Part 50 published on 01/05/15
Condominium corporation given opportunity to pass rule to establish definition of family. One of the directors found to have acted in bad faith
The condominium’s Declaration contained a provision stating that the units could be used only as private single family residences – but contained no definition of the term “family”. The corporation’s legal counsel recommended that the corporation pass a rule to establish a definition of family. Otherwise, the narrow definition endorsed by the courts in other cases might be imposed upon the condominium corporation. [See Nipissing Condominium Corporation No. 4 v. Kilfoyl (Condo Cases Across Canada Parts 28 and 30, November 2009 and May 2010) and Chan v. Toronto Standard Condominium Corporation No. 1834 (Condo Cases Across Canada Parts 33 and 39, February 2011 and August 2012).]
In 2012, a majority of the board voted to proceed with a proposed rule to establish a definition of family. The proposed definition excluded groups of unrelated persons who did not intend to live together permanently (such as most groups of cohabiting students). The rule also included a provision grandfathering or exempting existing occupants from the provisions of the rule. In accordance with the board’s majority decision, the proposed rule was prepared for presentation to the owners (for a vote).
One of the directors, MacMillan, did not agree with the proposed rule. MacMillan resided in the condominium, but also owned (and leased) a number of other units. He felt that landlords should be able to continue leasing to unrelated persons (such as groups of students). He felt that the new rule was a threat to his investments, and to the investments of many other owners. He campaigned actively against the rule, seeking to persuade owners to vote against it.
At the AGM on June 17, 2013, the proposed rule was voted down – 78 for to 127 against.
One of the directors, Ballingall, subsequently resigned from the board and started this Court application along with three of the other owners, for the following relief:
a) An order requiring that the condominium corporation enforce the “single family use” provision in the Declaration;
b) A declaration that MacMillan had acted in bad faith;
c) A declaration that the condominium corporation had acted oppressively, by unfairly disregarding the interests of the Applicants.
After the application was commenced, the reconstituted board (still including MacMillan) met with legal counsel to revisit the possibility of passing a new rule to establish a definition of family. The board then prepared a new rule containing the same definition (as in the rule that had been voted down) but a different grandfathering provision. The revised grandfathering provision included grandfathering of existing owners as long as they confirmed that their understanding (at the time of their purchase) was that they would be able to lease their unit(s) to unrelated persons. This proposed new grandfathering would exempt the units of those owners (from the definition of family), while they were owned by the grandfathered owners, for a period of ten years. Therefore, one of the key issues on the application was: Should the condominium corporation be permitted an opportunity to pass this new rule? The Court held as follows:
a) The Applicants were entitled to have the “single family use” provision in the Declaration enforced.
b) However, the condominium corporation should be permitted an opportunity to pass the proposed new rule, but with a modified grandfathering provision. The Court said that grandfathering of occupants, and also grandfathering of certain owners, did make sense in this case. However, the Court said that the proposed grandfathering provision was not reasonable or in keeping with the Declaration. Among other things, the Court said that the ten-year grandfathering was too long. The Court said that three to five years would be more appropriate.
c) MacMillan had acted in bad faith, up until the commencement of the Application (when he began to support the idea of a new rule).
d) The condominium corporation had not acted oppressively.
The Court’s decision including the following:
Once this litigation was commenced, the new Board moved quickly to pass a new Rule) that mirrored the previous version (of the rule) passed by the previous Board (under the leadership of Ballingall) aside from the grandfathering provisions. In that the earlier version of the rule had been rejected at an AGM due, in great measure, to the restrictive grandfathering provisions, it was reasonable for the new Board to expand those provisions…Although I have found that the grandfathering provisions in the new Rule are unreasonable and inconsistent with the Declaration, the evidence is inadequate to persuade me that the Board’s passage of the Rule amounted to an abuse of power, a wrong of the most serious sort, or an act of bad faith.
The Board shall have 60 days in which to amend the grandfathering clause (in the Rule) to be a truly temporary, transitional, provision to wean landlord owners off rentals to multiple, unrelated, transient tenants not meeting the expanded definition of “single family”, while at the same time being reasonable and consistent with the Declaration. Failing the passage of such an amendment, the Corporation must interpret and enforce (the single family use provision) of the Declaration…in a fashion consistent with current Ontario Law regarding the meaning of “single family residence” in the condominium context.