The Responsibilities of Condominium Board Members
Condominium living has become increasingly popular in Saskatchewan over the last few years. With baby boomers downsizing their living arrangements and condos being an affordable choice for first-time buyers, this trend will probably continue. But condominium ownership can be different than home ownership. An important difference is property management and decision making. In a home, the owner is “king (or queen) of the castle”. For a condo, with its community of residents, a board elected by unit owners manages affairs.
Some condo unit owners welcome the chance to serve on their complex’s board. It permits input in the manner the complex is run or a way to donate time for the well-being of the complex’s residents and for oversight of the unit owner’s property. Some owners are more reluctant to serve on the board. For them it may be a matter of “well, someone has to do it”. In either case, serving on the board does bring important responsibilities. These responsibilities, if improperly or wrongly carried out, can create liability for a board member. It is best to understand this before agreeing to serve on a board.
Each member of a condominium board owes a fiduciary duty to the complex’s residents. The phrase “fiduciary duty” is thrown about a lot but it may be best to describe what it means at law. A fiduciary is:
- someone who has the ability to exercise discretion or power over others;
- this discretion or power can be exercised unilaterally; and
- others are vulnerable to the fiduciary’s discretion or power.
It comes down to power and trust. A fiduciary is someone who has power over others who trust the fiduciary to act in their best interests.
Members of a condominium board fit within this definition. Board members have the power, given to them by The Condominium Property Act and a condominium’s Bylaws, to make decisions for and act for the condominium. Because the issues facing board members do not have easy, pre-determined answers or outcomes and board members have choices to make, board members have some discretion when making decisions and taking actions. The unit owners in the condominium complex are subject to the board members’ exercise of their discretion and the board’s decisions affect the unit owners’ ownership interests. The board members have the power to make decisions for the unit owners and the unit owners trust the board members to act in the best interests of the condominium.
The law imposes on fiduciaries honest, high-minded and honourable obligations and duties. They must act with loyalty, good faith and an avoidance of conflict of duty to others or self-interest. Breaching these duties can create serious consequences for the fiduciary. Fiduciaries may be found liable for any damage caused to those they act on behalf of, may be liable to account for any profit made from their breach of duty and may be subject to a restraining order to prevent future breaches. In many cases, liability for breach of fiduciary duty can be more onerous than liability for other types of legal breaches (such as breach of contract).
One reason fiduciary obligations are taken so seriously is judicial policy. Fiduciary relationships are relationships of trust; someone trusts another to put self-interest aside and act in their best interests. Fiduciary relationships also benefit society. For example, it is beneficial that someone act on behalf of condominium owners. Therefore, it is socially desirable that sanctions for breach of fiduciary duty are serious.
This may seem daunting, especially since condominium boards are composed of unpaid volunteers with no particular training for the role and who have other time consuming obligations, such as jobs. However, while the content of a fiduciary duty may vary depending on the circumstances, its existence is not eliminated by the voluntary nature of board membership.
There are fiduciary minefields for members of condominium boards. Conflicts of duty and self interest can arise in many ways:
- a board member favouring his/her interests as a unit owner over that of the condominium as a whole;
- favouring the interests of “favourites” over that of the condominium as a whole (such as not enforcing Bylaws against friends); or
- favouring contractors or suppliers to personally profit at the expense of the condominium (for example if repairs need to be done, using a board member’s company even if it is not the best priced or best able to do the work).
There is a simple, although sometimes difficult to implement, solution to avoid liability for breach of fiduciary duty; honesty and transparency. When faced with a potential conflict of duty and self-interest the board member must properly disclose the issue.
For example, take the contractor example listed above. It is not that a board member’s company can never perform services for the condominium. It could be that the board member’s company will do the best work for the best price. To try to avoid possible future liability the board member should declare the personal interest and abstain from the discussion and vote. This will make the board aware of the member’s interest and that help free the discussion from the member’s influence.
The fiduciary duty condominium board members owe unit owners involves important responsibilities. Board members are in positions of trust and unit owners rely on them to act in the best interests of the condominium. Board members must remember they are legally bound to act with loyalty, good faith and to avoid conflict of duty and self-interest. While it may sometimes be difficult in practice, the best way to prevent problems is to be honest and transparent.