The Do’s and Don’ts of Condo Board Directors
The role of condo board members is vital to the governance and sustainability of condominium communities. While the specific functions of a condo board may differ based on the size of the community, the particular governing documents, and the needs of the residents, ultimately, the role of the board always boils down to one principal mandate: the governance of the community. The responsibilities of condo board members can be categorized into two main areas: the governance of the condominium corporation and the participation in the decision making process related to policies affecting the residents. Condo boards typically govern through a set of elected directors. In Ontario, Condo Act 1998 provides for the election of directors and their term of office, as well as when new elections must be held. Elections are typically held at least once every year. It is common for an annual meeting of residents (referred to as "owners" in Ontario) to be held for the purpose of electing directors. While condo boards are generally obligated to abide by certain statutes and regulations unique to condominiums, it is within their discretion, subject to these governing statutes and regulations , to make policies that capture the specific needs of their own communities. Policies may be created in response to the need for rules or regulations regarding issues with respect to the use of the common elements or issues that may arise due to changes in the community. For example, the board may create rules to govern the use of barbecues in the parking lot. These policies are collectively referred to as "by-laws", and in the context of condos, the term is used explicitly to refer to either a declaration, a by-law, or a rule. Part of the board’s responsibility is to review and respond to residents’ submissions and complaints. Residents may also approach members of the board individually, or through committees, to address issues informally. Through their governance role, condo board members become actively involved in the various aspects of managing a condominium. For example, condo boards can select a managing agent for the condominium corporation, enter into various contracts, and even hire legal counsel for advice and representation in court. Board members can also participate in decision making with respect to the approval of the annual budget, the levying of common expenses, the setting of fees, etc. Now that you understand what the general responsibilities of board members are, it is important for you to understand the particular obligations you may have as an individual board member.
Legal Duties and Legal Compliance
As fiduciaries of the condominium, board members must comply with their legal obligations not only under their governing documents, but also state and federal law. The board frequently must make important decisions in the course of performing its duties, and failure to exercise due care while making those decisions exposes the individual board members and the association to civil liability in the event that the board’s actions have negative consequences on others. Therefore, the board members need to understand the scope of their responsibilities and the consequences for failing to meet those responsibilities.
Condominium directors and officers owe a fiduciary duty to the association. The major components of that duty include acting in the association’s best interest, exercising due care, and avoiding any conflicts of interest. This means that board members should not use their positions to obtain any sort of benefit from the condominium and should avoid situations where their personal interests conflict with the best interests of the association. In addition, board members who benefit themselves at the expense of the association can be personally liable for those breaches of the duty of loyalty. Board members also have a duty of care (i.e., to exercise the care that an ordinarily prudent person would exercise), and failing to uphold this duty is also a breach of a fiduciary duty.
Rules on Communication and Transparency
Condo boards must employ clear communication and transparency to be trusted. There are many ways that clear communication and transparency can be implemented in the condo board’s day-to-day operations, which include:
- At least one open board meeting each year that is advertised in advance to the owners.
- Providing owners with opportunities to address the board so that it is able to listen to the concerns of the unit owners.
- Responding to written inquiries from unit owners within a reasonable amount of time.
- Reacting to correspondence promptly to avoid misunderstandings.
- Preparing and distributing notices to unit owners sufficiently in advance of the board meeting that is to be held so that the unit owners have an opportunity to discuss issues that will be addressed at the meeting and ask questions about the agenda.
- Holding as many meetings as possible in locations that allow unit owners to attend.
The ability to gain the trust of the unit owners is critical to the success of the board and the association. The unit owners are aware that the condo board members are operating in the best interest of the unit owners by lending their expertise to the job. If the unit owners do not feel as if the condo board members are doing their job properly, the unit owners may feel that the board members are not trustworthy and question the decisions of the board throughout their term, which makes their position as volunteer board members a nightmare.
Rules Related to Conflicts of Interest
A conflict of interest occurs when a board member’s private interests – such as issues related to family, business or personal relationships – are in conflict with the interests or best interests of the Condo corporation. These situations can arise in many different contexts, including contracts, transactions, financial arrangements and employment matters. A board member who becomes aware of a conflict of interest is obliged to fully and promptly disclose the nature and extent of the conflict to the other board members. Best practice is to make the disclosure in writing. The association’s governing documents generally require board members to abstain from voting on any matter in which the board member has a conflict. At intense moments, one needs to be sure to record the fact that the conflict was disclosed and the details thereof.
Condo corporations also may have their own conflicts policy that addresses possible conflicts. While improvable, the policy generally should contain disclosure obligations, recusal requirements and any additional disciplinary measures. Failing to comply with the duties imposed under the policy may result in fines, suspension or removal from the board. Third party enforcers can be helpful in resolving disputes where board members have not disclosed conflicts, recused themselves from the decision-making process or complied with the policies aimed at regulating the conflicts.
An annual disclosure of conflict of interest should be required from all board members who have access to private information regarding the association. Such a policy also would require a board member to leave the room during board meetings when certain discussions occur. A written record of each individual’s specific conflict of interest should be maintained for auditing purposes.
Rules Relating to Finances and Accounting
A core component of the financial obligations of condo board members is their responsibility to oversee the preparation of the annual budget. This responsibility frequently includes the creation of long term capital projections. Properly done, this critical task helps to establish a reasonable plan for maintaining the prosperity of the condo over the long term. Informal approaches in this area that lack clear procedures or documentation can lead to serious, and sometimes tragic, consequences.
Once prepared, a condo board’s budget must be presented to its membership at its annual meeting. The annual budget is an essential element of a condo’s disclosure in that it informs the membership how the funds at their disposal will be deployed. If the costs of operating the condo are higher than the unit owners would like, they can then vote to determine if a special assessment (sometimes called an extra-ordinary assessment) needs to be levied to address the circumstances.
Connected to this role is the necessity to follow the mandate of proper disclosure in relation to spending at the condo and to ensure that the funds set out in the budget are sufficient to carry out the projects envisioned.
Condo boards are also tasked with overseeing the process that produces the year-end audited financials. This endeavor involves the selection of a suitable auditing firm , the production of the financial information necessary for the auditor to do its job, and the review of the material produced. For small to medium sized condominiums, which in Ontario are somewhat over represented in the database of active condo corporations, this is less a check and balance system where the auditing process acts as as a field referee. Instead, it is often an exercise that allows the directors to assess the state of the condo corporations in which they serve. Even if there are controls in place at the level of the condo’s property manager or management company, the year-end audited financials are the best opportunity for condo board members to ensure that they are willing to stand behind the numbers they see.
Of course, excellent controls can save a condo corporation from the damage to its finances caused by occasional misappropriation or theft. A good rule of thumb is that a condo board should ensure that before any cheque is signed at least two (2) of its members are required to review the cheque with the corresponding documentation making if possible to ascertain the purpose of the expenditure. This simple requirement, which is frequently overlooked, can save many a condo corporation from financial harm.
Rules Relating to Meetings and Decision-Making
Regular meetings of the board serve several purposes. Boards host meetings to discuss and to hear reports, gather information, consider and then vote upon proposals, and make decisions on behalf of the owners who elected them. As with any good meeting, condo board meetings adhere to a set structure or protocol. Protocol simply refers to the rules for holding a meeting and decision-making within it. Your specific board procedural rules are specified in your enabling documents (bylaws or similar), and you ought to ensure that meetings follow these rules. Under the province’s Condo Act, the procedural rules for meetings are laid out in sections 46 to 50. These provisions state that association decisions are made by a "majority of votes cast" at a meeting or, where permitted, by way of written consent of the majority of the members entitled to vote. The proportion of members that must be present or vote on an issue is set out in your bylaws. If the bylaws don’t specify this, under the Condo Act, 25% of the members entitled to vote, in person or by proxy, must be present in order to hold a valid meeting. The "business" of a board meeting is usually conducted by way of approved motion. A "motion" is a mechanism that seeks the formal expression of an opinion or a decision by members of the board (or general members via "special motions"). If a motion receives a certain number of votes, it is referred to as being "carried". The Chair ("speaker") of the meeting or those in attendance might then ask "do we have any carried motions?" Regardless of whether business is conducted by way of motion or not, your association’s rules should set out how issues are raised and put on the floor for debate and decision, i.e., a motion or some other process. It’s also important to observe the order of the meeting as set out in your association’s rules or bylaws. Although boards have discretion with respect to meeting processes and procedures, boards ought to ensure that they follow proper rules for conducting meetings. While considerable leeway is provided to boards with respect to their decision-making, fairness, and reasonable notice provisions must also be observed. Board members ought to plan their meetings sufficiently in advance in order to ensure that proceedings are properly constituted. For instance, notices for regularly scheduled meetings can be sent out at the beginning of the fiscal year with suggested dates for the entire year. This allows members to schedule other events around these dates. Good planning also helps to ensure that proper notice, sufficient for owners to send in proxies or plan their attendance at the meeting, is given.
Section 45 of the Act sets out rules for "convocation", which according to the Act means the "calling of an assembly for a particular purpose."
In order to ensure that all condominium associations are run in a reasonable and proper manner, the Act makes provision for the election of the Chair and the Secretary. These persons cannot be the same individual, and they are responsible for ensuring that corporate records are kept and that the business of the board is conducted in a reasonable manner.
Rules About Disputes and Relations with the Community at Large
Firstly, remind yourself that you are not running just a building… You are running a community and hence need to engage with your neighbours. Maintaining open lines of communication with residents goes a long way to keeping the peace. It can help residents feel included, and more likely to respect any decisions made by the board. Also, email is the preferred method of communication for condo boards. It is important that communication is recorded so that if disputes ever arise, you have an electronic paper trail to follow. If you do receive a complaint from a fellow unit owner, even if you think they are being unreasonable, make sure you never make such a person feel like they have been unnecessarily chastised. Clearly and calmly make them aware that the board will not discuss matters with them if they persist in dealing with members of the board in an insolent or aggressive manner. More importantly, it is suggested that you politely inform the unit owner(s) that if they continue to bypass the board, you will be considering legal action against them personally.
Rules for Training and Resources
Ongoing training and education are critical for condo board members to develop the competencies needed to be effective leaders. Some associations provide in-house training while others use webinars and online programs for leadership development. There are also state-specific offerings and programs hosted by regional or professional condominium association organizations.
While the above programs offer valuable information and skills, condo board members can benefit from participating in one or more of the following broader industry programs. Community Association Manager-Certified Manager of Community Associations (CMCA) Management company staff responsible for managing an association, including property managers and administrative staff, are typically required to receive their CMCA certification. The CMCA certification is available through the National Certification for Managers of Community Associations (NCMA). Typically available to managers who have completed a specific number of hours of continuing education relating to managing community associations and successfully passed a certification exam, the CMCA program offers boards and managers the peace of mind that certified managers are informed about issues specific to managing condominiums and are committed to advancing their knowledge and skills . More information about the CMCA certification is available at www.camicb.org/. Professional Community Association Manager (PCAM) The PCAM designation is awarded to community managers who have met the following criteria: Topics included in the required coursework for the PCAM designation include finance, insurance, member relations, maintenance, management, and governance. Information on the PCAM designation is available at www.camicb.org/pcam/. Community Association Leadership Specialist (CAMS) CAMICB offers around 50 CAMS classes at no charge. CAMS provides online training from the best national instructors offered at times and locations convenient for students, including: Courses offered cover sizable substantive law areas, but they are not necessarily limited to legal issues. For example, CAMS courses are offered involving topics such as contract administration, safety and security, maintenance and repair, inspections, budgeting and long-term planning, and hiring, training, evaluation, and communication with staff. CAMICB awards the CAMS credential based on completion of certain courses and passing the CAMS examination. More information about the CAMS program is available at www.camicb.org/cams/