The Condominium Corporation and the Developer Board

by Field Law

Upon the registration of a condominium plan at Land Titles (or the first phase of a condominium plan in the case of a phased development), a condominium corporation is created. The condominium corporation is the vehicle by which the owners of Units and their associated Unit Factors manage and control the common property of a condominium. At initial registration of the plan, the developer is the owner of all the units representing all of the 10,000 unit factors in the condominium.

Under Section 29 of the Condominium Property Act (the “CPA”), the developer must call a general meeting whose purpose is to elect a Board no later than 180 days from the date the first unit was sold, or 90 days from the day that 50% of the units are sold, whichever is sooner.  Until that is done, the developer, as the majority holder of units and unit factors, controls the condominium corporation and has the power to manage the condominium. Normally, a developer will put a nominal Board in place consisting of employees or representatives of the developer.

However, this does not mean a developer has complete freedom to operate as it sees fit during the time it controls the board. In a recent case of the Alberta Court of Queen’s Bench, Calgary Jewish Academy v. Condominium Plan 9110544, 2013 ABQB 134, the Court considered whether actions taken by a developer board of a condominium could be repudiated decades later. In this case, the developer, as owner of the lands that were to become the condominium in question, entered into a lease with the Calgary Jewish Academy (the “Academy”) in October of 1990. The condominium plan was subsequently registered on March 19, 1991, and that lease was registered by way of caveat on the titles to all of the Units. The lease granted a portion of the condominium’s common property to the Academy for the purposes of emergency vehicle access and a parking lot.

At the time the lease was entered into, the CPA permitted a condominium corporation to lease common property only with a unanimous resolution of the owners (this requirement has since changed to a special resolution, or 75% of the owners). Further, all persons having registered interests in the parcel, and all other persons having interests in the parcel, must approve in writing the execution of the lease. Finally the corporation must issue a certificate stating that the resolution was properly passed, that the lease conforms to the terms of the resolution, and that all necessary consents were given.

The developer later decided that it wanted the lease registered against the condominium additional plan sheet rather than each individual unit, and convinced the Academy to enter into a new lease, which was done on March 25, 1991. At the time this new lease was executed, the only board member of the condominium was the president of the developer. On April 10, 1991, he signed a unanimous owners’ resolution authorizing the signing of the lease, and it was registered on the additional plan sheet on April 16, 1990. A letter from the Condominium certifying that the lease had been properly approved by all of the owners and anyone else with an interest in the land was included with the registration.

However, in early 1991, the developer had begun selling units. One person had signed a contract in January of 1991, while another person had closed her purchase of a unit on April 8, 1991.

About two decades later, the Academy and the condominium were at odds over the lease. The dispute ended up in the Courts, with the Academy asking for a declaration that the lease was valid and enforceable, while the condominium corporation argued that entering into the lease was ultra vires the powers of the corporation, or beyond its statutory capacity to execute, and thus unenforceable.

In this case, the Court found that the lease was ultra vires the powers of the corporation for two reasons. First, the resolution authorizing the lease was dated April 10, while the lease was dated March 25, so the corporation did not have any authority to enter into the lease at the time it was signed. Second, the two purchasers mentioned above gained equitable interests in the common property upon signing their purchase agreements, and thus their approval of the lease was required pursuant to Section 40 of the CPA. The Court held that the lease was a nullity and unenforceable.

The Court noted that a condominium corporation is a creature of statute, meaning its powers are limited to those explicitly set out in the CPA. This is unlike a corporation created pursuant to the Business Corporations Act, which has the powers of a “natural person” – which means that apart from any explicit requirements imposed by statute, a typical corporation enjoys a wide freedom to operate as it pleases.

Following a prior decision of the Alberta Court of Appeal, Condominium Plan No 822 2909 v. Francis, 2003 ABCA 234, the Court noted that once an act of a condominium corporation is found to be ultra vires, laches (the doctrine where if a person takes too long to assert a legal right, they lose that right) and estoppel (the rule that a person cannot assert a right that contradicts what that person has said or done previously) cannot then legitimize that act. In that decision, the Court of Appeal also held that the “indoor management rule” – the rule that persons dealing in good faith with a corporation are entitled to assume that the corporation has met the prescribed formalities – does not apply to a condominium corporation. The Court of Appeal also noted that the formalities required for an act to be binding on a condominium corporation are especially important when the developer is in sole control of the corporation, as it helps to protect purchasers from secret arrangements that only surface when the condominium is turned over to the owners.

In sum, until a developer turns over control of the condominium to its owners, it is important that all of the formalities and procedures called for by the CPA are met. This is especially important when an action is intended to create relationships with third parties, such as a lease in this case. As this decision demonstrates, actions taken by the developer Board can be successfully challenged many years after those actions were taken and the developer has ended its ties to the condominium.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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