As Annual General Meeting season kicks into full swing, condominium corporations across Ontario are replenishing their boards with newly-elected directors. Let us take a moment to reflect on what happens when the best of directorial intentions take a turn for the worse.
Serving as a director of a condominium corporation can be a thankless role. As a volunteer position, it certainly doesn’t pay very well! Beyond that, being a good director requires many hours of commitment on top of one’s day job, family commitments or other pursuits. Wading through draft budgets, engineering reports and enforcement matters isn’t most people’s idea of light evening reading. It’s a minor miracle that most corporations can find 3 (or 5 or 7 or 9) individuals willing to serve on the board.
Some directors volunteer in order to protect their investments, others to foster a sense of community. Often, the most gratitude a director will receive is the sense of accomplishment of a construction project well done. If he or she is really lucky, an owner may offer a public thank you to the board at the AGM.
It can be jarring, then, for a diligent director to learn that he or she is on the receiving end of a requisition to have him or her removed from the board.
A requisition is certainly within the rights of the owners under the Condominium Act (the “Act”). Where the whole board, or certain directors, have failed to carry out their duties, or to act honestly and in good faith in doing so, a requisition to remove directors is a powerful tool to permit the owners to restore good governance to their corporation. Case law has shown that the courts have taken the position that they lack the jurisdiction to remove a director, even where there is good cause for doing so. It is a matter for the owners.
However, many times a requisition is made on the basis of rumour, innuendo and false allegations, by a group of owners who do not have the corporation’s best interests in mind, but instead are acting on selfish motives such as a desire for power and the personal monetary savings that will come from mismanaging the corporation, such as deferring important projects even though the corporation’s engineers have deemed them urgent.
In 1969, Swiss psychiatrist Elisabeth Kübler-Ross described the five stages of grieving observed during her work with terminally ill patients: denial, anger, bargaining, depression and acceptance. Over time, the application of the Kübler-Ross model has been expanded to include many types of loss or rejection, including the loss of a partner or a job.
Anyone who has worked closely with directors who are facing a requisition can attest to the fact that these same five stages are quite often seen in the condominium context as well.
1 – Denial
One of the worst things that directors in receipt of a requisition can do is ignore it. Requisitions are not like hiccups – they don't go away if you try to forget about them. In fact, failing to acknowledge and take the appropriate steps in response to a requisition usually only strengthens the requisitionists' resolve.
For example, where the requisitionists do not agree to add the vote to the next annual general meeting (agreement rarely happens), the board has a duty to hold a meeting within 35 days of receipt of the requisition. Where a board knowingly fails to do so, the directors could be held personally liable for the costs incurred by the requisitionists to throw the meeting themselves.
Another form of denial comes in trying to scrutinize every detail of the requisition in the hopes of disqualifying it on the basis of a "technicality." While a requisition must certainly meet the requirements of the Act, little is to be gained by disqualifying a requisition because the one signature that puts it past the required 15% of owners is a bit difficult to read. The board can be sure that the requisitionists will come back with a fresh requisition with well over 15% of owners and that the board's refusal to act on the first requisition will be spun in a negative light as a failure on the board’s part to respect the will of the owners.
It is almost always better for a board in receipt of a requisition that is substantially compliant with the Act to "get out ahead" of the requisition by calling a meeting for the earliest practical date so as not to let the matter fester.
2 – Anger
Once the frenzied days following receipt of the requisition have passed, and it has sunk in that the requisition meeting is going to be held, a common instinct is to try to turn the allegations back against the requisitionists. It is not unusual for directors to feel that the requisitionists, and any owners who support them, are ungrateful for the board's hard work, misinformed, or downright delusional. (Let us ignore, for the moment, that this is sometimes the case!)
Directors may attempt to put these feelings into action in the form of increased enforcement against a requisitionist's unit, attempting to pass a by-law that would limit the ability of the requisitionists to be elected, or attempting to smear the requisitionists within the condominium community. Requisitionists sometimes cross the line into defamation, from which the directors deserve swift legal protection. However often the directors perceive criticism, which should be reasonably permitted within the condominium’s own little democracy, with defamation, which should not.
While there is a time and a place for everything, directors can rest assured that such transparent attempts at retaliation will be mentioned as evidence of the board's bad faith and a basis for removal when requisitionists are out collecting proxies.
3 – Bargaining
If the denial and anger stages are filled with what can be described as "negative" emotions, the bargaining stage is one in which directors' cooler heads may re-emerge.
In the bargaining stage, the directors have likely exhausted the rage they may have felt earlier in the process and are now looking for reasoned compromises or actions to influence, delay or prevent a vote for removal. Examples of bargains include: seeking an agreement to defer the vote to the next AGM, making certain agreements with the requisitionists or rushing to complete a prestige project in the hopes that it will sway the opinion of the owners.
Bargaining-type thinking can occasionally lead to favourable results for the board; however, directors cannot waste significant amounts of time on it if it is clear that the requisitionists will be satisfied by nothing short of a vote. As discussed below, there are better uses for the directors' time.
4 – Depression
By the depression stage, all avenues of pre-emptive resolution have been exhausted and the requisition meeting is looming. It is understandable then that, at this point, a director may throw his or her hands up in the air and say, "Fine, let them have what they want! Let them collect their proxies! I am done with all of this!"
After years of hard work serving the owners, it can be deflating to face removal for reasons that do not seem valid, at the hands of requisitionists who appear more out for their own glory than for the good of the building.
Indeed, this stage is where the journey ends for many directors. Demoralized by the whole process, they withdraw from the community, make no efforts to canvass against their removal, and may not even attend the requisition meeting. In other cases, they may resign to spare themselves what they see as the shame of being removed by a vote.
5 – Acceptance
Directors who have made it through the first four stages of grief may find themselves in the healthier mindset of acceptance. Here, directors recognize that – whether right or wrong – they are faced with a requisition to have them removed and that they are not powerless in the process. They are proud of their contributions to the condominium community and believe that most owners will agree, even if it may take a bit of canvassing to jog their memories.
It is not easy to obtain the proxies of greater than 50% of owners in favour of removal. Where requisitionists succeed, it is often with the help of owners who have not heard both sides of the story or have just signed a proxy to make the requisitionists go away. An equally concerted effort by the directors to spread what they believe to be the true version of events gives owners the best opportunity to make an informed decision.
Requisitions for removal can be one of the most stressful and adversarial exercises in condominium governance, pitting neighbour against neighbour in a battle for control. The faster a director who is up for removal can get to a place of acceptance about the whole process, the better that director’s chances of getting out and reminding owners of his or her hard work on their behalf.
Credit: Miller Thomson LLP - Patrick Greco