You may recall our blog on the Ballingall decision, released in April. This case dealt with the enforcement of a single-family provision in a condo declaration. In its decision on costs, released this morning, the Superior Court of Justice reminds condo directors that they must be willing to compromise and work with all owners who have legitimate interests. Failure to do so can be expensive for corporations, for condo directors personally… and for owners.
In the Ballingall matter, an Ottawa condominium corporation had decided not to enforce its own declaration by allowing owners to continue to rent to unrelated tenants. In fact, even the president of the board was in breach of the single-family provision and rented 4 of his units to unrelated students attending the near-by university. When owners attempted to get the corporation to crack down on these rentals, the board, instead, attempted to pass a rule which would grandfather all owners (including the president) for a period of 10 years. In her decision of April 21, her Honour concluded that:
- All owners are bound by the declaration and all owners are entitled to benefit from the declaration;
- Board of directors have an obligation to enforce the declaration;
- In this case, the corporation had a duty to enforce its declaration despite the fact that it had not always done so in the past;
- A 10-year grandfathering clause was unreasonable and inconsistent with the declaration;
- The president of the board had breached his statutory obligations, had acted in bad faith and had not exercised the care, diligence and skill of a reasonably prudent person.
When analyzing the question of who should pay the costs of this legal battle, the judge concluded that the owners had no choice but to bring this matter to court in light of the conduct of the corporation and its president. She criticized them for having brought spurious and irrelevant allegations, which lengthened the matter and rendered it unnecessarily complex. She considered the fact that the owners made 4 offers to settle, while the corporation and the president of the board made none.
The court ordered the corporation to pay $35,000 in legal fees and ordered the president to pay an additional $15,000. The president gets off easy considering that the judge concluded that he did not act in good faith and that much of the dysfunction of the board and much of the acrimony that festered was attributable to his belligerence. Still, this leaves the applicant owners with an equivalent legal bill to pay out of their pockets, which appears unfair considering how things unfolded and considering that they were not set to gain any financial benefits from rightfully attempting to enforce the declaration. Another set of victims are the other owners who will be left with a hefty bill, considering that they have to pay the bulk of the costs award, in addition to having to pay the corporation’s lawyer.
Lesson for Directors
Directors should approach things with a conciliatory and cooperative attitude when dealing with owners who have different but legitimate interests. Being stubborn and unwilling to compromise is a costly and unwise endeavour. It is best to look for common ground and to work hard at finding solutions.
Lesson for Owners
The judge concluded by stating that owners should take a strong interest in the management of their corporation and they should elect leaders who are able to work constructively and effectively with all owners in seeking reasonable resolution to difficult issues. In this case, the president was in a clear conflict of interest and he failed to follow the corporation’s legal advice. It is therefore insufficient for owners to vote-in a board. They should keep an eye on how their board of directors manage the corporation. At the end of the day, it’s the owners who end up paying for the mistakes of their leaders.