Acting for a Declarant’s First Board? Slow unit sales? – Don’t Forget about subsection 42(6) of the Condominium Act
With a slower new construction condominium market in recent times a rarely used and seemingly forgotten section of the Condominium Act is worth remembering.
Situation: You are the developer or property manager for a newly registered condominium plan and associated condominium corporation (standard, phased, vacant land, common elements).
The first board of three (3) directors has been appointed by the developer (Declarant) under section 42 of the Condominium Act,1998 and at least one unit sale has been completed but it is a long way off before the developer will no longer own the majority of units to trigger the turnover meeting under section 43 of the Act.
Issue: what about that sole unit owner, with the rest of units still owned by the developer, how does their voice get heard about any concerns regarding the Condominium Act?
Solution: subsection 42(6) of the Act onwards
This subsection, which admittedly does not come up very often because turnover is usually brisk, specifically requires that the Declarant’s appointed first board of directors calls and holds an owners’ meeting by the later of the following:
- 30th day after which the Declarant has transferred 20% of units; AND
- 90th day after Declarant has sold the first unit.
The purpose of this owners’ meeting is to allow the existing unit owners (other than the Declarant) to elect up to two (2) additional directors to the first board, both of whom remain on the first board until the Declarant no longer owns the majority of units, which would trigger the obligation to call the turn-over meeting.
Why? The Act is trying to cover off: 1. the scenario we are seeing more often now where it can take quite a while to trigger calling the turnover meeting, meaning a Declarant first board remains in charge for an extended period of time, and 2. The scenario where the Declarant never sells enough units to trigger calling the turnover meeting.
Remember, at its core the Act remains consumer protection legislation, and this subsection is specifically intended to give a voice to the minority unit owners.
3 Key Takeaways:
- Track your unit sales – subsection 42(6) applies to all types of condominium plans and uses of condominium (ex. purely industrial or commercial condominiums). Once a single unit sale is complete you are on a 90-day clock to call the owners’ meeting. If you hit the turnover meeting threshold in the 90-days, this requirement disappears pursuant to subsection 42(7) and the usual section 43 requirements kick back in.
- Quorum – subsection 42(9) specifies quorum for this particular meeting is 25% of unit owners NOT including the Declarant. Remember even if the additional two (2) directors are elected at this meeting, the directors appointed by the Declarant remain in office and will still be a majority of the board.
- By-law Inconsistency – the most common question when I speak to property managers is how this works if the condominium’s by-law only permits 3 directors? Subsection 42(11) has you covered, which states:
(11) A director elected to the first board under subsection (8) shall hold office in addition to the directors appointed to the first board even if the addition of an elected director results in more directors on the board than the declaration [NTR: read “by-law”] allows.
Food for Thought: while subsection 42(5) below contemplates written resolutions by the first board before the additional directors are elected, it is silent about post-election. Does this mean first board business should not be conducted solely via written resolutions once the owners elected two new directors under subsection 42(6)? If not, why include the subsection in the first place? If someone has seen a case interpreting this subsection’s meaning I’d love to see it.
(5) A written resolution that is adopted by the first board before the owners elect a director to the first board under subsection (8) and that is signed by all the directors entitled to vote on the resolution at a meeting of the first board, is valid even though no meeting is held to vote on the resolution.