Condo Act Reform – #2 Financial Management: Operating Budgets

In my experience, the area most likely to cause conflict at an owners meeting is the board’s spending over the previous year. I have been to countless meetings where an owner cannot believe how much the board spent on landscaping, repairs, water, or lawyers (who would have guessed?). And when they discover that the board (and the board alone) sets the budget for the condominium? Look out!

Not surprisingly, operating budgets is also one of the most controversial parts of the second stage report; even the working group and expert panel could not agree on some of the recommendations. Here are the key recommendations:

  1. Changing the threshold for “without notice” changes made under section 97(1) and (2) of the Act to the lesser of $30,000.00 or 3% of the annual budget in any given 12-month period;
  2. Adding a requirement that the board provide notice if the change results in a material reduction or elimination of services;
  3. Reducing the threshold for a substantial change from 66 2/3 of all owners to 66 2/3 of those present at the meeting as long as 25% of the owners are present in person or by proxy;
  4. Clarifying the terms “repair” and “maintenance” and eliminating the requirement for an owner to repair exclusive use common elements (the condominium would be responsible for all repairs to the common elements);
  5. Adding a “standard unit” definition that would apply to all condominiums in the absence of a by-law (past or future) amending the definition;
  6. Adding a requirement for owners to indemnify the condominium for repair costs or deductibles for damage to other units or common elements caused by an act or omission of the owner;
  7. Prohibiting condominiums from expanding the situations where repair costs or deductibles may be sought from owners;
  8.  Allowing an owner to dispute a lien with the proposed “Dispute Resolution Office”, with the ability to recover the costs (and lien) frozen until a decision is made; and,
  9. Defining the term “chargeback” and “exceptional services”.

It is great to see that those changes that may cost nothing (or even reduce costs) may still require notice to the owners if it is a material reduction or elimination in services. As it is now, if a board wanted to get rid of a service, such as landscaping or concierge services, it could do so without notice to the owners because it represented a cost savings to the condominium. Obviously, it is not hard to imagine situations where such a decision could cause an uproar amongst the owners.

I am also happy to see recommendations for the terms “repair” and “maintenance”. While the current definitions may make sense to lawyers (?), no one else understands them. This is probably why the case law in the area often confuses the terms, which has only caused greater uncertainty and confusion.

I was originally worried about a “standard unit” definition as I could not conceive of a definition that would fit all situations. However, the recommendation does not apply to vacant land, common elements, or commercial/industrial condominiums so it is less worrisome. Also, any definition would be better than none at all, which is unfortunately still the case for many condominiums in Ontario because of quorum and attendance issues.

Finally, the recommendations for deductibles, chargebacks and liens are important. The recommendations should eliminate the debate that often arises regarding deductibles for damages to the other units and common elements, as opposed to the owner’s own unit. The addition of provisions defining chargebacks is important as well given some of the inconsistent treatment in the case law. While I do not generally support a dispute resolution office for reasons I will discuss at a later time, the issue of lien rights during a dispute with an owner do need to be addressed by the amendments to the Act. As it is now, if the lien is not registered within three months the condominium would lose its lien right. This does not give the condominium and owner much time to resolve their dispute.

Up next week, the last of the financial management topics –  #2 Financial Management: Fraud.