Recently, in 3716724 Canada Inc. v Carleton Condominium Corporation No. 375, the Ontario Court of Appeal confirmed that courts will generally support and uphold decisions of condominium directors because they are better positioned than judges to make decisions pertaining to their buildings.
Carleton Condominium Corporation No. 375 is a mixed use building, containing both commercial and residential units. The other party, “371”, owns a number of commercial parking units in this building, which it rents on a monthly basis.
In order to shift its business from monthly parking to hourly parking, 371 asked the condominium board for approval to make changes to the common elements. These changes included the installation of a garage loop detector and replacement of the exterior door to allow customers to access the parking lot. It should be noted that the corporation’s declaration contemplated that the commercial parking lot would be used for short-term parking.
The condominium board said it would agree to the changes if 371 hired a full-time security guard to monitor the commercial lot, as recommended by an independent security contractor. The building is located in a high-crime area of Ottawa, and the board was concerned that the changes would affect the security of the building.
371 would not agree to hire a security guard, citing its unreasonable cost. The board, therefore, denied 371’s request. 371 commenced an application in the Superior Court for relief from the oppressive conduct of the corporation, seeking permission to make changes to the common elements without the need to hire a security guard.
The application judge agreed that requiring 371 to hire a full-time security guard was economically unsustainable and ordered the board to permit the changes requested by 371. The condominium corporation appealed.
The Court of Appeal agreed with the board and upheld the refusal to permit the changes to the common elements on the grounds that judges should not interfere with a board’s reasonable and sound decision-making.
In corporate law, there is a concept known as the “business judgment rule,” which refers to the principle that courts should not interfere in the decision-making of corporate directors because they are better placed to make business decisions. In this case, the Court of Appeal stated, for the first time, that this rule should also apply to decisions made by boards of directors of condominium corporations.
When a board of directors follows a fair and transparent decision-making process, judges cannot substitute their judgment for that of the board. Instead, judges are tasked with deciding whether the board acted in good faith and made a decision that was within a range of reasonable choices. If so, the court cannot interfere.
In this case, the board properly balanced the interests of 371 and the residents of the building when it concluded the changes could only be made if 371 hired a full-time security guard.
This decision reminds condominium directors that as long as their decision-making process is fair and reasonable, courts will respect their decisions. This is good news!