WHO'S THE BOSS: THE BOARD OF DIRECTORS OR THE CO-OWNERS?

THE CASE OF "SHADOW MANAGERS"

 (Adaptation from Le bulletin de LA COPROPRIÉTÉ PLUS AU QUÉBEC, August 2008)

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 Some co-owners are more active than others. Some are not happy with their Board members and do not like what the Board decides. Sometimes they become very involved and ask to be supplied with plenty of documents. They challenge the Board's decisions; they criticize the very philosophy of the management. They want to check every bit of paper issued by - or received by - the Board. In other words, they want to have their say in the management of the syndicate.

 

These co-owners are known as "shadow managers". Most of the time they act like this because no one is ready to vote for them when time comes to nominate people to the Board. The funny thing is that most of them have been on the Board before but have seen their mandate not renewed by co-owners. Do not ask why!

 

Most of these "shadow managers/co-owners” bark a lot without biting. They are a pain but they do not (usually) cost money. Except for occasionally, some of them go to court to prove their point. They wish to force their Board of Directors to act according to their personal way of seeing things instead of their way.

 

This is good for us that sometimes they go to court, as we may give some answers to questions that are being asked frequently.

 

Here are two situations involving some of these shadow managers. Both concern the power of the Board of Directors.

 

First is a case regarding the register of the syndicate and the second concerns the power of the Board of Directors on contingency fund management. Let us look at that.

 

THE SYNDICATE REGISTER: CO-OWNERS CAN SEE ONLY WHAT IS IN IT!

 In a co-ownership of nearly 80 apartments in Quebec City, three co-owners were asking the syndicate (Board) to give them access to all documents regarding the financial operation of the syndicate and the management of up keeping the building (Lucie Fortier, Nicole Veillette and Saruon Khauv c. Syndicat Des Copropriétaires Condominium Les Châtelets; 200-17-006146-054, May 27, 2008, Godbout, B., J.C.S.).

 

They were specifically asking to get all documents regarding negotiations for bidding, contracting, project managing and support data for major repairs called for and paid by the contingency fund. They were very insisting for years.

 

Two of the three applicants were former Board members who never got enough votes to have their mandates renewed. (Again … Don't ask why!). It seems that they did not realize that not being on the Board eliminates the possibility to see and hear everything. For these three co-owners, article 1070 of the Quebec Civil code means that they can see and have every document the Board has. For those who do not remember, here is article 1070:

 

«The syndicate keeps a register at the dispo­sal of the co-owners containing the name and address of each co-owner and each lessee, the minutes of the meetings of the co-owners and. of the Board of directors and the financial statements.

 

It also keeps at their disposal the declara­tion of co-ownership, the copies of the contracts to which it is a party, a copy of the cadastral plan, the plans and specifications of the immovable built and all other documents relating to the immovable and the syndicate.»

 

You guess that the point of litigation is this part of the sentence we underlined: «All other documents relating to the immovable and the syndicate». You are right.

 

With this sentence, these shadow managers believe, they can act as Board members without being elected. So, to court we go and the court will decide. And, the court did decide: the answer was NO.

 

To know why, lets read part of the decision (the following is a liberal translation):

 

«Put simply, the question is more to know if co-owners can have access to the ledgers and other accounting books as detai­led monthly statements of income and expenses used to prepare the financial statements.

 

These accounting books are more management tools for the Board of Directors than "other documents relating to the immo­vable and the syndicate" within perspective of article 1070 of the civil code.

 

Moreover, accounting books contain a level of specific information that we do not necessarily find "in a balance sheet, income statement for the preceding financial period, the state­ment of debts and claim" (article J087 C.C.Q.) as are the financial statements.

 

(The financial statements) are the only accounting documents the syndicate must keep at co-owners disposal, in the register (1070 c.c.Q.) or as informative documentation for co-owners meetings (1087 c.c.Q.) (...)

Regarding financial information and accountability of the co-ownership, if the legislator wished it to be otherwise, he would have said it with the precision of the wording of article 1070 and 1087.

 

These two articles of the civil code (1070 and 1087) indicate that the legislator considers financial statements contain sufficient infor­mation for co-owners to be well informed and make all the necessary decisions for the good governance of the co-ownership.

 

Therefore, applicants (co-owners) cannot have access as they wish without restriction to all accounting books of the syndicate».

 

That's not all folks! Do we have to add to this precise decision with something more? Yes!

You should know that a similar decision was rendered in British Columbia Superior court concerning the same facts (Peter Kayne c the owners, Strata Plan LMS 2374; Docket S072740, Vancouver, Honorable Justice Smith, July 26, 2007).

 

The answer from the judge was the same: Accounting books of co-ownership belong to the Board of Directors and co-owners have no access to them. Period!

 

In other words, if a co-owner wishes to access all accounting documents, he has to get on the Board of Directors. Period (Again)!

 

THE BOARD IS THE BOSS!

 The second major decision rendered lately concerns the power of the Board to "manage" any expense from the contin­gency fund. Since 1994 (for those syndicates born before 1994 that had no provision about contingency or reserve ­fund in their Declaration) it is mandatory to put aside enough money to face expenses to conserve the immovable. Unfortunately a vast majority of syndicates decide to keep "condo fees" low instead of funding their contingency fund creating an obligation for special assessment from time to time.

 

This is what happened to the Syndicate condominium Trafalgar which made the news lately when the noisy co-owners' lawyer went to The Gazette (a major Montreal English daily) to claim that four co-owners were seeking an injunction in order to stop the Board of Directors from going ahead with their plan to repair the building (9171-3792 Québec Inc &al vs. Les appartements condominiums Trafalgar, 2008 QCCS 2154).

 

They were not happy about the way the Board of Directors was acting in managing major repairs.  Costs of repairs are around 9,9M$ and we were told that special assessment runs from 150,000$ to 300,000$. There are 57 apartments in this building.

 

As the judgment said, they wanted to force the directors to agree with the co-owners view. They considered the professional contractor retained to do the work a bad choice because he was too expensive. They went as far as suggesting the court impose their choice of professional and a specific firm to do the work.

 

They were also seeking damages for loss of value to their units.

 

In response, the syndicate asked the court to reject outright the request, as the Superior court has no authority on how Boards of Directors act, manage or decide.

 

The court said that the suit had two sides: first, the injunction to stop the Board from doing what they decided about major repairs and second the request for damages.

 

The decision was quick and to the points. If you are not happy with your directors, replace them at the next election. Otherwise, except if you argue (and prove) fraud, abusive behaviour or illegality, the court has nothing to do with what a Board does or does not do. Judge was not elected to the Board; he cannot interfere. Therefore, the case for injunction was dismissed.

 

For the second part of the co-owner's request, damages for loss of value, stress, etc. The judge said if they think the Board caused damages following (what they believe are) faulty deci­sions, they may come back; prove a fault, a value for the loss suffered and a link between the two. Otherwise, game over!

 

This is an important decision that concerns all syndicates of co-ownership: in all ways, the Board of Directors is the boss in all aspects of conservation of the immo­vable, including the choice of professionals, the choice of contractors and the choice of the procedure. The real power of the co-owners comes when it is time to elect the Board members. The real power of the co-owners is to amend the by-laws of the Declaration and force the Board to consult the assembly before giving any contract above (let us say) 1 million dollars. Consultation we say; not decision. The court was clear on that point: the Board is the boss over all aspects of management and the money.

 

We do not see any weakness in this judgment as very qualified lawyers, in front of a top gun judge on the Quebec Superior Court, represented both parties.