on insurance is on contents – as an owner who rents out his/her unit should still be able to pass that responsibility onto their tenant for the tenant’s contents.  There are two major advantages to this:  a) that the insurance company for the condominium may be willing to provide a bulk rate discount for insuring individual units as well, and b) that each unit is insured in the event of damage.  Of course, individual owners can choose their own insurance company.

8)  Liens.  At the moment, any costs to inform an owner that a lien will be placed on the unit for unpaid maintenance fees can be charged back to the unit owner.  Plus any other costs that are associated with a specific unit itself.  The report suggests leaving this as is.  I am of the opinion that this should be changed.  The letter to inform the owner of being in arrears should be covered by the condominium, regardless of whether or not the condominium’s lawyer is hired to write the letter.  While the actual costs of registering a lien should be charged back to the unit owner, other costs should always be paid by the condominium.  This also goes for any legal costs incurred by the condominium to settle disputes with an owner.  Otherwise, this could become a tactic by the Board to stop owners from objecting to what the Board is doing.  Plus, with a ‘Condo Office’ an owner who disagrees with a potential lien would have the option to file a complaint with the Office to determine whether or not the condominium has a case.

9) Repair vs. Maintenance.  There is concern over the difference between a ‘repair after damage’ and a ‘repair from normal wear and tear.’  Normally, unless the owner is granted the right to make changes to an exclusive-use common element (i.e. a balcony), any costs to common elements (whether or not they are open to everyone or to only a specific unit – i.e. exclusive use) should be paid for by the condominium, not the specific owner unless it can be proven that the specific owner caused damage.   ‘Repair after damage’ seems very straight forward – if damage occurs, repairs take place.  ‘Repairs after normal wear and tear’ is also straight forward as it obvious that work would need to be done when the issue needs repair.  Things do end up breaking done after a number of years of faithful service.  I don’t see the issue here.  Maintaining a property would essentially be the same as ‘Repairs after normal wear and tear.’

What is required here is to define what a condominium can and cannot do when doing work.  After several years, new technology means that the original parts are either no longer available or have become obsolete.  As such, the Act needs to be specific in that the condominium can repair using new parts as long as a) the original parts are no longer available or b) better than the original.  As such, the condominium would then be better off.

Also ‘major repair’ is defined in the regulations to the Act and currently sits at $500.  Anything over $500 can be paid out of the Reserve Fund.

10)  Dealing with surpluses.  The current Act requires a surplus to be dealt with in one of two ways: either put the money into the Reserve Fund, or use it to offset costs in the next fiscal year.  The first is the easiest option as the Board can wait until the first day of the new fiscal period to determine the exact amount of the surplus and then transfer to the Reserve Fund.  The latter requires a bit of a gamble that no ‘surprises’ will come up at the last minute to change the amount of the surplus.  I still recommend that the condominium can place the amount into a contingency fund which can be used for any costs, with the requirement that any interest earned by this account must remain in this account.  Also, if the amount increases to over 15% of the revenues for the condominium then money must be used to offset costs until the fund decreases to under 10%.  This stops a Board from keeping too much money, but allows them too keep some money back.  If the Board is consistently running with surpluses, the Act needs to require them to stop raising maintenance fees so they do not become excessive.

11)  Investment ability.  The question is whether or not Section 115, subsections (5) and (6) should be updated to allow the Board more flexibility to invest money in the Operating Fund and Reserve Fund.  I would argue yes, but as long as the money is in ‘safe’ investments.  That means savings bonds (from any province in the country, or the Federal Government), Guaranteed Investment Certificates (GICs), and money market mutual funds.  Right now only savings bonds, and cashable GICs are generally used because the Board can cash them in and/or sell them easily.  I would allow for long term GICs that are ‘locked in’ (non-cashable) and money market mutual funds as they are generally safe and GICs are ‘guaranteed.’

12)  Fraud Prevention.  The report deals with this over different areas but in general the Act needs to be revised to specifically require all cheques to be signed by two directors.  Also, tenders should be received in sealed envelopes and cannot be opened until the Board holds a meeting to deal with them.  Each director present should sign off on each tender indicating that the bid was only opened at the meeting.  Plus, as part of training sessions for directors, it should be pointed out that the Board need not go with a contractor suggested by the manager or Engineer.  If either should ‘insist’ on going with a contractor on their ‘approved list’ then the Board should start asking more questions and perhaps get some more tenders from other contractors.

13)  Drawings of plans for the condominium should be retained by the condominium.  This allows the condominium, and contractors doing work, to know where wires, pipes, but also shop drawings which highlight the structure of the condominium.  Shop drawings are not required to be turned over by the developer, but should be as suggested in the report.  As the saying goes, ‘Knowledge is power’ and the more information there is on the building of the condominium, the better.

14)  The report recommends that proxies be retained.  It suggests that proxies be handed in a day before the meeting, that they be retained for 90 days after the meeting, and that the owner(s) of the unit sign off beside how they are voting to ensure the proxy is voted as they wish.  The report also recommends two notices for meetings.  One 35 days before the meeting outlining what will be dealt with at the meeting, and then the official notice 15 days before the meeting.

This still does not deal enough with proxy abuse.  I highly recommend that proxies be limited to no more than two per person.  I do not mind seeing a pre-printed proxy being signed off at the appropriate points (one for the proxy itself so it can be used for quorum, and signatures beside how the owner(s) is(are) voting any any issue listed in the proxy (i.e. for the candidate(s) of their choose for the election of directors.)  However, limiting proxies to two per person stops Boards from using proxies to continue to re-elect themselves.

15)  Quorum.  The report recommends leaving the 25% quorum for owner meetings.  However, if quorum is not met at the first meeting, the meeting would be rescheduled and quorum at the second meeting would be 20%.  The question becomes what occurs if this does not produce quorum.  The main thought is that the meeting should proceed with however many units are represented, although it is suggested that quorum be 15%.  I would prefer to simply lower quorum to 10% and be done with it.  With education, and a Board that encourages participation, quorum should not be an issue to begin with.

16)  Requisitioning meetings.  The report deals with requisitioning meetings.  However it still does not meet my desire for overhauling this area.  The report suggests 15% of the units remains as is.  I suggest that this be changed to the following:  “Owners representing at least 15% of the units or 50 units, whichever is lower, can requisition a meeting of owners.

17)  Removing a director.  The report recommends that the threshold to remove a director – a vote of a majority of units (i.e. more than half) – be retained.  I think this is absurd and shows that those involved with the report have not considered the needs of owners to hold the Board accountable.  This requirement should be reduce to a 2/3 majority of votes cast.  This means that any unit not represented at the meeting does not affect the outcome of the vote but still maintains the appearance that a large number of owners want the director(s) removed from office.

18)  Communicating with owners.  The report recommends that owners have an input in the Agenda for the Annual General Meeting (A.G.M.)  This would allow owners to add items to the Agenda of the A.G.M. rather than simply allowing the Board to set the Agenda.  This is one reason why the report wants the ‘pre-notice’ discussed before sent out 35 days prior to the meeting so owners have time to add issues to the Agenda.

The report also suggests a quarterly report, based on information provided in status certificates, be sent out to owners.  This makes the Board communicate with the owners, who are paying for the decisions made by the Board.

The report also goes on to recommend that Boards communicate with owners through websites, bulletin boards, newsletters, etc. and that special assessments be announced in advance.   The report states that a website could be legislated.

The report also suggests Owners’ Information Meetings.  This could be legislated through the Act stating that an information meeting is require before certain issues take effect, such as the new Budget or a special assessment, but also before any major work (i.e. over $10,000 or 1% of the annual budget, whichever is lower.)

18)  Director Training.  The report recommends that all new directors take a course in  being a director, and that at the time the new Act takes effect that all existing directors take a one hour seminar, possibly with an on-line option, to make sure directors understand the Act.  It was also suggested that training be done within six months of election, and that insurance companies may give a discount for condominiums whose directors have taken courses.  I totally agree.  However, I would go one step further, if a director fails to provide proof of taking the course can be automatically removed from office, either by resolution of the Board or by an owner filing a complaint with the Condo’s Office (any costs for the course should be covered by the condominium as it is in everyone’s interests to have an educated Board.)

19)  Director Qualifications.  There is discussion about increasing the qualifications to be a director.  Mainly this would be accomplished by adding a disqualification that only one Board member can come from a specific unit.  That stops spouses from serving on the Board at the same time.  Other then this the report essentially recommends that any other qualifications be found in the By-laws not the Act so that each condominium can be decided itself.

20)  By-law Threshold.  The report suggests that the requirement to pass a By-law be reduced, as do I.  But the report does not provide for a reduction.  I am still of the opinion that this should be reduced to a vote of two-thirds majority of votes cast.  Again, this is makes it easier for the condominium to pass a By-law without too high a requirement.  But with a two-thirds majority, it still takes more than a simple majority (more than half of the votes cast) to pass the By-law.  And I am going a step beyond this report.  If the Act allowed for owners to specifically approve new Committees, then a By-laws and Rules Committee should be created to review the By-laws and Rules (plus the Declaration is necessary) and can report to the Board and owners.  As such, By-laws would no longer require the Board’s approval first.  This would be a major step towards democracy in condominiums.

21)  Term Limits.  The report’s writers believe that term limits are not required.  I totally disagree.  It is time to require all directors to step down after three terms and remain off the Board for at least one year before being eligible to run again.  This is to ensure that would do not get the same people always on the Board and keeps the Board democratic.

22)  The report recommends a ‘Code of Ethics’ that is plain and simple to understand for directors.  I concur, anything that adds more transparency helps.  This also keeps directors accountable for their actions and the Condo Office can make a determination if necessary that there was a breach of the Code and what the consequences should be, most likely a fine.  But this should also be reported to all owners of the condominium so they can make a more educated decision the next time a director comes up for election.

23)  Fines.  The report recommends that no fines whatsoever be allowed under the new Act.  For the most part I agree.  However, there times that this would be recommended.  Through the Condo Office, fines could be imposed in certain situations.  For example, if an owner routinely, and intentionally, abuses the By-laws and Rules of the condominium, a fine could be imposed.  The fines should be reasonable and of course can only be accessed after the Condo Office determines there is an issue.

For directors and officers, fines should be used.  For example, if a Board refuses to hand over copies of a document that it should have, the Condo Office should have the power to impose a fine against the directors, not the condominium.  If there were fines for directors who are not doing their job then it would take power away from rogue directors who want more control than they are allowed under the Act, By-laws, and Rules.  We need something to help hold directors accountable.

24)  Shared Facilities Committee to oversee any shared facilities.  This is a good idea in situation where a condominium has facilities that it shares with other parties, mainly at least one other condominium.  I am in agreement with this.  However, membership of the Committee should be based on a election of the the owners for a one year period.  Each Board would have the right to appoint one director to act as a liaison.  Votes should be based on a majority of votes cast.  Utilities should be metered and paid based the funding formula.

I stress the requirement that the Act specifically state that the shared facilities must be covered by a Reserve Fund which must be operated just like the individual reserve fund for each condominium.

25)  Increased status certificate charge.  The report recommends an increase to the cost of a status certificate to $125 including HST, up from the current $100.  I do not see an issue with this.

26)  Defining ‘material change.’  The report recommends that any ‘material change’ would constitute at least 10% of the monthly maintenance fees.  New taxes, or charges would not be considered.  This applies to new purchases only.

I am happy overall with this report.  However, as I have indicated there are issues that the report does not recommend or cover.  The Act needs updating, but the owners also need to be given the clear final word for how the condominium is run.  The owners are just that, the owners.  They need to have the power, not the Board or the manager – both of whom should represent the owners, but who should also do what the owners desire.

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