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Condo boards empowered by ‘business judgment’ ruling

A recent Ontario Court of Appeal decision that extends the “business judgment” rule to condominiums will give condo corporations broader protection when facing legal challenges by owners, says Toronto business and condominium lawyer Joel Berkovitz.

In the past, courts have issued rulings that demonstrate deference to condo boards’ decisions, but this was one of the first that expressly applies the business judgment rule, he tells AdvocateDaily.com.

“It gives cover to the condo corporation that as long as their decisions are reasonable, the courts won’t step in to overrule their decisions,” Berkovitz says.

The business judgment rule was created in the context of for-profit businesses, but the jurisprudence has extended its application to not-for-profit corporations, and now to condo corporations, explains Berkovitz, an associate with Shibley Righton LLP.

“Oppression is one of the broadest remedies available under the Condo Act,” he says.” If a board unfairly disregards the interests of the owner, the owner might have a claim.”

In 3716724 Canada Inc. v. Carleton Condominium Corporation No. 375, 2016 ONCA 650 (CanLII), Ontario’s top court ruled in favor of an Ottawa condominium board in a dispute over a condo’s owner application to convert commercial monthly parking spaces into an hourly system.

In 2014, the board rejected the company’s request to renovate the parking lot to accommodate hourly parking spaces, saying it posed a security concern. The owner subsequently filed an oppression claim.

The significance of this decision, Berkovitz points out, is  that the court recognized that the appropriate test in an oppression claim was not whether the court would have reached the same decision the board did, but rather that the board made a decision that is reasonable and defensible in the eyes of the court.

“Condo corporations have many interests to balance and they need to give due consideration to how they make decisions," he says. “In this case, the corporation was balancing one owner's right to do business with the other owners' rights to security. The board said it would agree to the owner’s proposal if they hired a security guard, but the owner said, 'No'.”

The ruling sends a message to condo corporations that as long as they have exercised prudence and diligence in their dealings with owners, the court will be loathe to interfere, says Berkovitz, who wasn't involved in this matter and makes his comments generally.

“It’s more codified in the case law now and it gives a broader protection to condo boards,” he says. “So courts will defer to a board of directors so long as their decisions measure up against a standard of reasonableness.”

That said, the business judgment rule won’t offer protection to condo boards that don’t act honestly and in good faith, and in such cases, the courts will still bring down the hammer, Berkovitz cautions.

“It won’t protect a board that doesn’t exercise the care, diligence and skill that a reasonably prudent person would exercise,” he says. “If they come to an unreasonable or indefensible decision, if they completely disregard the interests of one party or don’t consider key factors, the courts may find that their conduct was oppressive.”

Condo corporations need to demonstrate they have tried to balance competing interests, and have done so in a timely manner, adds Berkovitz, saying straightforward communication between boards and owners goes a long way in minimizing oppression claims.

“When you’re talking with owners who are potentially bringing a claim, explain in as much detail as is appropriate how the corporation has dealt with your request, including the reasons for rejecting it if that’s the case,” he says. “Rather than giving a blanket denial or just saying no, try to show how you’ve tried to balance interests to make the best decision.”

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