Condominium Corporations need to ensure that their property management agreements have been reviewed by legal counsel so that they are protected in the event that something goes wrong. Here are two examples of situations in which property management decides to serve their own financial interests, in one case resulted in a court proceeding and finding the management company liable.
In Y.R.C.C. No.890 v. RPS Resource Property Services, the principal of the management company, Garland, decided to borrow funds from the condominium corporation’s bank accounts for the purpose of running his own business operations. The funds were used for his company’s own benefit and that of his other clients. Although there was no authority to do so, Garland was able to transfer funds through internet banking. The total amount transferred was $408,381.47. The corporation brought a claim against the management company and the financial institution.
The court found that the management company was liable for the following:
- Breach of the management agreement
- Wrongful transfer of the corporation’s property, constituting conversion
- Breach of trust
The corporation obtained judgment against the management company for the full amount of its damages. The claim against the financial institution was dismissed.
The Times Columnist, Tony Gioventu, executive director of the Condominium Home Owner’s Association in B.C. commented on a situation brought to his attention by a strata corporation which involved a property manager who received a cheque from the corporation’s insurer for services the manager provided in co-coordinating a special project relating to a major insurance claim for the corporation.
The corporation discovered that the manager was getting paid when it opened its mail and found a cheque payable to the manager in the amount of $10,000.
The question posed by the corporation was “Is it acceptable business practice for a manager to contract with someone else when he is working for us?”
Tony addresses the property manager’s failure to disclose third-party revenue and failure to obtain written approval and consent from the corporation. If a corporation chooses to allow its property manager to obtain financial compensation relating to their corporation’s projects, the management agreement should provide for this but should very carefully set out specifically what the scope of work would be and the fees that the manager would be entitled to. Without providing for this in a management agreement, obtaining funds from third parties would be a breach of trust.
An interesting point that was raised was the failure by the insurance agent to disclose the property manager’s payment to the strata corporation directly. Did the insurance agent not have a duty to disclose to the corporation?
We don’t know what the outcome will be in that situation, but it does raise concerns which should be addressed by condominium corporations during the time that the management agreement is negotiated.