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Condominium – Obligations and Limitations of the Directors

Condominium – Obligations and Limitations of the Directors

Écrit par Me Sébastien Fiset , LL.B., B.A.A.
Mardi, 21 Juin 2011 15:51

THE OBLIGATIONS AND LIMITATIONS OF THE DIRECTORS

Contact the author: s.fiset@fisetlegal.com

The position of director of a syndicate of co-ownership may seem to be one of prestige, however, when we take the time to investigate all the implications that this entails, one can understand that it is sometimes difficult to obtain the number of administrators required for a declaration of co-ownership to sit on its board of directors. It must be admitted that the job of director is often far from easy ! Does this position appeal to you? Following, you will discover in brief the obligations of a director and the limitations which may prevent somone from taking a position as a director of a co-ownership.

THE CONDITIONS

A director is a person who manages, administers assets or business affairs. He is a member of the board of directors of a syndicate of co-ownership. He is the representative of the syndicate which he represents.

Article 321 of the Civil Code of Québec states this regarding a Director :

« A director is considered to be the mandatary of the legal person. He shall, in the performance of his duties, conform to the obligations imposed on him by law, the constituting act or the by-laws and he shall act within the limits of the powers conferred on him. »

[Bold and underline added]

The conditions of the responsibility of the directors of a syndicate of co-ownership are set out under the terms of its Declaration of Co-ownership, into its Constituting Act and its Building By-laws.

The Civil Code of Québec, notably in Articles 321 to 330, states as well the general qualifications a director must possess.

There is nothing in the law that prevents having only one director. Furthermore, unless it is stated expressly in the terms of the Declaration of Co-ownership, a director does not have to be a co-owner to be eligible to hold a position on the Board of Directors.

THE LIMITATIONS

Articles 327 and 329 C.c.Q. explain :

« 327. Minors, persons of full age under tutorship or curatorship, bankrupts and persons prohibited by the court from holding such office are disqualified for office as directors.

However, minors and persons of full age under tutorship may be directors of associations constituted as legal persons that do not aim to make pecuniary profits and whose objects concern them. »


« 329. The court, on the application of an interested person, may prohibit a person from holding office as a director of a legal person if the person has been found guilty of an indictable offence involving fraud or dishonesty in a matter related to legal persons, or who has repeatedly violated the Acts relating to legal persons or failed to fulfil his obligations as a director. »

In addition, Article 1086 C.c.Q. states that :

« A director or the manager may be replaced by the syndicate if, being a co-owner, he neglects to pay his contribution to the common expenses or to the contingency fund. »

THE OBLIGATIONS

The directors must act within the limits of their powers. They must, as all co-owners, conform to the rules set out under the terms of their Declaration of co-ownership and this, even more so, as they have the responsibility to see that the rules are applied and respected by other co-owners (Art. 321 C.c.Q.).

Under the terms of Article 322 C.c.Q., the directors should also « act with prudence and diligence », « honesty and loyalty in the interest of the legal person » which is the syndicate. They should, for example, entrust to professionals tasks which are not within their realm of expertise, despite the associated costs. Trying to take the place of a professional with the intent of saving a few dollars for the co-owners is not a recommended solution. It could have fatal consequences where an error would result in a loss or damage because the liability of the directors for having acted in such a way, and thus the syndicate, would be involved. It is wiser to use the expertise of specialists.

Furthermore, the director must act in good faith and in the interest of all co-owners. The director must not mingle his property with that of the co-ownership. Also, information to which he has access may not be used for any other purpose than that required in his role as director of the syndicate.

Article 323 C.c.Q. warns :

« No director may mingle the property of the legal person with his own property nor may he use for his own profit or that of a third person any property of the legal person or any information he obtains by reason of his duties, unless he is authorized to do so by the members of the legal person.»

Article 324 C.c.Q. continues :

« A director shall avoid placing himself in any situation where his personal interest would be in conflict with his obligations as a director.

A director shall declare to the legal person any interest he has in an enterprise or association that may place him in a situation of conflict of interest and of any right he may set up against it, indicating their nature and value, where applicable. The declaration of interest is recorded in the minutes of the proceedings of the board of directors or the equivalent.»

A director should therefore not take advantage of his position. All conflicts of interest between his personal interest and his obligation as a director should be :

– made public to other board members;

– recorded in the minutes; and

– the director involved should remove himself during discussions and when decisions are taken.

BEWARE : A director may be held personally responsible if he does not exercise his responsibilities within the limits imposed.

MANAGEMENT AND ADMINISTRATION

Within the framework of their responsibilities, the directors may draw up « management by-laws ». However, they would require approval at the next general meeting :

« The board of directors manages the affairs of the legal person and exercises all the powers necessary for that purpose; it may create management positions and other organs, and delegate the exercise of certain powers to the holders of those positions and to those organs.

The board of directors adopts and implements management by-laws, subject to approval by the members at the next general meeting. » – Article 335 C.c.Q.

« Decisions of the syndicate, including a decision to correct a clerical error in the declaration of co-ownership, are taken by a majority of the co-owners present or represented at the meeting. » – Article 1096 C.c.Q.

Lastly, the syndicate must oversee the conservation of the immovable and all the operations of common interest. In order to do this, a well managed syndicate should :

– have a separate bank account, in the name of the syndicate

– take the necessary steps in the event of defects, faults or lack of maintenance which would affect the common portions of the immovable[1];

– insure the common and private portions of the immovable (except for improvements made by a co-owner in his private portion) against usual risks (theft, fire, etc.) and also have third party civil liability insurance;

– take the necessary steps to maintain the immovable (hiring of necessary personnel, obtaining maintenance and repair contracts when necessary, etc.);

– convoke the general meeting of co-owners as per the declaration of co-ownership and the law;

– determine a budget and a sufficient reserve fund[2] and assess[3] the co-owners;

– if the co-owner has not done so, give a copy of the Building By-laws to all renters.

The syndicate must maintain a register of co-ownership and have it at the disposal of all the co-owners.

DECISIONS OF THE DIRECTORS

Prudence and transparency are essential. The decisions made by the board of directors should be made with much thought, always in the interest of all co-owners, for the conservation of the immovable and for the safeguard of the rights pertaining to the immovable or the co-ownership (Art. 1039 C.c.Q.).

Just as the liability of the directors may be legally pursued for a personal error, an abuse of rights, a contravention of a rule of public order or a wrong decision which causes prejudice to another, the directors may also be pursued legally for their lack of action.

To avoid this, during a meeting of the board of directors, a director who is not in agreement with a decision may have his opposition recorded in the minutes, removing himself from the inherent liability of the decision taken (Art. 337 C.c.Q.).

The role of director may at times prove to be very arduous depending on the nature of the complexity of the co-ownership. If you feel, in your role as a director, that the situation is beyond you, it is better to obtain advice. This would safeguard the rights of the community of co-owners.

If the situation is caused by other members of the board of directors, Article 341 of the C.c.Q. may help you :

« Where the board is prevented from acting according to majority rule or in the specified proportion owing to the incapacity or systematic opposition of some directors, the others may act alone for conservatory acts; they may also, with the authorization of the court, act alone for acts requiring immediate action.

Where the situation persists and the administration is seriously impaired as a result, the court, on the application of an interested person, may exempt the directors from acting in the specified proportion, divide their duties, grant a casting vote to one of them or make any order it sees fit in the circumstances. »

A board of directors experiencing difficulties is not without support. It may obtain valuable advice from a professional (architect, engineer, accountant, manager, notary, lawyer, etc) who specializes in co-ownership.

Happy managing !

The information provided on this page is general in nature and cannot compensate for the need to obtain legal advice specific to a particular situation.


[1] Art. 1081 C.c.Q.

[2] Art. 1072 C.c.Q.

[3] and nothing should be ignored so that the condo fees are paid on time !

 

Mise à jour le Vendredi, 15 Août 2014 16:14

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ABOUT FISET LÉGAL

FISET LÉGAL inc. is a law firm located in Montreal and specialized in real estate and in commercial litigation. We are especially active in Condominium Law and in Construction Law.

We represent many syndicates of co-ownership and many co-owners located in Montreal and its surroundings. We provide legal advising to our clients and their property managers in the fields of Real Estate Law, Condominium Law and Commercial Litigation.

Our Law firm is able to intervene in complex files as well as in simpler files. We adapt the solutions offered and our services depending on the nature and complexity of the case.

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