A closer look at the Report on Governance Issues for Stratas: Should the Strata Property Act limit the number of proxy appointments that a person may hold?
February 19, 2019
BY Kevin Zakreski
This post is the part of a series highlighting key recommendations in the Report on Governance Issues for Stratas. For other entries in the series, click here.
Brief description of the issue
One of the perennial complaints about strata-property proxy legislation is that it has encouraged what one law-reform body colourfully referred to as “proxy farming,” which is “where an individual or small group of owners gather large numbers of proxy votes in order to gain control of the decisionmaking process.” Among the ills attributed to proxy farming are that it breeds resentment and apathy, and results in unrepresentative decisions.
The Strata Property Act (like all other strata-property legislation in Canada) places no limits on the number of proxy appointments that a person may hold for a general meeting. So, in theory at least, strata corporations in British Columbia are vulnerable to threats posed by proxy farming. Should the act be amended to stamp out proxy farming by limiting the number of proxy appointments one person may hold?
Discussion of options for reform
Placing a limit on holding proxy appointments clearly and effectively addresses the concerns raised by proxy farming. If the number of proxy appointments that a single person or a small group is allowed to hold is limited to a low number, then it is hard for that person or group to hold decision-making authority for the entire strata corporation in its hands. Legislation setting such a limit could also be seen as supporting the broader goal of the proxy system of encouraging participation in the democratic affairs of the strata corporation.
But such legislation would also make it harder to use the proxy system. Eligible voters could feel that such a provision would unduly restrain their voting rights. It could end up backfiring, leading to greater apathy and more difficulty in reaching quorum. And it could also make administering a general meeting a more demanding and difficult task.
So one option for this issue would be confirming the status quo and its lack of a limit on proxy appointments. The current system has the benefit of making it comparatively easy to make proxy appointments. The legislation might want to put a premium on this quality, as a way of affirming the value of proxy appointments as an expression of voting rights and as a mechanism to achieve quorum.
The other option would be to propose a legislative limit. An integral part of this option is the number at which that limit is set. There is necessarily an arbitrary element to this choice. Nothing logically compels the choice of one number over another. Some guidance may be found in the experience of other jurisdictions:
- New South Wales has proposed something of a sliding scale, “[l]imit[ing] the number of proxies able to be held by any person to 5 per cent of the lots if the scheme [strata plan] has more than 20 lots, or one if the scheme has fewer than 20 lots.”
- Queensland, which adopts a hub-and-spoke model to strata legislation (PDF), has a similar sliding-scale limit (at section 103). The numbers are identical to the New South Wales proposal for strata corporations that come within its “standard module” (PDF). “Accommodation module” (PDF) stratas allow for a person to hold proxy appointments up to a number equal to 10 percent of the strata lots, if the strata corporation has 20 or more strata lots. (If the number is fewer than 20 strata lots, then the limit is one.) There are no limits for “commercial module” (PDF) or “small schemes module” (PDF) stratas.
- There is one British Columbia corporate statute that sets a hard limit on proxy appointments. The Cooperative Association Act provides that “[a] member may not vote more than 3 membership proxies.”
A drawback to setting a legislative limit is that it might bring with it some administrative problems. For example, what happens if one person collects more proxy appointments than is allowed under the legislation? Some proxy appointments may provide for alternates. This could bring the person back under the limit. But if the person remains over the limit, then presumably the person will only be allowed to vote under some of the proxy appointments. Those that don’t make the cut will effectively result in a loss of voting rights for the eligible voter who gave the proxy appointment.
In this situation, who gets to decide which proxy appointments will be exercised and which won’t? Should some kind of legislative rule, such as first in time, apply? Should it be left to the prospective proxy to choose? Or should it be subject to the chair’s judgment?
The committee’s recommendation for reform
The committee was acutely aware that proxy farming is a serious problem. But it was also aware of the need to strike a balance between two general concerns in formulating its recommendation. First, there are concerns about the abusive collection of large numbers of proxy appointments, which can allow a small, unrepresentative minority to hijack a strata corporation’s governance. A second, and countervailing, consideration is the role proxies play in facilitating democratic decision-making.
While there would be advantages to having a legislative limit on collecting proxy appointments, it could also create a technical nightmare. If a person turned up at a general meeting with a handful of proxy appointments in excess of the limit, then this situation could devolve into a game of go fish, with the proxy and the meeting chair taking turns selecting proxy appointments that will or will not be voted.
The committee was also aware of the need to consider the variety of strata corporations. Some recreational strata corporations, for example, may have developed the practice of giving many proxy appointments to the strata-council president, as a way to ensure that business gets done at the general meeting. There is no abuse in this scenario. These strata corporations could be harmed by a legislative limit.
This specific point leads to a broader concern that affected the committee’s thinking on this issue. When it comes to limiting proxy appointments, the diversity of British Columbia’s strata corporations has to be taken into account. For example, corporate and commercial strata-lot owners rely on proxies to make their voices heard at strata-corporation meetings. Limiting proxy appointments could have an adverse impact on their interests. Discussions of limiting proxy appointments often focus mainly on strata corporations made up of owners of residential strata lots. It’s important to bear in mind how any proposed limitation on proxy appointments would affect owners of nonresidential strata lots, corporate owners, and other classes of strata-lot owners.
The committee also noted that, while legislation could alleviate concerns in the short term, there is no guarantee that proxy farmers won’t ultimately find ways around it. Proxy farmers tend to be a lone individual. Faced with a legislative limit, this individual might respond by conscripting his or her spouse and children to be proxies.
Ultimately, the only effective way to fix the problem would be to stamp out the intimidation and abuses that proxy farmers use. A limit on collecting proxy appointments wouldn’t address these concerns, because proxy farmers will just continue to use abusive practices to circumvent the limit.
While a majority of consultation respondents agreed with the committee’s tentative recommendation, a substantive minority disagreed. This minority tended to be quite passionate in its comments. These comments led the committee to give further consideration to its decision not to propose a cap on proxy appointments. In the end, the committee continued to believe that a legislative cap wouldn’t be the most effective tool to deal with the governance problems identified in the comments and would likely have the effect of harming the governance of some strata corporations.
The committee recommends:
The Strata Property Act should not limit the number of proxy appointments that may be held for a general meeting.