Conflicts of Interest Explained – Strata Council Advice
At one time or another, strata councils inevitably have to deal with questions or issues raised by its members relating to conflicts of interest. The definition of a conflict of interest is simple, but identifying whether a conflict of interest in fact exists can be more difficult to determine. A conflict of interest arises when a council member has a direct or indirect interest in a contract, transaction, or any matter that could result in the creation of a duty or interest that would conflict with their own personal interests.
One of the most common types of conflicts relate to claims of financial gain received by one of its members. It is a common misconception that a council member who has any personal interest or receives some form of personal gain is in violation of the rules. This is not always the case. The true nature of the problem arises when that member fails to disclose their interest in the mater. The Strata Property Act requires council members to disclose all conflicts of interest. So long as that member fully discloses their interest before a decision is made by the strata council, and that member has not participated in the decision-making process, he or she will have complied with the rules.
So how can a strata council protect itself from issues relating to conflicts of interest?
First, have a clear understanding of what constitutes a conflict of interest. Secondly, draft language into the bylaws that sets out the precise nature of what constitutes a conflict and have mechanisms in place for how these types of matters will be addressed.
Here are two provisions worth including in your own bylaws:
1. A perceived conflict of interest is a conflict of interest.
Import a larger meaning as to what constitutes a conflict. Any perceived conflict, whether real or imagined, will be deemed a conflict and accordingly restrict that member from being a party to that particular transaction or initiative.
2. A financial interest is a disqualifying conflict of interest
Simply put, where the risk exists that a member may have any direct or indirect financial interest, they are immediately disqualified. No exceptions.
Together these two clauses will assist in limiting exposure relating to member(s) potential for personal gain balanced against their larger obligations to act honestly and in the best interest of the strata corporation.
In addition, consider appointing a chair or committee of members tasked with reviewing all disclosed conflicts and have that committee report their findings to all members. The key is transparency, for it achieves a measure of accountability as it pertains to the matter in hand, but it also imports predictability to the process and educates other members as to what constitutes a true conflict of interest.
While the threat of conflict of interest cannot be entirely mitigated, a clear set of bylaws will certainly afford an increased measure of accountability and predictability. Unquestionably, bylaws that incorporate specific conflict of interest protections are the best way to limit any potential conflicts of interest before they arise. If your own strata bylaws do not explicitly address conflict of interest, a prudent strata council would be well advised to consider legal counsel to revise their own bylaws to include these types of provisions.