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With All Due Respect To The Auditor General... Democracy Is Messy, Managers Should Be Paid More, Leveling the Playing Field Means Awarding Costs to Either Side, and the Silent Majority of Condos Are Doing OK
On Monday December 7th 2020, the Auditor General of Ontario (the “AUDG”) released her annual reports for 2020, one of which focused on condominium corporations in this province. The AUDG’s report on condominium oversight in Ontario included a number of pointed – and in our view, accurate – criticisms of the system as it exists currently.
However, with all due respect to the AUDG, there were an alarming number of criticisms and recommendations made by the AUDG in her 2020 report that, in our view, were misguided due to the AUDG’s office listening to a small “vocal minority” of dissatisfied unit owners (and perhaps newly-elected Boards taking over from a previous Board) at the expense of the “silent majority” of the 11,354 condo corporations registered in Ontario that are doing just fine.
1) Self-Selected Respondents have a Skewed View of the Industry
As anyone who’s seen any sort of online rating system knows, it’s usually only the extremely dissatisfied who voluntarily submit their comments. Someone who’s had an acceptable, run-of-the-mill dish at a local restaurant isn’t likely to leave a noticeable Yelp review; it’s only if something goes terribly wrong with the food or the service that a patron bothers going online to leave a scathing review for the world to see.
The AUDG’s 2020 report on condos is drawn from responses that the AUDG received to its June 2020 survey of unit owners and Boards, along with “approximately 30 owners who reached out to our Office separately through emails seeking help in resolving issues they had with their boards and/or condo managers” (pg. 47). Only 31% of the AUDG-selected condo Boards and 20% of the AUDG-selected unit owners actually responded to the survey. A review of the cherry-picked “Examples of Emails Sent by Condo Owners to Our Office” (Appendix 8 on pgs. 72-73) demonstrates just how negative the feedback to the AUDG was:
a) One owner complained about being the only one in their condo who asks for financial statements, despite knocking on “over a dozen ppls’ doors to ask them to request the financial statements”. That owner also asserted that, “Transparency is not something our condominium board of directors champions, which results in a lot of issues (frustration, negativity, uncertainty, ill will, secrecy, etc.).”
b) Another owner complained that, “We have had the same board members for 15 years. [One] is very rude and likes to act like he owns the property. I’ve been threatened twice on different occasions. We need a forensic Audit done to many things that have supposedly been done. Please send help.” The AUDG appears to have redacted the name of the particular Board member the owner is complaining about, but it’s apparent that this owner has at least some personal animosity towards him/her.
c) A third owner wrote, “We have many questions about the board of directors, specially the president. […] A lot of owners are suspicious about things here.”
d) Another owner complained, “And this management refuse to show us about the Superintendent license or repairs person license. The trick things is they always ask the people came to do the repair job at night when most of owners leave the plaza. […] I want to know how can we do right now.”
e) An owner wrote, “I firmly believe we pay far above average cause of the shady dealings of our board/property manager […] The Board is encouraged to get away with their duplicitous actions (kickbacks, lining of pockets, financial incompetence, etc.)”.
Reading those selected emails sent to the AUDG, one could be misled into thinking that the condo industry is entirely comprised of corrupt Board members and Managers.
Even as condominium lawyers, we recognize that our worldview is quite skewed towards the negative; we really only deal with the condo situations where things are going wrong, otherwise we wouldn’t be called-in to assist at all. We often don’t see the thousands of condo corporations where everything is humming along just fine.
Condos where there’s nothing to complain about fly-under-the-radar because their names do not get mentioned in any complaints to any governing bodies, no public cases are brought against them, and the click-driven news media rarely focus on good news; but also, those condos do not typically respond to surveys. If there’s nothing to complain about, why would an unpaid Board of Directors, many of whom are busy with their own day jobs, bother putting in the time and the effort to voluntarily respond to the AUDG’s detailed survey?
Unit owners may sometimes have legitimate grievances against their condominium corporation. But often – and we’ve seen this saga play out before, when the previous Ontario government was drafting the Protecting Condominium Owners Act, 2015 – the voices of a dissatisfied “vocal minority” and attention-grabbing “horror stories” in condominiums take up an oversized portion of government attention. The “silent majority” of well-run, well-governed condos are left out of the conversation.
In fact, this is a concern that we have with not just the AUDG’s 2020 report on condos, but with the overall pendulum swing by the Condominium Authority of Ontario (the “CAO”) towards becoming more of an owner-advocacy organization.
2) If Owners Want Information and Not Just Records, then They Must Pay More for Managers
One of the criticisms made by the AUDG in her 2020 report is that unit owners should be entitled to information about their condo, not just the records of their condo under Section 55 of the Condominium Act.
The Ontario Superior Court of Justice has held that a unit owner is only entitled to their condo’s records – an owner is not entitled to engage in an investigation and demand information.
Nevertheless, recognizing that some information about the condo may be important enough to keep the owners apprised about from time-to-time, the Ontario government recently mandated that condos must issue a Periodic Information Certificate (PIC) at least twice a year, and an Information Certificate Update (ICU) when required. These PICs and ICUs contain a multitude of information that indeed, owners should be kept updated about – it’s even in their very names, a Periodic Information Certificate and an Information Certificate Update. Of course, the PICs and ICUs do not contain every single possible detail or fact about the condo, but these mandatory forms do contain the most important information that would directly impact a unit owner.
However, the AUDG’s 2020 report makes no mention of PICs or ICUs, and the AUDG appears to have either forgotten or not been made aware of their existence altogether.
Instead, the AUDG focuses on an anecdotal unit owner who wanted to see “lists of permanent, temporary and contract employees employed by the condo corporation”, and an anecdotal unit owner who wanted to see the “support for the condo board’s approval of a contract renewal” (pg. 49). Both of those unit owners were denied their requests by the Condominium Authority Tribunal (the “CAT”).
In the 1st case, the CAT ruled that the record did not exist; indeed, it is quite rare in our experience for a condominium corporation to keep a running list of all permanent, temporary, and contract employees on-site. Usually, the condo only has 1 or 2 direct employees, if any, namely its Superintendents; all other personnel working on-site (e.g. cleaners, security guards, tradespeople) are usually employed by a separate service provider retained by the condo. The owner was seeking a list of all employees working on the premises, but it is rare for a condo to have a list of every single service provider’s potential personnel that would be sent on-site.
In the 2nd case, the CAT ruled that the discussion emails between Board members regarding a gas contract were not part of the formal records of the condo. Indeed, the Board of Directors must be free to have frank discussions amongst themselves about the condo’s governance; such parliamentary/cabinet privilege in the other levels of government have long been recognized by the courts. The Supreme Court of Canada has explicitly affirmed that democratic governance works best when the elected officials responsible for decision-making are free to express themselves around the table unreservedly.
On a practical note, if the AUDG wants such non-record information like the list of on-site personnel and the private discussion emails between Board members to be made available for owners to inspect, then many condos will likely need to hire a full-time Assistant Manager or Site Administrator to answer all of the information queries that owners will be making. Many condos will also have to involve their legal counsel much more heavily at the front-end, to go through and redact those intra-Board discussion emails before disclosure to a curious owner.
In view of the already-existing shortage of Condominium Managers in this province, giving Managers even more work to do in answering owner demands for information is not likely to attract more prospective job applicants to the field. If the Ontario government insists on making information – not just records – available to owners, in addition to the information already included in PICs and ICUs, then the race-to-the-bottom in management fees must stop. Most Managers’ salaries are based on the management fee that the condo is paying the management services provider, and if that fee must be split between the Condominium Manager and an Assistant Manager or a Site Administrator, then condos will need to be paying much higher management fees in order to accommodate the AUDG’s recommendation.
3) Democracy is Messy, Owners Get the Governance They Vote For
Although we agree with the AUDG’s 2020 report in that condo Reserve Funds in this province have been historically under-funded by their communities (pgs. 28-31), we note that this is an inherent feature of the democratic system itself – not a flaw specific to condos.
The Condominium Act’s introduction in 2001 of mandatory Reserve Fund Studies and Funding Plans created an objectively-based solution, tailored by engineers, which helped to reduce the problem. However, it is still ultimately up to the duly-elected Board of Directors to determine their particular community’s specific needs.
In politics generally, voters shy away from voting for the candidate who’s going to increase their taxes – especially if those taxes are for a major project that is several decades away, when the taxpayer themselves might not be alive anymore to see it.
Similarly, in condos, nobody wants to elect a Board member who’s campaigning to increase everyone’s monthly common expenses to properly fund the Reserve Fund for a major project that is many years away. Political “natural selection” in the evolution of a condo over the span of many decades indicates that the Board member who promises to keep monthly fees the same (or even reduce them) keeps on getting elected, whereas the candidate ringing alarm bells about the Reserve Fund being under-funded is not elected and instead fades into history; just like with politics.
But isn’t that what our democracy is all about? Shouldn’t constituents have the freedom to choose their elected representatives and their platforms, at their own peril? That’s certainly the case with all 3 levels of government, why not the 4th level of condo government as well? If condos are meant to be self-governing entities, as the AUDG herself admits in her report, then just like how a freehold homeowner can choose not to repair the roof on his house for 10 years, shouldn’t a unit owner via their elected condo Board have that same freedom as well?
Condo owners are property owners; they own their own individual units, and are equity stakeholders in the premises – not just tenants. Their freedom to choose, as property owners, how best to protect their own investment should be respected.
Democracy is inherently messy, and voters don’t always choose what is necessarily the best for them in the long-run. Democracy may be the worst form of government (except for all those other forms that have been tried elsewhere), but it’s the organizing principle for condominiums in Ontario, modeled after the federal, provincial, and municipal levels that we hold dear.
4) Managers are Subject to their Boards’ Directions
The AUDG’s 2020 report also criticized the Condominium Management Regulatory Authority of Ontario (the “CMRAO”) for closing owner complaints about Managers too early, without addressing the underlying grievance that the owner had (pgs. 35-37).
But the likely reason why so many CMRAO complaints about Managers are closed “without the underlying issues related to, for example, leaks, floods and other significant repair issues being resolved in a timely manner” is because ultimately the Manager acts under the authority of the condo Board, and the Manager is therefore constrained by whatever the Board decides to do (or not do).
The CMRAO has no jurisdiction over condo Boards, and rightfully so.
Board members are elected by their own community, and as the courts have recognized, condo Boards are in a better position to conduct the delicate balancing between collective interests vs. individual interests; not the CMRAO or even the CAO (or a combined organization as the AUDG recommends).
In fact, the majority of the “Top 10 Issues” complained about to the CMRAO, as listed in Figure 17(a) of the AUDG’s report, are issues that are outside of the Manager’s purview:
- leaks, flood repairs, and other maintenance/repair issues are ultimately under the Board’s authority pursuant to ss. 89 to 91 of the Condominium Act;
- condo records are under the Board’s authority pursuant to s. 55 of the Act;
- safety and security issues are under the Board’s authority pursuant to ss. 17(3), 26, and 117 of the Act; and
- Board elections and Board decisions are, of course, outside of the Manager’s scope, and therefore outside of the CMRAO’s jurisdiction to police.
The CMRAO itself apparently advised the AUDG’s office of this (top of pg. 37), but the AUDG nevertheless highlights the early closing of CMRAO complaints as a key criticism (pg. 4).
5) Level the Playing Field for Owners, by Awarding Legal Costs for Whoever Wins
Finally, as we’ve written about time and time again over the past couple years, a significant way for the “playing field” to be leveled between unit owners and condo corporations at the CAT, is for the CAT to start abiding by the usual costs-follows-result rule and awarding legal costs for the successful litigant. Currently, the CAT’s default rule is that nobody is entitled to any legal costs award whatsoever, regardless of which side achieved a successful result at the Hearing.
The courts of Ontario have held that the other, innocent unit owners of a condo (i.e. those with no direct involvement in the dispute) should not be forced to bear the legal costs of enforcing against a violator’s behavior. The Ontario Superior Court of Justice recently put it succinctly in one of our cases, where the Court held that:
“The other unit holders of 3390 Weston Road purchased their units with the expectation that they could not be held responsible for such costs. The Condominium Act and the by-laws of the condominium absolutely forbade it. To deny this motion would break that trust and effectively send a message to condominium owners throughout the province that the courts will not enforce the laws that they have relied upon. That is not a tolerable message.”
At the same time though, if a unit owner is successful in their case against the condo corporation, then that unit owner should equally be entitled to recover their legal fees from the condo. If the unit owner has brought a meritorious case to the CAT, and the CAT found the condo to be at fault, then the legal fees that the owner spent to hold their condo accountable should be paid by the condo – especially since the owner’s rightful actions have now corrected a violation by the condo for the benefit of all owners.
In 2012, with a “level playing field” in mind, we advocated for the idea that in condo law, legal costs should be awarded for the successful litigant, regardless of whether the successful party was a unit owner or a condo corporation.
The AUDG’s 2020 report argues that “Owners Lack Level Playing Field with Condo Boards at Tribunal”, since condo corporations can hire legal counsel to represent them at the CAT but unit owners are not likely to be able to afford to do so. The AUDG notes that in British Columbia’s Civil Resolution Tribunal (the “CRT”), which hears condo disputes in that province, the CRT has banned lawyers altogether and instead, both unit owners and condo corporations must represent themselves (pg. 51).
But legal counsel is involved in B.C.’s CRT anyway, just in the background. A condo’s legal counsel can draft the written responses to be submitted by the condo to the CRT, and may even be in the background of the CRT teleconference call, advising the condo’s representative in real-time. If the condo’s legal counsel is doing all the heavy-lifting anyway, then practically there is no difference aside from a ceremonial mouthpiece to give the false pretense of “an even playing field”.
The AUDG’s 2020 report contends that in B.C., a condo Board asked the CRT to permit it to be represented by a lawyer, and the Chair of the CRT denied the application “on the basis that […] there was nothing exceptionally unusual or complex about the case” (pg. 51). However, when the condo Board applied to the B.C. Supreme Court for a judicial review of the CRT’s denial, the Court held:
“[30] The Chair decided that there was nothing particularly difficult or complex about this dispute that justified a departure from the general practice. It is arguable that, in characterizing the dispute as she did, the Chair overlooked the fact that this is not simply a dispute about who is responsible for paying certain costs. The vast majority of the amount claimed by the Booths relates to damages for alleged threats, abuse and loss of enjoyment of life. In their response to the representation request, the Booth’s allege dishonesty, fraud and bad faith. They also allege that they were physically attacked, threatened with bodily harm by a named member of the [Board of Directors].
[31] It is particularly important for the petitioners to have the assistance of counsel in defending that sort of claim. That need arises not only from the amount sought but from the potential impact of such allegations on the reputation of the individuals involved. There may also be an issue of whether or to what extent such a claim falls within the CRT’s jurisdiction and, if there is such an issue, the petitioner may have a greater need for the assistance of counsel in putting forward a pure question of law” [underlining added].
Although ultimately, the B.C. Supreme Court dismissed the condo Board’s application for judicial review due to the Court’s deference to the CRT’s decision, even the Court recognized that in a contentious case with such serious allegations, legal counsel should be involved.
In our experience, such allegations like fraud, dishonesty, bad faith, threats, abuse, and even assault are quite common in condo disputes of all sizes – as the CAT itself has come to learn from even just the records disputes it has heard in the past couple years. The AUDG’s own snippet of feedback from owners (Appendix 8) demonstrates this as well; these types of allegations are very likely to come up, and have come up already, at the CAT.
So the solution isn’t to have no legal representation at all in the CAT, especially given the CAT’s ever-expanding jurisdiction into even more contentious areas of dispute than records requests. Such disputes are likely to be even more heated, and will likely require even more evidence to be presented, legal arguments to be heard, and specialized condominium law knowledge to be utilized. The need for competent legal representation for both unit owners and condominium corporations alike is even more apparent now.
As one of the few condo lawyers in Ontario who has successfully represented unit owners at the CAT, the way to level the playing field isn’t to banish lawyers/paralegals altogether, it’s to award legal costs to the successful party – whether it be a unit owner or a condo corporation. With the possibility of a legal costs award to reimburse the unit owner for their legal costs, owners are more likely to hire competent legal representation in the CAT. Not only would such legal representation help the unit owner, it also helps the CAT to reduce the amount of self-represented owners who do not know the law, who do not know the CAT system, and who prolong and unduly complicate the CAT file with extraneous and irrelevant arguments or evidence.
Such a costs recovery system would also naturally open up the market to paralegals and junior lawyers, who can then offer their unit owner clients the prospect of their legal fees being reimbursed if their grievance is meritorious and their claim successful. Currently, a unit owner who approaches a lawyer or paralegal about a CAT grievance they have, must be advised by the lawyer/paralegal that even if they are 100% successful at the CAT Hearing, the CAT will not likely be awarding the owner with their legal costs. As a result, owners do not hire legal assistance, and lawyers/paralegals give up on trying to participate in the owner-side CAT market altogether; leaving the playing field unbalanced in favour of condo corporations who already have the benefit of legal counsel. There is currently little or no economic incentive for paralegals and lawyers to get involved with representing owners at the CAT, due to the CAT’s default presumption against awarding costs.
Access to justice doesn’t mean that neither side can have a lawyer. Access to justice means that both sides – unit owners and condo corporations – should have easy access to lawyers and paralegals to represent them through what is a complicated, niche area of law.
Trying to solve the issue of access to justice by expanding the CAT’s online jurisdiction but removing lawyers from the process, is akin to trying to solve hospital wait times by adding more beds but removing the doctors.
At the other end of the scale, because of the no-costs-recovery rule in the CAT, some condos have even gone as far as to not participate in the CAT process whatsoever. With Section 1.44(3) of the Act setting the maximum penalty at $5,000, some condos have deliberately refused to participate in the CAT since the costs of legal representation will likely exceed $5,000 anyway; something which we warned about in a previous article last year, and which the AUDG’s own owner complaints indicates to be true. At Appendix 8 of the AUDG’s 2020 report, one of the owners complained, at #7(d) of Appendix 8, that:
“It appears that condominium corporations have quickly learned that the best course of action to take in a CAT process is simply not to participate. The potential fines are small and much smaller than legal costs encountered by the condo corp in engaging lawyers to represent them in the process. (This was exactly what happened in my own case where the legal counsel for the condo chose not to participate. The fine that was eventually levied was probably a fraction of the legal cost that they would have faced with active participation. My own legal costs were not compensated.)” [underlining added].
So not only is the CAT’s default no-costs-recovery presumption hurting unit owners, it’s also causing condos to abstain from participating in the legal process whatsoever. A Tribunal cannot carry out its adjudicative function properly and uphold the rule of law, if neither side is reimbursed its legal fees upon success at trial. Unit owners will simply not hire legal counsel – if any are even available in the market for them – and will consequently bog down the CAT with everything but the kitchen sink, and condos will not participate whatsoever.
Overall
The AUDG’s 2020 report shines an interesting light on the condo industry in Ontario, which has proliferated throughout the province in response to the ever-expanding need for housing. We highly recommend that everyone involved with condos read the AUDG’s report for its illustrative factual presentations and statistics surrounding the growing industry.
However, the AUDG’s reliance on anecdotal evidence from dissatisfied unit owners to criticize and make recommendations to the Ministry, the CAO, and the CMRAO is concerning. Given that there are 11,354 condos registered in Ontario according to the AUDG, decently-managed and decently-governed condominiums in this province are the silent majority.
The AUDG’s sample size of self-selected respondents do not represent the condos in Ontario. The “vocal minority” of unit owners in problematic communities should not be allowed to carry the day.
All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.
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