Fight over 14% budget increase leads to court battle

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Most unit owners would be upset to receive notice that their monthly condo fees were increasing by almost 15% the following year. Recently an owner was surprised when she received notice from her condominium of a 0% change in her monthly fees.  She was expecting an increase close to 15%. Was she pleasantly surprised? Apparently not as she commenced an application in the Superior Court of Justice against the condominium and one of its five directors. 

The owner alleged that starting in January 2016 the condominium and director failed to fulfill their obligations. It is important to note that January 2016 is when the respondent director was elected and the applicant owner ceased to be a director.  The applicant owner further alleged that the condominium and director had not acted in good faith or with any diligence. The owner sought  intervention from the court to “secure the financial well-being of the corporation, protect the physical integrity of the condominium property and to comply with the Act.” The owner sought a number of orders from the court:

  • removing the respondent director from the board and office of treasurer;
  • appointing an administrator;
  • requiring the condominium to take immediate steps to increase monthly fees by 14% in accordance with a 2016 investigative audit report and 2015 reserve fund study;
  • requiring the condominium to take immediate steps to fully fund the reserve fund;
  • requiring the condominium to take immediate steps to repair the underground parking garage and leaking roofs;
  • requiring that the condominium hold its AGM each year as required by the Act; and
  • ordering that the condominium and director pay her costs.

Much of the dispute appeared to relate to financial decisions made by the board of directors. On November 16, 2016 the previous board (the one the applicant owner was part of) agreed to continue with the 14.96% increase adopted by the previous board based on recommendations of its experts. In April of 2017 the new board decided not to proceed with the increase. In July of 2017 the board told owners that there would be no increase for 2017 (a 0% change from the previous year). The applicant owner suggested that the board’s decision to make no increase in fees was evidence of a breach of the Act. She relied upon various expert reports indicating that major repair work was required on the property.

The respondent condominium and director argued that, while there had been problems in the past, the new management company was hired because of its expertise in managing older and troubled condominiums. They also suggested that they are in the process of starting the major repairs that are needed. They submitted that there was no bad faith on the part of the director.

The crux of the matter appears to be the applicability of the business judgment rule, which is a presumption that in making a business decision the directors acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the business. The business judgment rule has been applied to decisions made by directors of condominiums in Ontario.

The condominium argued that the business judgment rule applied, that the board was elected to manage the affairs of the condominium, and the court should not interfere. The owner argued that there is an exception to the business judgment rule where there is evidence that board decisions were not reasonable and where directors have breached the standard of care set out in the Act.

The judge concluded:

[22]           I agree with the Respondents’ submissions that it is the Board that is elected to manage the affairs of the corporation and that the business judgment rule applies. The Board is, in my view, in a much better position to make decisions affecting the corporation than this court. Our court should not substitute its own judgment for those of the Board, which has been elected by the unit owners.

[23]           Of critical importance is the fact that I cannot find, on the basis of the evidence on the record, that the Respondents have not acted fairly and reasonably, in good faith, exercising the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.  Further, I cannot find that court intervention is required as submitted by the Applicant.  This Application is therefore dismissed.

Costs will be decided at a later date if the parties cannot agree on them.

I find myself wanting more information about the rationale the board gave for some of the specific decisions it made. It seems odd that a number of experts would suggest increases of at least 15% and the board’s decision to keep fees the same (0% change) would not receive more scrutiny by the court. It would be interesting to see the current state of the finances of the condominium and if there has been any improvement. I also wonder what the 2018 reserve fund study recommends for the condominium.

What do you think of the case?