Director in Arrears Creates Conflict

Gerry Hyman has another article for the Toronto Star.  I want to discuss one of the questions as it is an important issue:

QUESTION:  One of the directors of our corporation was seriously behind in his payment of common-expense contributions for his unit. The board, at the last directors’ meeting, voted to extend the time for payment by a further six months. What can be done to make the board to treat this director in the same manner as any other owner who doesn’t pay common expense contributions?

ANSWER:  Your condo corporation has the option of a lien against the unit of an owner who defaults in the payment of his common expense contributions. The lien, however, expires three months after the default which created it. The lien, if not registered within the three months for each default in your situation, will expire three months after each default — notwithstanding the six-month extension for payment that’s been allowed by the board.

The corporation may still sue for the amount of the defaulted common expense contributions, notwithstanding the loss of the lien. But the directors should be made aware that a court may hold them individually responsible for any loss, or increased cost, incurred by the corporation as the result of the loss of the lien due to the board’s failure to register a lien within the required time frame.

Should the court rule that the directors’ failures constitute a failure to act honestly and in good faith, the directors under the Condominium Act will not be entitled to be indemnified in accordance with an indemnification bylaw of the corporation or pursuant to the corporation’s directors and officers liability insurance.

The obvious question is would the Board do this for any other owner?  Especially an owner who is critical of the Board?  This is a serious breach of the Board’s fiduciary duty to do what is in the best interests of the condominium, in my personal opinion.

Firstly, as I have asked, would any owner be allowed the same privilege?  If not, then why should this one owner be granted the privilege, just because he is a director!  This is where the Condominium Act needs to be amended to allow for an owner to take the issue to the Condominium Authority and get an independent review.  While we are at it, the Condominium Authority, through its Tribunal, should be legislated to deal with issues where a director places the Board in a morally compromising position.  This can relate to maintenance fees that are in arrears (as in this case), or where a director is accused of breaching the By-laws/Rules of the condominium, etc.  This stops the Board from showing favouritism to one of its own.

Secondly, as Mr. Hyman explains, a lien should be placed on the unit to protect the condominium – any failure to do so should, in my opinion, make the Directors and Officers Liability null and void.  Directors should not be allowed to get away at giving one of their own a free pass.  They have a duty to collect the money and should be required to do so.

Lastly, failure to ensure the one director pays should require the Board – the entire Board – to be automatically removed from office and new elections held.  The current Board members have shown that they are putting their own interests, by allowing the one member not to pay for six months (and how many other times has the person not paid?) means that the Board has to relay on others to pay this person’s share.  This is not right and is a conflict of interest.  Any conflict of interest should be automatic grounds for a director to be removed from office and a fresh election held.

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