Legislative Brief, 2011

LEGISLATIVE BRIEF

 

Recommendations for Changes
to the Condominium Act, 1998

 and

Evaluation of the Brief presented
by CCI and ACMO, May 27th, 2011

 

Submitted September 1, 2011

by

Condo Information Centre

 

Anne-Marie Ambert, Ph.D.
Retired Professor of Sociology, York University

TABLE OF CONTENTS

 

Introduction to the current CIC/Ambert Legislative Brief

Overall evaluation of the CCI/ACMO Brief and of the Condominium Act

  • Issue of lack of independent oversight
  • Issue of outdated perception of owners
  • Issue of lack of clarity of language
  • Issues re managers/management

Specific suggested changes to the Act and corrections of the CCI/ACMO Brief

  • New Section 17(5)—Individual board members subject to the same rules as other owners
  • Section 19—Right of entry
  • Section 28(3)—Owner-occupied position on the board of directors
  • New CCI/ACMO Section 29—Mandatory director education
  • Section 46(1)—Requisition of meetings
  • Section 46(3)—Removal of director(s)
  • Section 52—Allowing proxies to vote
  • Section 55(3)—Examination of records
  • Section 55(8)—Examination of records—Penalty for non-compliance
  • Section 66(2)—Financial statements
  • Section 84(2)—Common surplus
  • Section 85—Liens
  • Section 90—Repair and maintenance (reserve fund)
  • Sections 132, 134 and 135—Mediation and arbitration replaced

INTRODUCTION

The few articles that appear in the major Canadian newspapers about problems faced by condominium owners focus on failures of building construction such as falling glass panels and “leaky” condos, pool sanitation infractions, and builders’ false promises. These are very important issues that need to be addressed both in the Condominium Act and in the various building codes that are too lax. However “newsworthy” these problems are, they do not even begin to reflect the remainder of the daily reality of an increasing number of condo owners in Ontario.

The problems faced by condo owners are due to the fact that there are serious loopholes in the Ontario Condominium Act, and that there is no oversight of the enforcement of this Act. No independent institution sees to it that condo owners’ rights are respected and that proper condo governance takes place. Yet, ironically, in Ontario, the Act falls under the jurisdiction of the Ministry of Consumer Services and Consumer Protection!

It is, therefore, imperative that the Act be revised and that an institution that would oversee its daily implementation and enforcement of all its aspects would be created as part of these revisions.

NDP’s Rosario Marchese’s private member bill designated to remedy the situation never passed in the Legislature, despite several attempts in 2009-2011.

In May 2011, CCI (Canadian Condominium Institute) and ACMO (Association of Condominium Managers of Ontario), two groups representing various condo industries, contributed their own suggestions in a Legislative Brief.

While this CCI/ACMO Brief offers some improvements, many of the changes it proposes would further dilute owners’ rights and deteriorate the quality of governance in condos. As such, they are not in the public interest. Overall, these proposals, as we will see, suffer from a general underlying philosophy of owners’ rights that is antiquated.

In the current CIC/Ambert (Condo Information Centre and Ambert) Brief, we touch only on those Sections of the CCI/ACMO Brief that are within the purview of the expertise gathered through the 905 letters received as of August 31, 2011, by the Condo Information Centre in two years. The current Brief focuses on strengthening condo owners’ rights and improving condo governance. Therefore, there may be other weaknesses in the CCI/ACMO Brief that are not herein discussed, such as noise problems, which are widespread.

 OVERALL EVALUATION OF THE CCI/ACMO BRIEF

AND OF THE CONDOMINIUM ACT

An evaluation of the general orientation of the CCI/ACMO Brief will shed light on the major problems that are encountered in their suggestions. Pointing out these issues of perception is very important because CCI is often consulted by certain political parties and its members have played a key role in writing the Condominium Act. By the same token, the Act is, therefore, herein evaluated in terms of its general deficiencies.

Issue of Lack of Independent Oversight

The main problem with the Condominium Act of 1998 as a piece of legislation for consumer protection is that it is self-regulated: No one oversees its enforcement and implementation. The CCI/ACMO Brief fails to address this key issue. For instance, if there were a “Condominium Office,” or a “Condominium Ombudsman,” or a “Condominium Tribunal” independent of the various condo industries and of political interference, owners would experience fewer problems, their rights would be better protected, and they would be less likely to require expensive legal help. As well, managers and boards of directors would have to be more accountable than they now are; hence, condo governance would be improved. The various condo industries represented by CCI/ACMO do not promote such changes. Oversight mechanisms are particularly addressed later in Sections 132, 134 and 135.

Issue of Outdated Perception of Owners

Similarly, an Act of consumer protection legislation that focuses on owners should not end up making condo owners second-class citizens and deprive them of rights that all other homeowners enjoy. Neither should such an Act force owners to become dependent on boards of directors, managers, and lawyers, who too often do not respect their rights as individuals and as members of a corporation. Other homeowners are not so ill served in terms of governance and rights. Condo owners are largely viewed as persons who do not understand their responsibilities (and with good reason, as we see below), who need to be regulated (while managers do not), and who should stay out of the business of governing their own investment.

The Condominium Act needs to be informed by a more progressive view of condo owners as civic individuals engaged in economic and social acts in the course of buying, living in, renting, and selling their property, which is a condo. The Act and this Brief need to modernize their politics and their philosophy concerning owners as consumers and owners’ rights. Some of the most egregious examples of this outdated and biased philosophy can be found pertaining to CCI/ACMO suggestions regarding Sections 46(1), 55(3) (8), 84(2), 85, and 132, 134, 135.

Issue of Lack of Clarity of Language

The CCI/ACMO Brief does point out that the Condominium Act is an instrument of consumer protection. Yet, their Brief is written in “legalese” rather than in clear English, which makes it as difficult to understand by consumers as the current Act is. In fact, both the Act and the Brief are so unclear that (a) both leave too much to interpretation by lawyers and (b) are largely inaccessible to owners unless they pay a legal expert to read and interpret the Act and this Brief for them. In this sense, the Act and the CCI/ACMO Brief are instruments for the promotion of the legal profession rather than the protection of consumers.

It is retrogressive that, in our age of open communication, such obtuse language is tolerated as it closes doors to owners and prevents them from being proactive. One cannot, therefore, blame owners if they fail to understand their rights and responsibilities—and, from this perspective as well, the CCI/ACMO Brief continues to limit rather than help owners as consumers. It forces condo owners to depend on professionals, a dependency that does not afflict owners of “regular” houses.

As CCI and ACMO state on p. 57, “Given that the Act is consumer protection legislation, it should require much greater disclosure.” Indeed! And clarity.

Issues re Managers/Management

Another very large problem with the CCI/ACMO Brief, which perpetuates the loopholes in the current Condominium Act, is that nothing is said concerning managers and management companies, their compliance with the Act and rules, their qualifications, education, as well as oversight. While the Brief rightly discusses directors’ education, it fails to address that of managers.

Considering that the authors of this Brief include management companies, this omission is glaring. As well, the issue of managers’ education, as is the case for directors’ education, may also lead to conflicts of interest concerning the authors of this Brief. This issue of potential conflict of interest is one of the reasons why it is important that, when considering suggestions for amendments to the Act, the government should consult owners rather than persons and groups that have other vested interests in the situation. After all, owners are the consumers in question and in need of consumer protection.

SPECIFIC SUGGESTED CHANGES TO THE ACT AND CORRECTIONS TO THE CCI/ACMO BRIEF

Again, it bears repeating that we will focus only on those sections for which we have expertise, that is, on improving condo owners’ rights and condo governance.

NEW CIC/Ambert Section 17(5) – Individual board members and rules

Suggestion: BOARD MEMBERS HAVE THE SAME DUTY AS OTHER OWNERS TO COMPLY WITH THE CONDOMINIUM ACT AND THEIR CONDOMINIUM CORPORATION RULES.

Rationale: This Section might seem self-evident and superfluous but it too frequently happens that board members, particularly presidents, do not follow a corporation’s rules. Having such a Section would be of help to those owners who suffer because of board members’ lapses. Such a section would give them much needed support. At the same time, it might serve as preventive medicine because directors would be more aware of their own responsibilities.

Section 19 – Right of entry

Suggestion: The CCI/ACMO amended section should be clarified in terms of English.

Rationale: As currently worded, it could mean that a corporation can enter an owner’s unit in order to access a balcony even when there is no emergency. At any rate, this Section should be strengthened in favour of owners because right of entry is a much-abused right.

Section 28(3) – Owner-occupied position on the board of directors

Suggestion: THIS SECTION SHOULD NOT BE REMOVED (as suggested by the CCI/ACMO Brief). It should remain. As well, for the sake of clarity, THIS POSITION SHOULD BE RE-TITLED: POSITION VOTED BY RESIDENT OWNERS.

Rationale: The owner-occupied position is the one for which only resident owners can vote. More than ever, resident owners too often constitute a minority among owners. For instance, in many condos, especially in downtown areas of large cities and in resort areas, over 50% of units are occupied by tenants. In fact, in some condos, 60 to 70% of units are so occupied. This situation marginalizes resident owners.

As well, the rapid turnover of tenants prevents the formation of a true neighbourhood or community spirit. In addition, investor owners who live elsewhere, often in other countries, are generally not aware of problems arising in their condos and they rarely attend AGMs. It is, therefore, imperative that at least one board member should be elected by resident owners who may be more aware of problems and whose interests may be different from those of investor owners.

Further Suggestion: In order to make this position more effective, when a board has 5 or more members, two owner-occupied positions should exist to be voted on by resident owners only.

New CCI/ACMO Section 29 – Mandatory director education

Suggestion: The addition of this section by CCI/ACMO is, in theory, an excellent one. However, it needs to specify that this education SHOULD TAKE PLACE WITHIN ONE YEAR AFTER THE ELECTION OF A DIRECTOR and not the two years suggested.

Rationale: Many directors stay on boards only one year: Waiting two years, even for a three-year term, becomes meaningless.

Other Problems with this CCI/ACMO New Section 29: (a) Condos that are in smaller cities or in resort areas may have to send their directors to another city for this education. As such, this clause becomes expensive for and discriminatory of smaller places.

(b) Mandatory director education may also be a very expensive proposal for smaller condos as well as for condos that have a brisk turnover of directors if it follows the current pattern whereby it is often CCI that provides this education for a fee. THUS, ALTERNATIVES SHOULD EXIST, SUCH AS THE FREE DISSEMINATION OF INFORMATION VIA A FREE WEBSITE, A MANUAL, OR ONLINE INSTRUCTION.

(c) Courses currently given do not sufficiently emphasize respect for owners’ rights and boards’ responsibilities to owners’ rights. There is no sense in the Brief that this omission would be corrected.

(d) There is the concern that the educators offering the courses will be this Brief’s authors or their members, an issue of potential conflict of interest.

(e) As well, it is reiterated here that managers’ education is not discussed in the CCI/ACMO Brief, another issue of potential conflict of interest. Yet, managers’ education may perhaps be even more consequential than that of directors as, in theory, being a manager is a profession while being a director is volunteer work.

Section 46(1) – Requisition of meetings

Three revisions and additions are herein suggested by CIC/Ambert:

First Suggested Addition: The first sentence in the reasoning offered by the CCI/ACMO Brief (p. 40) states that there “are only certain matters upon which the owners may vote.” Therefore, it would be an excellent addition to and clarification of the Act IF THESE “CERTAIN MATTERS” UPON WHICH OWNERS CAN VOTE WERE CLEARLY SPELLED OUT AND LISTED IN ONE PLACE, SUCH AS HERE.

Rationale: That such a clarification is necessary is indicated in the CCI/ACMO Brief’s insistence on the issue of owners’ failing to understand what they can vote for during a meeting (p. 40). Indeed, without such a list, both owners and boards have to roam through a difficult reading of the Act to figure out what owners can vote for. This results in a great deal of problems.

Second Suggested Addition: As worded in the CCI/ACMO Brief, the revised Section 46(1) does not seem to allow owners to requisition a meeting to obtain information or to inform a board of unsolved problems. THIS SHOULD BE ADDED.

Rationale: Meetings should also be requisitioned for purposes other than voting because, often, this is the only way that owners are able to obtain information or let boards know of their needs. The CCI/ACMO Brief’s new suggested wording is too restrictive and dilutes owners’ rights as consumers.

Third Suggested Addition: IT IS SUGGESTED THAT THE 15% OF UNITS REQUIRED IN TERMS OF SIGNATURES NECESSARY TO REQUISITION A MEETING BE REDUCED TO 10%.

Rationale: As discussed in the Rationale for Section 28(3), it is well documented that, in some areas of Ontario, especially downtown Toronto and resort areas, a majority of residents in a condominium are tenants. As a result, it is often impossible to obtain signatures from 15% of units as most unit owners may live elsewhere, even abroad, or cannot be identified by resident owners, and may thus be inaccessible to sign the petition.

For instance, in a condominium with 100 units, only 30 of which have resident owners, 15% means that 15 signatures have to be gathered. In order to reach this goal, the “requisitionists” may have to knock on all 100 doors. This is prohibitive, time consuming and, in effect, deprives owners of their right to requisition a meeting by making the process so onerous.

Similarly, the larger the condominium, the more difficult the task is. For instance, for a condominium with 300 units, 15% of units mean 45 signatures. This may again be problematic if only 100 of these units are occupied by owners.

Section 46(3) – Removal of director(s)

Suggestion: BOARD MEMBERS SHOULD BE REMOVED AT A REQUISITIONED MEETING BY AN AFFIRMATIVE VOTE OF A MAJORITY OF UNITS PRESENT AT THE MEETING (RATHER THAN AT LEAST 50% OF ALL UNITS IN THE CONDO).

Rationale: A vote requiring at least 50% of all units to vote in the affirmative is too onerous because there are often too few owners living in a condo (see the Rationale in Sections 28(3) and 46(1)).

Section 52 – Allowing proxies to vote

Suggestion: PROXIES SHOULD NOT BE ALLOWED TO VOTE. Thus, this section should remain as it is in the Act.

Rationale: Most proxy forms are collected by board members and managers, generally with the good intention of obtaining a quorum. Very few real proxies (persons) actually attend meetings. In addition, fraudulent proxy forms are fairly common and, as reported to the Condo Information Centre website, it is an act generally committed by boards and managers, not by owners. Therefore, the solution offered by the CCI/ACMO Brief will only compound the problem of “bad” boards re-electing themselves and managers helping them do so.

Section 55(3) – Examination of records

This is one of the areas where owners’ rights are probably the most frequently violated. Non-compliance to show records, even very recent and very accessible ones (which should, at any rate, be computerized), is widespread in Ontario. The CCI/ACMO Brief reflects, in the reasoning they present, a totally biased perception of owners and of their rights. They use the most exaggerated example to make their point – referring to owners who ask for records dating back 25 years, as if this happened regularly or without reasons! The reality is that most owners ask for current and recent records (recent board minutes, last AGM minutes, current financial statements, invoices from contractors), to which they have the right.

Four suggestions and revisions are herein provided by CIC/Ambert:

First Suggestion: Add a clause or a preamble or change the Section 55(3) to read that RECENT RECORDS (UP TO 5 YEARS) SHOULD BE GIVEN WITHOUT QUESTION upon payment of a reasonable fee for organization, monitoring of viewing, or copying, except for those private records in subsection 55(4). OLDER RECORDS SHOULD ALSO BE GIVEN WITHOUT QUESTION BUT A REASONABLE FEE COULD BE CHARGED FOR RETRIEVAL.

There is too much emphasis placed on fees (which are often hugely inflated by managers). Nowadays, most documents should be computerized and can be sent as attachments via email in a couple of minutes. This is another aspect of the Act that needs to be modernized.

Second Suggestion: Add a New Section in 55—Posting of board minutes: BOARDS SHOULD POST THE MINUTES OF EACH BOARD MEETING ON AN EASILY ACCESSIBLE BUILDING’S BULLETIN BOARD, WITH THE EXCEPTION OF CONTENTS DESCRIBED IN SUBSECTION 55(4). An alternative is to post a detailed and informative summary of what transpired during the board meeting.

Rationale: First, this mechanism would constitute an exercise in transparency. It would also show respect for owners’ right to be informed of what their representatives are doing. To be informed on a regular basis should be considered an owner’s right. Second, such transparency is needed in order to prevent some boards from mismanaging condo assets. Third, this mechanism would substantially reduce owners’ requests to view documents.

This issue is an excellent example of what was meant in the Overall Evaluation where it was indicated that the CCI/ACMO Brief contributes to the deterioration of owners’ rights and exhibits an outdated perception of owners. Owners should have easy access to documents, no question asked. It is, after all, their corporation. In comparison, owners in detached or semi-detached homes have access to all their own records.

Third Suggestion: SIMILARLY, BOARDS COULD BE ADVISED TO POST THE MONTHLY FINANCIAL STATEMENTS, AT LEAST THREE TIMES A YEAR.

Rationale: The reason why owners request to view records or obtain a copy is that too many boards and managers never communicate with owners regarding expenditures and finances in general. This is a far more serious issue than a few owners (as per the CCI/ACMO Brief, p. 48) requesting documents “dating back 25 years.” As well, were documents made readily available, the condo corporations would not have to disburse fees and owners would not be forced to have recourse to lawyers so regularly.

Fourth Suggestion: A CLAUSE SHOULD BE ADDED TO THE EFFECT THAT MANAGERS SHOULD KEEP ALL THE RECORDS READILY AVAILABLE FOR BOARDS AND OWNERS TO ACCESS. IN ADDITION, PRESIDENTS SHOULD RETAIN A COPY OF CURRENT BOARD MINUTES AND FINANCIAL STATEMENTS.

Rationale: Many board directors write to the Condo Information Centre website to complain that they have no access to documents. When a new management company arrives, it often happens, especially in townhouse condominiums, that the previous manager refuses to return condo documents—particularly when there may have been irregularities on the part of that manager in terms of contracts.

Section 55(8) – Examination of records – Penalty for non-compliance

First Suggestion: The CCI/ACMO suggestion to eliminate the penalty for non-compliance in Section 55(8) is one of the worst ones in terms of owners’ rights. THE ORIGINAL SECTION SHOULD BE RETAINED AS PER THE ACT.

Rationale: Here, the CCI/ACMO Brief suggests that we already have “mediation and arbitration for dispute resolution.” Yet, the Brief’s authors suggest in their Executive Summary (p. 1) and in their Brief (p. 94) that these mechanisms are not working. In this they are correct. Therefore, it is illogical to suggest a remedy for one section that is judged a failure in another.

Second Suggestion: With a “Special Condominium Office” or “Condominium Ombudsman” (see new Section 132), compliance could be easily obtained and, if it failed, a penalty could be levied. However, this penalty should be levied against the directors who should have to personally pay for it. Currently, it is condo corporations that pay, which is unfair to owners.

Third Suggestion: In fact, THE OPTION OF SMALL CLAIMS COURT FOR OWNERS WHO ARE DENIED ACCESS TO RECORDS SHOULD BE DELETED, if owners’ rights to accessing records are solidified in the Act and if a Condo Ombudsman Office is created, as per Section 132.

Rationale: Indeed, this “option” is unfair to owners as it shifts the consequences of non-compliance on them. It also requires a great deal of time and Small Claim Courts may even deny their right! In addition, the letters received indicate that most owners fail to avail themselves of this “option” because it is too onerous, intimidating, or impractical. Instead, a more modern philosophy of owners’ rights should place the onus on boards and managers’ responsibilities and duties to provide easy access to records. As things stand and as suggested by the CCI/ACMO Brief, the penalty is actually paid by owners in terms of time and money!

Section 66(2) – Financial statements

Suggestion: THE SECTION SHOULD REMAIN AS PER THE ACT.

Rationale: The CCI/ACMO Brief eliminates the list of documents necessary under the pretext that these “are already required under generally accepted accounting principles.” But not all board members and managers know what these principles are. Therefore, the list should remain and be reworded in accordance with “current accounting and auditing terminology.” Otherwise, here as well, consumers’ rights are diluted. To this list should be added the last clause in the 66(2): ”Corporations and auditors should be obligated to include any other accounting documents that are normally produced when following generally accepted accounting principles. “

Section 84 (2) – Common surplus

Suggested Change: It is suggested by CCI/ACMO that a surplus of up to “25% of the annual budget” is permissible. Instead, it is herein suggested that the COMMON SURPLUS ALLOWED, OFTEN REFERRED TO AS “CONTINGENCY FUND,” BE REDUCED TO NO MORE THAN 10% AND, FOR BUDGETS OVER $1 MILLION, TO NO MORE THAN 5%.

Rationale: More and more condominiums have budgets over $1 Million: 25% results in $250,000. Such a large sum is unnecessary since the Ontario Condominium Act already requires an adequate Reserve Fund. Indeed, after a few years, most of the replacements and large repairs that happen unexpectedly qualify for the reserve fund.

In addition, large surpluses allow boards and managers to feel “flush” with money and encourage spending without proper budgeting. This is owners’ money that should be in their own wallets. Therefore, huge surpluses occur at owners’ expense, even if boards and managers like them!

Section 85 – Liens

Suggestion: ALL THE MAIN SITUATIONS THAT CAN RESULT IN A LIEN AGAINST A UNIT SHOULD HEREIN BE CLEARLY SPELLED OUT, in language that is easy to understand—not in “legalese.”

Rationale: A great deal of abuse takes place regarding liens on the part of managers, boards, and even corporation lawyers. Such abuses exploit owners and place many in difficult financial situations as well as emotional distress. Some are forced to sell their homes as a result.

Section 90 – Repair and maintenance (reserve fund)

Although the CCI/ACMO suggestions are excellent, they need clarification.

Suggestion: This section should be standard in all future condominiums. No by-law by individual condominiums should be necessary once general guidelines are provided for new buildings.

Rationale: By-laws allow for too much variation from condominium to condominium, which is confusing for owner and managers, especially when owners move from one condo to another.

Sections 132, 134 and 135 – Mediation and arbitration

General Note: There is nothing in the current Act and in the CCI/ACMO Brief that compels boards of directors to enforce compliance to noise issues or parking issues equitably and consistently, to issue status certificates that are up to date, or to carry out repairs in a timely fashion, and so on. Therefore, Sections 132, 134 and 135 all focus on owners’ non-compliance when the letters received by the website indicate that boards’ and managers’ non-compliance is more problematic and generally affects far more persons. We agree that “the present mediation and arbitration mechanisms are not working as intended” (p. 94 in the CCI/ACMO Brief). However, the solutions offered in the CCI/ACMO Brief will only create more problems and some will be discriminatory to Ontarians who do not write or speak English well.

For instance, the suggestion for Section 132(7) seems to eliminate arbitration and requires instead that “a written copy of the term of settlement [via mediation] shall be made and executed by the parties.” This suggested change is not realistic and fails to grasp the social conditions in Ontario.

First Suggestion: MEDIATION, ARBITRATION, MEDIATORS, OPPRESSION REMEDY, etc. in Sections 132, 134 and 135, SHOULD ALL BE ELIMINATED as most of these mechanisms are not working and will not work in the future. They penalize owners.

Second Suggestion: NEW Clause 132—Formation of a “Condominium Office” or “Ombudsman Office”: This new clause should state: “AN INDEPENDENT BUT REGULATED OFFICE OF A CONDOMINIUM OMBUDSMAN (OR A CONDOMINIUM OFFICE) SHOULD BE STRUCK.” This Office would

  • disseminate information about the Condominium Act to owners, directors, managers, and builders;
  • respond to enquiries from owners, boards, and managers;
  • be legally empowered to resolve disputes and enforce the Act in all its aspects, including disputes with managers and builders;
  • have the power to levy fines against owners, individual board members, managers, and builders as per the Act;
  • be empowered to suggest changes in the contents of the education given to directors and managers that would strengthen condo governance and the consumer rights of condo owners;
  • be staffed by persons who are well versed in the Condominium Act but are not members of the various “condominium industries,” to avoid conflicts of interest;
  • have access to legal experts, as necessary;
  • be supported by a monthly fee per unit (e.g., $3/month) paid by owners for each unit owned.