Part 2 – Declarant ousts board using majority ownership

I have received a few comments regarding my previous post.  Based upon the feedback, it appears to be a very polarizing issue. Some commenters were obviously in favour of declarants, some obviously in favour of unit owners. I wish to clarify my previous comments and respond to some of the comments made.

First, I was not suggesting that section 152(6) has no place in the Condominium Act, 1998. I believe that section 152(6) can be useful in certain circumstances. My concern is the way it was used in this case – to circumvent ongoing litigation between the parties, force the other owners to bear the costs, and implement a repair that is “likely to fail”. It was not a declarant with unsold units that it wished to sell with a desire to control the board to ensure it could do so.

Some of the comments suggest that I must be naive to interpret section 152(6) as I have. Some suggest that section 152(6) was intended to be used the way it was in this case. They suggest that declarant directors are entitled to prefer the interests of the declarant over the other unit owners. With all due respect, I disagree. The directors, whether representing the declarant or otherwise, have fiduciary duties to the condominium (and consequently the other owners). The fiduciary duty requires a director to act with a view to the best interests of the condominium, as opposed to his own interests or those of another interested party (i.e. controlling owner). This is a basic principle of corporate/condominium law. Section 152(6) does not displace the fiduciary duties of directors.

Finally, some comments raise exaggerated claims of events that may occur if the board was able to deny the declarant’s request for a meeting under section 152(6) of the Act, even after several years of delay. For instance, some suggest that the board could “scuttle upcoming phases and commercial amenities”. Again, with all due respect, this is not accurate. The Condominium Act, 1998, grants the declarant the ability to register subsequent phases without the approval of the owners upon 60 days notice to the condominium and owners. The condominium may apply to the court for an injunction to prevent the registration of the declaration and description creating the phase, but will only be successful where a judge is satisfied that the differences in the declaration and description (compared to what was previously disclosed) are “material and detrimentally affect the corporation or the use and enjoyment of the property by the owners.” The section applies only where the declarant decides to change the declaration and/or description from what was previously disclosed and only in limited ways (i.e. location of buildings and structures, description of facilities and services, shared facilities, and the proportions of ownership and contribution). The condominium cannot “scuttle” upcoming phases or amenities as long as there was proper disclosure to the owners of the proposed phases and the amenities and services to be included. Even without proper disclosure, it is only with respect to a handful of proposed changes that the condominium could apply for an injunction to stop the creation of the phase.

As always, I encourage your comments and feedback.

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