Does the developer control the board?

When a new condo corporation is built, the developer installs a three-person board of directors. They stay in power until after the condo is registered and then there is a transition meeting where the responsibility to operate the condo is turned over to the owners and the owners elect a new board.

That was what use to happen. However, it is possible that the developer retains sufficient units to allow him to control who gets elected to the new board.

North York
At a mixed use condo in North York, the developer maintained total control of the development at the transition meeting and he then refused to hold any more AGMs.

The owners saw no corporation records or had no say in how their condo was being managed. When they finally had AGMs, the developer used the votes from his retail units and the dozen residential units he owned to stay in control.

When he was finally forced out, the condo corporation was badly rundown and it needed a huge increase in maintenance fees to build up a reserve fund.

Humber Bay
The owner-residents in a new condo in south Etobicoke could get an owner-resident elected to the board to represent their interests but they could not win either of the two general-director positions as the developer had the proxies from his units plus he got sufficient proxies from the investor units to retain control of the board until the Tarion warranty expired.

The resident-owners were extremely upset as there were serious construction deficiencies that were not addressed.

Trump Tower
The developer of The Trump International Hotel and Tower, who owns the majority of condo hotel rooms and a majority of residential condo units on the top floors, is in a nasty legal dispute with Donald Trump's management company.

The owner, Talon, built the 65-storey tower and took charge of marketing and selling its 118 residential and 261 hotel condos. Trump leased his name to the project and, once it was built, his company managed it, running all services and amenities except for parking, food and spa.

There are two condo corporations on top of the hotel amenities. Investors purchased hotel condominiums—a traditional hotel room which was placed in a profit-earning rental pool to be managed by Trump.

Traditional residential condominium units sit on top of the hotel rooms. The hotel units were selling for upwards of $700,000 while the residential condo units started at $1.5 million.

In April 2015, lawyers for Trump Toronto Hotel Management slapped Talon with a notice of default, unleashing a torrent of complaints. Trump alleged Talon was engaging in a “calculated scheme” to frustrate Trump’s management performance by interfering in the building’s operation.

The hotel and residential units at Trump tower are separate condominium corporations. Central to the dispute is the fact that Talon, four years after opening, still holds the majority of hotel units and residential condos in the building. That means the company vote outweighs that of the other owners.

“Talon has openly stated on numerous occasions that because it owns the majority of units, Talon has the right to do whatever it pleases,” Trump alleged in the notice.

In a response, Talon accused Trump management of hiring unqualified staff, not resolving various maintenance issues and failing to produce financial records — issues that came up again when the condo boards responded to Trump with their own notices of default.

That fall, Talon — as majority owner — initiated a special meeting of the hotel and condo boards, outlining the purpose in a memo: to vote on whether to terminate Trump. Trump took it straight to court, filing a motion in December accusing Talon and the condominium boards of trying to unlawfully end their contract. The motion sought to stop Talon from cancelling the management agreement, arguing the company was required to first participate in mediation and arbitration.

Trump warned that it could sue the condo and hotel boards, including Talon, for “potentially hundreds of millions of dollars” for cancelling the contract.

In response, a lawyer for the condo boards said they were only seeking permission from owners to terminate Trump management, not taking immediate steps to do so.

Trump and Talon are now in mediation and Trump’s motion has been shelved. Talon did not file a response, but in an interview, its lawyer denied Trump’s allegations.

So the individual owners of both condo corporations are getting sucked into a fight between the developer and the management company and they have little to no say in whether they want to get involved in this fight or not.

What is the lesson here?
Be careful about buying a unit where the directors owe their allegiance to the developer or the commercial interests and not to the individual unit owners.

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