Board of Directors
Also see: Board, Vacancy In; Directors, Remuneration of; Directors, Standard of Care; Officers; Quorum; Quorum, Loss of (on Board); Turnover
Short Answer
The board of directors,
whether elected or appointed, has the ultimate responsibility for management of
the affairs, property and assets of the corporation.
Definition
The board of directors is the primary governing organization within the condominium corporation. To borrow the standard phrase from corporate law, the board may be described as the "directing mind and will" of the corporation.
Although typically volunteers, directors have the same kind and degree of fiduciary obligations with respect to the condominium corporation and its unit owners as directors of a company have toward the business corporation and its shareholders.
Generally, the board is made up of directors who are elected by the owners of the condominium. For the most part, specific election qualifications and procedures are unique to the condominium in question, being based on the provisions of the condominium's general governance by-law(s). However, the Condominium Act, 1998 (the "Act") sets out the following basic criteria for board membership: there must be a minimum of three directors, each of whom must:
Section 6 of the Substitute Decisions Act, 1992, states that a person is incapable of managing property if that person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision. See the full text of the legislation here.
The Act also provides that a director's term of office cannot be longer than three years (although the Act does not prohibit re-election for subsequent terms of office), and that a person ceases to be a director immediately (a) if he or she becomes an undischarged bankrupt or incapable of managing property or (b) if a certificate of lien has been registered pursuant to section 83 of the Act against the director's unit and is not discharged within 90 days of such registration.
There are certain situations in which board members are appointed rather than elected. These are, namely: the board of directors first appointed by the declarant shortly after registration of the declaration and description creating the condominium; and board members appointed to replace directors who have resigned or otherwise vacated their positions prior to the completion of their terms of office. See the Condopædia article, "Board, Vacancy In" for the latter situation. See below in this article for information about the declarant's appointed board.
Although typically volunteers, directors have the same kind and degree of fiduciary obligations with respect to the condominium corporation and its unit owners as directors of a company have toward the business corporation and its shareholders.
Generally, the board is made up of directors who are elected by the owners of the condominium. For the most part, specific election qualifications and procedures are unique to the condominium in question, being based on the provisions of the condominium's general governance by-law(s). However, the Condominium Act, 1998 (the "Act") sets out the following basic criteria for board membership: there must be a minimum of three directors, each of whom must:
- be at least 18 years of age;
- not be an undischarged bankrupt; and
- not be incapable of managing property within the meaning of the Substitute Decisions Act, 1992.
Section 6 of the Substitute Decisions Act, 1992, states that a person is incapable of managing property if that person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision. See the full text of the legislation here.
The Act also provides that a director's term of office cannot be longer than three years (although the Act does not prohibit re-election for subsequent terms of office), and that a person ceases to be a director immediately (a) if he or she becomes an undischarged bankrupt or incapable of managing property or (b) if a certificate of lien has been registered pursuant to section 83 of the Act against the director's unit and is not discharged within 90 days of such registration.
There are certain situations in which board members are appointed rather than elected. These are, namely: the board of directors first appointed by the declarant shortly after registration of the declaration and description creating the condominium; and board members appointed to replace directors who have resigned or otherwise vacated their positions prior to the completion of their terms of office. See the Condopædia article, "Board, Vacancy In" for the latter situation. See below in this article for information about the declarant's appointed board.
What you need to know…
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…as a Unit Owner
As noted above, the board of directors is the ultimate governing authority of the condominium corporation. In a sense, this is not entirely accurate. Ultimately, the total collective, or at least a unified majority, of unit owners has greater authority than the board, but only because the owners are capable of removing directors from office and replacing them with new directors. However, this very fact illustrates a key point: without a functioning board of directors, the condominium is not properly governed; the unit owners are not entitled, under the Act, to directly govern the affairs of the corporation. Even in those specific situations where the Act requires the board to seek the approval of unit owners (such as voting to approve new by-laws or by-law amendments, consenting to declaration amendments, or approving certain changes to the common elements, assets or services of the corporation), such matters are carried out and put into effect only by the corporation's board. Therefore, the primary role of unit owners in regard to a condominium board is to thoughtfully elect a board of directors in whom they have genuine confidence that such directors will carry out their duties in a responsible manner in accordance with the standards and other provisions set out in the Act, declaration, by-laws and rules. The secondary role of unit owners is to sustain the efforts of the board by participating responsibly in the affairs and activities of the corporation and heeding and complying with the Act and governing documents of the corporation. It must further be noted that typically (though not necessarily, depending on the by-laws of the condominium in question) board members are owners within the condominium. Therefore, where this is the case there really should be no tolerance for an "us-them" mentality in regard to the relationship between board members and other unit owners. |
…as a Board Member (part 1)
Typically board members are unpaid; they are volunteers serving their community. However, this does not excuse board members from the requirement to meet the high standard of care set out in the Act. Section 37(1) of the Act states: Every director and every officer of a corporation in exercising the powers and discharging the duties of office shall, For a general discussion of the obligations and liabilities of directors of condominium corporations, see the About Condomemorandum linked here.
Board members are entitled to indemnification by the condominium corporation for most liabilities suffered or incurred in respect of carrying out the duties of a director of the corporation, but such protection is eliminated in the event the director fails to act honestly and in good faith. (See section 38 of the Act.) Likewise, the benefits of Directors and Officers Liability Insurance obtained and maintained by the condominium pursuant to section 37 of the Act are only available if the director has not breached the duty to act honestly and in good faith. Board members cannot delegate their authority to others. This includes that the board cannot abrogate its responsibilities by requiring a unit owner vote to determine certain questions that are within the purview of the board, or state as a defense to a poor decision, "we only did what the owners wanted". More importantly, it means that even if a property manager is hired or non-director officers are appointed, the responsibility for the corporation still remains ultimately with the board. This is based on the long-standing principle of law which is expressed in Latin (as are most long-standing principles of law) as "delegatus non potest delegare" - the person to whom authority is delegated does not have power to delegate the same authority to someone else. Of course, this does not mean that the board cannot appoint officers of the corporation, direct volunteers or hire property managers or other services providers, and in this manner have other persons carry out certain of their responsibilities for the continued, next column... |
…as a Manager
The board of directors is the manager's boss. Some managers believe that it is their privilege to instruct the board of directors. This is incorrect and has the chain of responsibility, or authority, backwards. The manager advises and assists the board within the parameters of the management contract. It is the board which must ultimately make decisions and which may instruct the manager as to how such decisions shall be carried out. ...as a Board Member (continued)
management of the affairs and property of the corporation; but no such appointment or contract takes away from the board its ultimate responsibility, and accountability, for the conduct, activities and condition of the condominium corporation. It can, however, make directors' jobs easier and in some cases can limit their liabilities. That is, section 37(3) of the Act provides that where directors of a condominium corporation have relied in good faith on (1) financial statements that the corporation's auditor, financial officer or property manager, represent to the board as being accurate in accordance with generally accepted accounting principles, or (2) the report or opinion of a lawyer, public accountant, engineer, appraiser or other person whose profession lends credibility to the report or opinion, then the directors shall not be found to have breached the duties set out in section 37(1) (quoted above). (Re: what it means to rely on professionals in good faith, see the article linked here.) A further principle that many condominium board members run into difficulty with is the inability of board members to make binding decisions for the corporation independently. Subject to the special exception granted to the declarant-appointed board (see below), the Act only permits decisions affecting the corporation to be made by resolution of the board at a duly held meeting of the board where a quorum of directors is present. See section 32(1) of the Act. A quorum is a majority of the members of the board (not a majority of those present at the meeting, but of the board taken as a whole). Board members should avoid at all times giving assurances to unit owners or instructions to contractors or proposed contractors and other service providers (i.e., lawyers, accountants, property managers, etc.) where the authority to do so has not been specifically granted or approved by resolution of the board. |
…as a Declarant
Within 10 days of the creation of a condominium corporation, the declarant must appoint a board of directors. This board must consist of three persons or such greater number as the declaration provides. (Typically, declarations are silent as to the number of board members there should be.) This board of directors remains in place (although individual directors may be replaced from time to time) until a Turnover Meeting for the corporation is held. The declarant's appointed board of directors is entitled to make decisions for the condominium corporation without holding duly called meetings provided all resolutions of this board of directors are in writing and signed by all directors entitled to vote. A director on the declarant's appointed board is not to be considered to have a conflict of interest preventing him or her from voting simply because he or she is a director, officer or employee of the declarant. A transitional meeting of unit owners must be held by the later of (a) 90 days after the declarant sells the first unit and (b) 30 days after the declarant has sold 20% of the units. At this meeting, the unit owners are to elect two temporary directors to the first board. Then, by no later than 21 days after the day on which the declarant ceases to own the majority of the units, another meeting must be called (and held no later than 21 days after it is called) when the unit owners shall elect an entirely new board. This meeting is commonly known as the “Turnover Meeting.” Once the board is elected at the Turnover Meeting, the declarant ceases to have control of the condominium corporation. Note that the initial transitional meeting may be waived and the declarant may proceed directly to hold a Turnover Meeting if by the date set for the transitional meeting the declarant no longer owns a majority of the units. The declarant must inform the board of directors of this fact in writing. |