Condo Auditors & Lawyers

Auditors

Condo corporations generally have a contract with an auditor who works on behalf of corporations independently of boards of directors and management companies. The auditor is the only professional who is elected by owners in Ontario. The auditor may be selected by boards or management companies after due diligence has been carried out in terms of search. It is also possible to have an owners’ search committee select an auditor and present this choice to the AGM. Whatever the process, the auditor has to be elected at the annual general meeting.

Auditors cannot be removed by boards or managers or replaced unless they resign between annual meetings. An auditor who resigns has to be replaced but the replacement has to be elected at the next annual meeting of owners. 

In Ontario, small condos with less than 25 units are not required to have an auditor because this expenditure might constitute a financial burden. However, for this to be the case, all owners have to agree in writing before the annual general meeting. Then, there will be no auditor or audited report for that one year. The same process has to be repeated each year because, at some point, owners may be concerned and decide to have an independent auditor examine the books.

What’s the Auditor’s Role?

The role of an auditor is to verify the corporation’s accounts (work orders, invoices, contracts) against the financial statements and yearly budget. The auditor must examine the minutes of meetings held by boards to make certain that boards have duly approved large expenditures as well as new contracts.

In addition, the auditor has to:

• Ensure that the board is complying with the reserve fund study
• Verify that the level of reserve funds follows the general outline of the board’s implementation of the recommendations contained in the study
• Verify that some revenues and expenditures, such as locker rentals or directors’ remuneration, are based on proper by-laws
• Provide a written auditor’s report before each annual meeting so that this report is included in the AGM’s package of documents that owners receive before the meeting
• Report findings and conclusions to the board and owners at the annual general meeting

Since this website first appeared, a few owners in condos where it is believed that fraud is taking place have asked why auditors do not detect and report boards' and/or managers' fraud.

Fraud can be difficult to detect. (Click here for Misuse of Funds and Fraud) Three owners reported phoning their condo's auditor on this issue. In all three cases, they were rebuffed by the auditor. One even threatened to let management know if the owner pursued the issue.

It is suggested that owners should at least be able to approach auditors and be assured of confidentiality--because auditors are accountable to the corporation and not to the board exclusively. A mechanism should be put in place in instances where owners suspect fraud and are also rebuffed by the police.

Lawyers

Most condo corporations retain a lawyer or a legal firm specializing in condo law, under contract or simply as consultants. Law firms are chosen by boards and/or management companies. In principle, so as to avoid potential conflicts of interest, neither managers nor directors should be linked by family, friendship, or employment with this firm.

Owners do not have a vote in this decision.

Lawyers’ most common task is to prepare and register liens against owners who are in arrears. They also prepare and register by-laws and powers of sale. They help condo corporations with mediation, arbitration, and court orders involving owners and residents.

In some condos, lawyers chair the annual general meeting. This is, however, an expensive way of carrying out an AGM! As well, other issues may arise as a result: Click here for Issues With Lawyers.

Owners or individual board members cannot consult the condo’s lawyer. When they do so, they have to pay the fees themselves, even when they are trying to resolve a problem caused by managers or boards. In contrast, managers and boards have easy access to the condo lawyer against owners, when needed. Furthermore, the condo pays these legal fees—not managers nor individual board members.

As well, it is generally easier for boards to obtain a compliance order from the Court against a resident than it is for residents to obtain one against managers or boards. The main reason for this is that a lawyer has to be consulted and the board has free access to the condo's law firm—paid by all owners’ fees. (In a way, this makes sense because a condo would otherwise become responsible for many residents’ futile legal actions.) In contrast, owners have to pay their own legal fees.  

However, an owner who wins an arbitration or a Court case against a condo may or may not have his or legal fees reimbursed by the corporation. In fact, an owner who has recourse to the Court  under Section 135 of the Condo Act, for non compliance, will most likely end up paying for all fees. This is unfair in some ways because Boards who do not comply with the Act present a problem for the entire corporation and all owners will benefit, in theory, from the action of the one owner who ends up responsible for all fees.

Owners' Problems of Legal Recourse

Currently, apart for non-compliance, as stated above, in the event of an owner-condo conflict, the only remedy that owners or boards of directors have resides in mediation and arbitration. Most lawyers agree that, for owners, this is a costly procedure that may not produce the anticipated results. Understandably, few owners avail themselves of these remedies.

Overall, it is actually difficult for individual owners who have a problem with their condo corporation to find a lawyer who is not working for a condo or a management company—a lawyer independent of any interest elsewhere. 

In a moment of revealing candour, a lawyer provided the following example of conflict of interest:

An owner consulted him about a water penetration problem that had been ongoing for years. Water penetrates around baseboards and spreads on his floors during and after each strong rain. The management has refused to do anything citing lack of money and the board has supported management in this response.

The lawyer in question is in a bind because, on the one hand, he would like to do justice to this potential client. But, on the other hand, although he does not work for this particular condo corporation, he does work for several condos that are managed by the same management company.

He does not want to jeopardize his relationship with the management company, even though he is quite cynical about them, because he may risk losing some contracts. But he does not want to fail this owner either. So he refers the owner to another lawyer but, unfortunately, this lawyer has no expertise in condo law. Will this owner ever receive justice?

What we need are groups of lawyers specializing in condo law who serve owners exclusively—and never corporations nor management companies--so as to avoid potential conflicts of interest.

Many owners have written to complain about lawyers who stand by unqualified and even unethical boards and managers against owners. (Click here for Issues with Lawyers) However, it should be pointed out that it is much less likely that condo lawyers will abuse their office against owners when a condo has an efficient, experienced, and ethical board. Still, the Condo Act should specify more clearly lawyers' duties toward corporations and individual owners; the Act should highlight the dangers of conflict of allegiance and of interest.

Therefore, the Act needs to clarify and specify the role of condo corporations' lawyers. Indeed, they are supposed to act in the best interest of the entire corporation. However, it is very clear in too many letters sent by helpless owners that, when standing by unethical boards and managers against owners or a particular owner, these lawyers are de facto representing boards and managers rather than the interests of the corporation. They help maintain bad boards, which goes against the best interest of the corporations so afflicted.

Problems encountered by owners because of improper conduct in these regards constitute 15% of all letters received, which is enormous because, as of the time of these revisions in late August 2012, 1,600 letters had been received. Thus, 240 complaints against condo lawyers were involved. One law firm was particularly overrepresented in these complaints as were several other lawyers from other firms. However, one firm in particular was never mentioned negatively and this hopefully reflects stronger ethical principles.