November 29, 2013
Contracting with a condo corporationBY ROB KENNALEY
Many of us contract with condominium corporations to provide design, hard and soft landscaping or grounds maintenance services. Most often, we negotiate and execute the contracts with a representative of the condominium — with one of the board of directors or a property manager retained by the condominium corporation to manage its affairs.
We most often enter into these agreements on the understanding that the board member or property manager is properly authorized to represent and bind the condominium corporation in negotiating the contract. Indeed, the board member or property manager will often expressly tell us, sometimes in writing, that he or she has this authority. Without (perhaps) knowing it, we proceed on the basis that the “indoor management rule” or doctrine of “ostensible authority” will operate to bind the condominium corporation on the basis of what its representative or agent has said.
The “indoor management rule” provides that a person who deals in good faith with a corporation is entitled to assume that the necessary formalities have been met. Thus, for example, when the board member or managing employee of the corporation tells you that they want to purchase certain items, you are entitled by the rule to presume that the purchase has been properly authorized by the corporation itself. Similarly, the doctrine of “ostensible authority” operates as follows: if a corporation either expressly or by its conduct holds an individual out as its representative, authorized to speak for it on certain matters, persons who deal with that individual, in good faith and on that basis, are entitled to assume that the authority was properly granted.
It appears, however, that the indoor management rule and the doctrine of ostensible authority might not apply in the case of a condominium corporation. It has been held in this regard, that as a creature of statute the condominium corporation can have no rights other than those set out in the applicable legislation (such as the Condominium Act, in Ontario). It has accordingly been held, for example in Ontario and in Alberta, that unless a contract is ratified by a resolution brought at a properly held meeting of the condominium corporation’s board of directors, the condominium corporation cannot be said to have agreed to or accepted it. In other words, it has been held that neither the indoor management rule nor ostensible authority will operate to ratify a contract if the legislation which governing condominium corporations expressly requires resolution by the board of directors. The Alberta and Ontario cases have also been looked upon favourably, to some extent, in other jurisdictions such as New Brunswick, British Columbia and the Yukon.
This is not the end of the analysis. An unpaid supplier of services and materials could still rely on the doctrines of unjust enrichment and quantum meruit. These doctrines essentially provide that no one (including a condominium corporation) should get something for free. From this perspective, the condominium corporation would be required to pay for the services or materials they received and had the benefit of, at their fair market value. Difficulties arise, however, where there might be a dispute over the actual value of the work or services. In this case, the supplier or contractor would have to prove the value of the services performed and, ultimately, a Court might decide that an amount other than the contract price should be paid. In addition, the condominium corporation might argue that the services or materials were of no value to it — for example where it decides not to proceed with, or substantially alter, the project in question.
In addition, an unpaid supplier of services and materials could pursue the individual or agent who held himself or herself out as being properly authorized to represent the condominium corporation. This, too, can be tricky as that individual may not, at the end of the day, have the ability to pay an account. Furthermore, many property managers will include in the contract a clause which provides that the manager is merely an agent of the condominium corporation, and that no claim can be brought against the manager in relation to the contract.
In the end, although there are ways to pursue recovery on an agreement with a condominium corporation which has not been properly or formally ratified by its board of directors, it would be good practice for those who provide services or materials to condominiums to ask that they be provided with a copy of the resolution which ratifies the agreement. In this way, issues of indoor management, ostensible authority, unjust enrichment and quantum meruit are taken off the table. Particular care should be taken where, as is sometimes the case, a property manager both refuses to provide the confirmation and, at the same time, asks you to agree that there will be no claim against the property manager company.
Robert Kennaley has a background in construction and now practises construction law in Toronto and Simcoe, Ontario. Rob can be reached for comment at 416-368-2522, at firstname.lastname@example.org, or on LinkedIn. This material is for information purposes and is not intended to provide legal advice in relation to any particular situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.