Board members act in breach of the Act

R.L.: writes:

Dear Paul:  Can three members of a seven-member board – President, Vice President and Treasurer – decide to replace an HVAC compressor at the cost of $4,000 without consent from the remaining four board members?  All four board members not informed would have been easily accessible. 

 If these three members can proceed with the decision, will a motion need to be made at the next board meeting so the minutes can record it and owners can be informed?  Three quotes were received for this item from three different suppliers.

Paul replies:

Dear R.L.: You bring up an interesting situation. There are several issues to be considered. First, was the expenditure budgeted? This could mean that the money could be spent without having to be approved again. However, I would assume that the $4,000 will come from the Reserve Fund (RF). If it is to be drawn from the RF, it should be approved by a motion at a duly constituted Board meeting at which a quorum is present and recorded in the minutes. The quorum for a seven-person Board would be four directors, not three. The Condominium Act states:

Conducting business

100(1)      A board may transact business only at a meeting at which a quorum of the board is present.

Quorum

100(2)      A quorum of the board is a majority of the directors, counting as a director any vacancy in the position of a director.

If the Board solicited three quotes, I gather that this was not an emergency and that it could wait until the next Board meeting for a motion to be presented, debated, and voted upon. If it was an emergency, the President could call a special meeting to deal with this matter.

Thus, we can conclude that the three directors could not approve the expenditure because it was not a duly constituted meeting, nor was there a quorum present. A quorum would be required for a special meeting also.

Since the three members acted outside of their scope of authority (i.e. not at a duly constituted board meeting) and if the contract has already been awarded but not yet fulfilled, if the other four directors wanted to do so, they could vote to cancel the contract. I would argue that any penalty charged for cancelling the contract should be charged to the three rogue directors. I would recommend getting legal advice before taking this action.

If the four “uninvolved” directors decide to ratify the other three’s decision, I would want assurances that this will not happen again. Otherwise, ratification of this action might just signal that it is acceptable to breach the rules.

What I consider disturbing, in this case, is that the President, Vice-President and Treasurer acted contrary to the Act and are possibly in breach of your Bylaws and Rules. This means that they are not familiar with their legal responsibilities to the owners of your community, or if they are aware, they chose to ignore them. Either reason is unacceptable.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.