Conditions Under Which a Condominium Corporation is Liable to Indemnify a Licensee
A condominium corporation (the principal) may be required to indemnify (compensate) a condominium manager (the licensee) when the manager is acting within the scope of their authority and fulfilling their duties in good faith. Indemnification protects the manager from financial loss or legal liability arising from their role.
Key Conditions for Indemnification
A condominium corporation must indemnify the manager when:
The manager was acting under board instructions
If the manager followed the board’s lawful instructions and faced legal action as a result, the corporation is responsible for indemnification.
The manager acted in good faith and within the scope of their authority
If the manager acted lawfully, ethically, and professionally, indemnification applies.
The issue arises from condominium management duties
If the dispute or legal claim is related to the manager’s official responsibilities, the corporation is expected to provide protection.
When Indemnification May Not Apply
A condominium corporation may not be required to indemnify the manager if:
The manager acted negligently or outside their authority.
The manager committed fraud or misconduct.
The manager made unauthorized decisions without board approval.
Key Takeaway:
Indemnification applies when a manager acts lawfully and within their contractual obligations, but it does not apply in cases of negligence, misconduct, or unauthorized actions.
How Indemnification Clauses Protect Condominium Managers
What is an Indemnification Clause?
An indemnification clause in a condominium management agreement protects the manager from legal and financial liability when acting in their official role.
How Indemnification Clauses Provide Protection
Covers Legal Defense Costs
If a manager is sued for actions taken under board instruction, indemnification ensures that the condominium corporation pays for legal expenses.
Protects Against Financial Loss
If a claim results in financial damages, the condominium corporation covers settlement costs or penalties.
Ensures Stability in Condominium Management
Without indemnification, managers may hesitate to make necessary decisions for fear of personal liability.
Key Elements of an Indemnification Clause
A strong indemnification clause should include:
Scope of Protection – Clearly define what actions are covered under indemnification.
Exclusions – Identify when indemnification does not apply (e.g., fraud, gross negligence).
Process for Legal Defence – Specify who selects legal representation and how costs are covered.
Limitations of Indemnification
Indemnification does not override provincial laws—managers are still legally responsible for ethical violations.
The corporation’s insurance policy may dictate whether indemnification applies.
Key Takeaway:
Indemnification clauses reduce the legal risks for condominium managers, ensuring they are protected when acting within their authority.
Applying Indemnification Principles in a Condominium Management Agreement
When drafting or reviewing a condominium management agreement, it is essential to ensure the indemnification clause is properly structured.
Reviewing an Indemnification Clause – Key Questions to Ask
Does the clause clearly define what is covered?
Are exclusions (e.g., negligence, fraud) explicitly stated?
Does it specify how legal fees and damages are paid?
Is there a process for disputing indemnification claims?
Sample Indemnification Clause
"The Condominium Corporation agrees to indemnify and hold harmless the Condominium Manager from any claims, damages, or legal expenses incurred in the performance of their duties, provided that such actions were taken in good faith and in accordance with the Condominium Property Act and corporation bylaws. Indemnification shall not apply in cases of gross negligence, fraud, or misconduct."
Practical Application: Reviewing an Agreement
Scenario: A manager is reviewing a contract where indemnification applies only to “approved board actions.”
Question: Should the manager request broader coverage?
Answer: Yes. The manager should ensure the clause includes all lawful actions taken under their duties, not just board-approved actions.
Key Takeaway:
Managers should carefully review indemnification clauses to ensure they fully protect against legal liability.
Case Studies: When a Condominium Corporation Refuses Indemnification
Case Study 1: A Condominium Manager Facing a Lawsuit
Scenario:
A condominium manager follows board instructions to hire a contractor for major building repairs. After disputes over costs, unit owners sue the manager for mismanagement. The board refuses indemnification, claiming the manager should have conducted additional due diligence.
Legal Issues Identified:
The manager acted under board instructions, meaning indemnification should apply.
If the contract was signed in accordance with bylaws and procedures, the board cannot refuse indemnification.
Outcome:
The condominium manager successfully sued for indemnification, as their actions were within their professional duties.
The condominium corporation had to cover legal costs and settlement fees.
Lessons Learned:
Managers should document board approvals to protect themselves.
A well-written indemnification clause prevents disputes over responsibility.
Case Study 2: Misuse of Indemnification Protection
Scenario:
A condominium manager approves an unbudgeted repair contract without board approval. When the corporation refuses to pay, the manager demands indemnification.
Legal Issues Identified:
The manager acted outside their authority, meaning indemnification does not apply.
The corporation can legally deny coverage because the action was unauthorized.
Outcome:
The manager was held personally liable for the unapproved expense.
The corporation filed a complaint with RECA, leading to further professional consequences.
Lessons Learned:
Indemnification only applies when managers act within their authority.
Managers should always seek board approval for major decisions.
