What do new condo directors need to know right away?
Congratulations on getting elected to the condo board! Now the fun begins. For first-time directors, there is an overwhelming amount of new information to digest. While it may seem like everything has to be learned at once, it may be more realistic to take a gradual approach. Here are five need-to-know topics to get the journey started:
1. Preserve the corporate record
This might seem like a bizarre idea, but consider the condominium corporation like a living being; the records serve as its memory. No living being can survive without a memory; the corporation likewise cannot function effectively without complete records.
Directors and property managers are the key creators of the corporation’s memory, but change on a regular basis. Directors leave at the end of their term, resign because of ill-health or sell their unit and move. In some cases, an entire board gets removed by a vote of the owners. Relying completely on property management companies and their managers is not a good idea, either. Managers may similarly leave, get replaced or retire.
It is the board’s responsibility to make sure the corporate memory is always up-to-date. Property managers have an important role to play in creating and preserving corporate memory, but the board must provide oversight and make sure this memory is created and immediately accessible. Start preparing now because changes are difficult to predict! If directors and managers wait until these events occur, it may be too late. Memories fail, emails remain in personal inboxes, and handwritten notes get misplaced.
New directors and managers rely on good records to provide this memory. Poor or missing records leave directors and managers floundering in the dark, wasting time trying to understand why a particular decision was made and wasting money because a high-value renovation contract has gone awry.
2. Act in the corporation’s best interests
From the very first meeting new directors attend, they must make decisions based on the principle of fiduciary responsibility. What does this mean? Simply put, directors must act in the best interest of the condominium corporation and not in their own self-interest.
This is an incredibly important distinction to understand. It’s normal for people to act in their own self-interest. However, for directors, the corporation’s interest replaces self-interest. The corporation is like a living entity and continues to exist as directors and property managers come and go. Directors serve the corporation and must ensure that the corporation stays financially and physically healthy.
An example will help explain.
The board of Green Condos is preparing to undertake a much-needed window replacement project. After reviewing finances, the board realizes that a special assessment will be needed to pay for the work.
One of the directors votes against the project because he does not have the money to pay for the special assessment. Another director also votes against the project because she is planning on selling her condo and doesn’t want to have to spend money on a special assessment at this point in time.
The decision has been made; the window replacement project is postponed for another year. This is a very poor decision for the condominium corporation as a whole and a good example of directors failing in their fiduciary responsibility.
3. Review the status certificate regularly
After making an offer to purchase a condominium, potential buyers receive lots of documents to review. One of them is the status certificate. It provides a snapshot of the financial and physical status of the corporation as well as details pertaining to the specific unit being considered for purchase.
Potential condo buyers usually leave the review of this document to their lawyer. Most condo buyers, especially first-time buyers, are unlikely to fully understand the implications of this document. However, it is critical for directors to understand now exactly what a status certificate represents and how to use it to mitigate risk for the corporation.
Condominium corporations are required to provide status certificates on request. The corporation usually delegates this task to its property management company. However, because the corporation remains responsible for the content, it’s good practice to review the status certificate at every board meeting. This ensures that the status certificate stays up-to-date and incorporates any new issues as the board addresses them.
Potential buyers need to know any financial or physical problems facing the corporation. If these details are missing from the current status certificate, the corporation is at risk of unhappy new condo owners who could sue the corporation if they find out, for example, that a substantial special assessment is due. Ensuring that the content of the status certificate is up-to-date helps mitigate this risk.
Potential buyers need to know that their status certificate is valid only for the date issued (as per section 76(6) of the current (1998) Condominium Act) and ask for an update before closing on their new home. This is especially relevant if the purchase date is months in the future, as the financial or physical status may change in the interim.
4. Manage the corporation’s money responsibly
Looking after money is obviously very important. New directors need to know how the corporation’s finances have been managed in the past and consider whether this is an acceptable process to continue. Just because a board has done it in a certain way before doesn’t mean that it is the right way or that it can’t be improved.
Directors are responsible for making independent decisions and not simply following along with past practices. Ask about the process of signing checks. Who signs? It’s best practice to require more than one signature. What is the process for approving quotes on small projects and more formal processes (tender) for larger projects? An excellent review of overseeing tenders appeared in the July 2016 issue of CondoBusiness magazine.
Improper management of corporate funds has significant consequences and could result in fines (as per section 137 (1) of the act).
5. Follow the legislative hierarchy
The Ontario Human Rights Code, Condominium Act and condo corporation documents are long, complicated and difficult to read. Understanding the content and intent of these documents is a core requirement for directors. Directors are not expected to understand the full legal implications of these documents, as this type of expert-level knowledge is the responsibility of their lawyer. However, there are a few key points directors should understand.
Condominiums are governed by provincial or territorial legislation. In Ontario, condominiums are subject to the Condominium Act and also the Human Rights Code, among other relevant provincial legislation. Remember that there is a hierarchy: the Humans Rights Code comes first; the Condominium Act is next and the condominium corporation’s declaration, bylaws, and rules follow. In other words, none of the many clauses contained in the declaration, bylaws, or rules can contravene the Human Rights Code, nor can they contradict the Condominium Act.
This is just a quick introduction to what new condo directors need to know now. To recap: Begin the habit of creating the corporation memory; always act in the best interests of the condo corporation; review the status certificate every board meeting; manage the corporation’s funds responsibly; and follow the legislative hierarchy. If a new director does these five things well, he or she is off to a good start in becoming an effective director.
Pat Crosscombe is the founder and CEO of BoardSpace, a company that provides software for condo boards and property managers. She is back on her condo board as president after a three-year break. She can be reached at 613-790-0225 or [email protected]