vested interests

Who plays a role in managing vested interests?

A mix of owners and boards is ripe for conflict and personal agendas
Tuesday, August 3, 2021
By Val Khomenko

Have you ever heard the director proclaim at the board meeting: “my son is an electrician and can do this job for free” or “I have a cousin who can do this for half price?”

What about situations where it is a little more complicated? For example, a stepson of the board’s president is a security guard working full time and the president has not disclosed this relationship to the board or otherwise. Should the president have disclosed it at all?

The board of directors for condominium corporations is accountable and responsible for millions of dollars in assets. Condominiums are lucrative investments, holdings and, for many people, their only homes. As a result, vested interests on the board of directors is a topic that often raises ire of many owners and prospective buyers. Stories of the “infamous three” who took control over downtown Toronto condos still plague the industry.

How do you resolve or mitigate such conflicts? Let’s break it down by role.

The role of the owner

Owners must always ask themselves what is in it for the director. Is there a potential direct or perceived conflict? Does it pass “the sniff test?”

With the amended Condominium Act, 1998 (the Act), owners have the right to request records with prescribed forms and deadlines. By regularly attending annual general meetings, owners are presented with the opportunity to receive updates on major renovation projects and ask questions.

Furthermore, the owners, if in doubt, should request the minutes of the meeting where such “conflicting” transactions were voted on. Has the director in question recused himself/herself from the vote and declared the conflict to the board at a duly called meeting? Section 40 & 41 of the Act clarifies the disclosure obligations for directors and officers of the corporation.

Lastly, and most importantly, owners should take the time and thoroughly acquaint themselves with the condo’s governing documents. If the conflict of interest on the board persists and the board does not meet the obligations under the Act, the owners should consider seeking professional legal advice, preferably from a lawyer well-versed in condo law.

The role of the condo manager

What If the manager discovers vested interests on the board? What steps can he or she take to facilitate a resolution?

Determine the client

Who’s the client? Is it the president who signed the management agreement and has a potential conflict of interest? Or is it the corporation itself?

Seek advice

When in doubt, the manager should seek advice of the supervising licensee or the principal condo manager. They can guide the board on their obligations under the Act and instill best industry practices to promote fairness and transparency.

Walk away

If the conduct of the board is of egregious nature, the manager should consider resigning and walking away from such conflict.

Ultimately, it is up to the manager to employ any of the above steps necessary to perform their fiduciary responsibility as agents acting in the best interest of the client—as long as they do so in accordance with the code of ethics outlined by Condominium Management Services Act, 2015 O.Reg. 3/18.

The role of the board

If a fellow member of the board is in a position of a conflict of interest, remaining directors should feel empowered to address the issue directly at a duly called meeting without personal repercussion. Any and all disclosure obligations must be met and recorded accordingly. If not, failure to do so may raise future accountability and liability issues.

To avoid this, the board should follow three simple guidelines:

1. Adopt a procurement policy for the corporation, which would list the proper bidding requirements.
2. If possible, engage a third-party minute taker to ensure that impartial record keeping is done. When in doubt, the board should consult the corporation’s solicitor on the disclosure obligations and compliance under the Act.
3. Exercise caution and awareness when the fellow director is an “industry insider” (e.g., regional manager of a major condo management firm, condo lawyer or developer’s affiliate).

Setting proper expectations for the “insider,” as well the board in general, reinforces the mandate that the board exists first and foremost to serve the best interest of the corporation and its owners.

In all cases, the mindset of equal vote and participation should be maintained.

Condos are complex entities. The mix of owners and boards is ripe for conflict and personal agendas. Perhaps one of the most valuable assets in maintaining this delicate balance between self and collective interests is the strength and integrity of the property manager.

A healthy board can only exist if fundamental practices in disclosures, procurement and transparency are maintained, and meticulous record-keeping is king.

Val Khomenko is the principal condominium manager for Regional Group, a full-service real-estate investment and management firm, based in Ottawa, Ontario. Val leads Regional’s condo team with 7+ years of experience in the condominium industry. He can be reached at 613-230-2100, Ext. 7409.

 

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