Balancing the Business Judgment Rule with Oppression Remedy for a Condominium Corporation

Introduction        

Condominium corporations are creatures of statute, not-for-profit self-governing entities, managed by elected boards of directors that make decisions on behalf of and for the Condominium Corporation. Sections 5 and 17 of the Condominium Act, 1998 (the “Act”) empowers condominium corporations with the duty to provide services and manage the common elements on behalf of the owners. These decisions include financial management, maintenance and rule enforcement. In the course of the same, conflicts often arise between the board’s discretionary authority and the rights of individual unit owners. The “Business Judgment Rule” and the oppression remedy play a critical role in resolving these types of disputes. This article explores how these principles intersect in the condominium context and how to balance board discretion with the protection of unit owners’ interests.

The Business Judgement Rule: Deference to Board Decisions

Generally, the Business Judgment Rule is a well-established legal principle that shields directors from liability for decisions made in good faith within their authority and in the best interests of the corporation.[1] As long as a board acts reasonably and in accordance with its duties, courts are generally reluctant to interfere, even if a decision is unpopular or contentious.

For condominium corporations, this means that boards are statutorily authorized and have the discretion to set maintenance fees, enforce bylaws, and approve expenditures. However, it is important to note that this deference is not absolute and can be challenged by owners.

The Ontario Court of Appeal affirmed this principle in 3716724 Canada Inc. v. Carleton Condominium Corporation No. 375,[2] where it recognized that elected board members are better placed to weigh competing interests and make than the courts. The court emphasized that judicial intervention is warranted only when a board’s decision falls outside the range of reasonable choices.

The Oppression Remedy: Protecting Unit Owners

The oppression remedy, provided for under section 135 of the Condominium Act, 1998, (the “Act”), allows many parties, including, a unit owner to seek relief if he/she believe the condominium corporation has acted in a manner that is oppressive or unfairly prejudicial. This remedy is designed to protect individual owners from decisions that unjustly harm their interests.

To succeed in an application for oppression the behavior in question must fall into one of the three categories of conduct described in more detail below:

1. A conduct that is ‘oppressive’ has been described by the Courts as being one that is coercive, abusive, burdensome, harsh, wrongful, or abuse of power that results in an impairment of confidence
2. A conduct that is ‘unfairly prejudicial’ has been described by the Courts to mean a limitation on, or an injury to, a complainant’s rights or interests that is unfair or inequitable.
3. A conduct that ‘unfairly disregards’ the interests of the applicant has been described by the Courts to mean one that ignores or treats the interest of the complainant as being of no importance.

Generally speaking, ‘unfair prejudice’ and ‘unfair disregard’ are less rigorous tests to meet than that of ‘oppression’.^[3]

Ontario courts only use this power to grant remedies when the two-part test for oppression is met. The test requires the unit owner to establish that (1) the corporation’s conduct breached their reasonable expectations and (2) the violation amounts to oppression, unfair prejudice or unfair disregard.

Oppression claims often arise in situations where:

• The board enforces rules inconsistently or in a discriminatory manner.
• Financial decisions disproportionately burden certain owners.
• The board acts outside its authority, failing to follow proper procedures.

The Ontario courts have applied this remedy in a recent 2025 case, Frankel v. York Region Condominium Corporation No. 664,[4] where the court found that a condominium board's failure to fulfill its contractual obligations under a settlement agreement which required the corporation to replace the hot water pumps constituted oppressive conduct. The corporation’s performance of the contract fell below reasonable expectations since the corporation replaced the aging and noisy hot water pumps with a cheaper model, which did not resolve the noise issue, and the Court held that the contractual breach could not be justified under the Business Judgment Rule The court ordered the board to rectify the issue and awarded compensation to the affected unit owner.

Intersection of the Business Judgement Rule and the Oppression Remedy

In condominium disputes, balancing the business judgment rule against oppression is like walking on a tight rope. Courts must determine whether a board’s decision, even if made in good faith, has resulted in oppressive conduct toward certain owners.

In Frankel, the court highlighted that while the business judgment rule protects boards from undue scrutiny, it does not shield them from accountability when their decisions result in harm to unit owners. The court found that the board’s cost-cutting measures regarding the replacement of mechanical equipment breached a settlement agreement (as discussed above) leading to an ongoing nuisance that unfairly prejudiced the owner. This case underscores that boards must act not only in the corporation’s best interests but also in a manner that upholds their contractual and statutory obligations to owners.

Similarly, in 3716724 Canada Inc., the Court of Appeal emphasized that deference to board decisions is appropriate only if those decisions fall within a reasonable range of alternatives. If a board’s actions unfairly disregard the interests of an owner or fall outside of the reasonable range of decisions, courts may intervene under section 135 of the Act.

Practical Implications

For condominium boards, it is prudent to ensure that the board:

• Executes transparent decision-making in its corporate governance.
• Undertake due diligence under Section 37 of the Act and document reasoning behind significant decisions to demonstrate good faith.
• Ensure enforcement of rules and policies is consistent and non-discriminatory.

For unit owners, understanding when to invoke the oppression remedy is key. Before pursuing legal action, owners should:

• Seek clarification from the board.
• Attempt resolution through mediation or dispute resolution processes.
• Gather evidence of inconsistent or unfair treatment.

Conclusion: Striking a Balance

The business judgment rule and the oppression remedy serve distinct but complementary roles in condominium governance. While the former ensures that boards can make decisions without undue interference, the latter provides the necessary checks and balances against abuse of power and unfair practices.

Recent case law further cements that courts will intervene when a board’s decision unfairly disregards the interests of unit owners, ensuring that condominium corporations remain both effective and fair in managing their communities. Condominium boards must ensure their decisions align with both the interests of the corporation as a whole and the reasonable expectations of individual owners.

Ultimately, a well-governed condominium strikes a balance between respecting board authority and not acting unfairly toward unit owners’ interests. Arguably, the legislation as consumer protection has attempted to effect this concept in the legislative framework of the Act. The execution of this framework on day to day operations will effect the balance required. . Transparent decision-making, adherence to statutory obligations, and a commitment to fairness can help avoid legal disputes and foster a harmonious community