Ontario Court of Appeal confirms ‘business judgment rule’ applies to condominium boards
A recent decision from the Ontario Court of Appeal in 3716724 Canada Inc. v. Carleton Condominium Corporation No. 375, 2016 ONCA 650, confirmed that the business decisions regularly made by condominium boards should be accorded the same level of deference as the business decisions of for-profit corporations.
The lawsuit stemmed from a decision of a condominium board refusing to allow the owner of commercial parking strata lots to make common property modifications in order to convert the parking garage from monthly parking to a 24-hour “pay and display” hourly parking operation. The condo was located in a high crime area in Ottawa and the board was concerned of the potential security threat to the building that would result from allowing the parkade to be open to the public for hourly parking. The board advised the owner that it would consent to the requested modifications if the owner hired a full-time security guard. The owner refused and sought a court order from the Ontario Superior Court to allow the modifications, claiming that the board had acted oppressively in denying its request. The Superior Court judge agreed with the owner and found that the board had acted oppressively by requiring the security guard, which would be “prohibitively expensive” for the parking operation.
Several pieces of provincial condominium legislation, including the Strata Property Act, contain provisions allowing an owner to apply to a court where a condo board (or strata council) has acted unfairly or unjustly towards an owner or a group of owners. In the corporate context, one of the common defences to a claim of oppression is the ‘business judgment rule’. This rule stands for the proposition that an elected board of directors is in the best position to make certain decisions affecting its business, and as long as the board is acting reasonably, honestly and in good faith, a court should show deference and not interfere with or overturn its decision as long as that decision lies within a range of reasonable alternatives.
Canadian courts have previously discussed the business judgment rule in the context of not-for-profit corporations, but this decision is the first to use the rule in the context of a condo board or strata council.
The Court of Appeal stated that, as representatives elected by unit owners, the condo board members are better placed to make judgments about the owners’ interests, and emphasized that “courts should be careful not to usurp the functions of the boards of condominium corporations”. When a condo board’s decision comes before the court, the question should not be whether a reviewing court would have reached the same decision, but whether the board reached a decision that was within a range of reasonable choices. If it did, then it cannot have said to have unfairly disregarded the interests of a complainant.
In this case, the Court of Appeal found that the board had appropriately weighed the economic interests of the commercial owner against the security interests of the other owners, and had acted in good faith and used a fair process to reach its decision.
WHAT WE DO: Lesperance Mendes advises strata councils and strata management companies on all aspects of strata governance. If you have a strata dispute or issue that seems like it will never be resolved, contact Paul G. Mendes at 604-685-4894 or email him at PGM@LMLAW.CA
THIS ARTICLE IS NOT LEGAL ADVICE: This article provides general information and should not be relied on without independent legal advice.