Guarding against condo fraud

You are here >

Guarding against condo fraud


		Leave a comment

condo fraud

September 27, 2011

by Ray Mikkola

Details of the alleged $20 million condominium fraud alleged to have been perpetrated by Manzoor Moorshed Khan, president of Channel Property Management, continue to emerge in the media. This alleged fraud encompasses both mortgage and construction fraud.

The number of condominiums affected by the alleged fraud now stands at nine and counting, but Mr. Khan’s company reportedly managed 40 condos in Greater Toronto. This type of fraud and mismanagement could have taken place at almost any condominium corporation in Ontario.

The results so far have been alarming and serious. Condominium developments have been publicly tarnished by the story, and each proposed purchaser and lender is reminded of the burden of this misadventure by clearly set out provisions in status certificates signed by the victim condominium corporations.

As well, resale values of the units will likely be affected, as banks are likely unwilling to lend on the security of these units.

How can members of the condominium community take steps to avoid this fate?

While fraud cannot be avoided altogether, here are some ways to prevent fraud and mismanagement in condominium communities:

Educate unit owners to choose their Board carefully

Unit owners must understand that for the most part, the Board is in charge. This is mandated by the Condominium Act. Unit owners are in charge of electing directors. They should cast a thoughtful and knowledgeable vote.

Encourage owners to get to know the candidates who are seeking their vote. They should ask questions about their backgrounds, expertise, and abilities. Ask for resumes. Ask them if they are willing to attend courses that describe the duty of directors and the management and governance of condominium corporations if they are elected. Ask them to speak for a minute or two at the meeting at which they are seeking election. If the candidates do not meet their standards, they should consider running themselves.

Consider paying your directors

Being a director is an important and responsible job. It is not rubber-stamping. Encourage unit owners to elect the most qualified directors you can find. Governance and oversight are key parts of the job.

As a practical matter, it would not be possible for owners to have any direct role in managing the day-to-day operations of a condominium.

Communicate with unit owners

Unit owners may wish to stay abreast of issues by attending Board meetings. You can hold information meetings to keep owners and residents abreast of new developments at the condominium. Ask the Board to put out a newsletter to share information with unit owners. Have unit owners talk to directors to advise them of their ideas and concerns.

Address concerns with the Board about how condominium is being run

If unit owners come to you with a concern about how the condo corporation is being run, they can review the condominium’s records. If they lose confidence in the Board, they are entitled to call a meeting to remove one or more of the directors if at least 15 per cent of unit owners feel the same way. A majority of the owners may vote to remove one or more director at that meeting.

Encourage unit owners to become familiar with the condominium corporation’s documents

These include the declaration, by-laws and rules, and the Condominium Act. They all impact their enjoyment of their home and the value of their investment.

Knowledgeable, involved, and engaged owners are more likely to elect like directors. In my view, they are much less likely to become the victims of fraud and mismanagement.

Ray Mikkola specializes in condominium law and is a partner in the Commercial Real Estate Practice at Pallett Valo LLP, Mississauga’s largest business law firm. He can be reached at rmikkola@pallettvalo.com or (905) 273-3022, ext 276.

Look for more legal perspectives on Condo fraud in our October print issue.

< Back

Search: