Traditionally, one of the greatest challenges managers have had in terms of governance is getting simple responses from enough owners to make a positive difference. Board-by-default happens way too often because most owners are too busy to be bothered. Too often this leads to poor decision-making at the board level in governance over millions of dollars in assets and creates an inefficient and directionless management effort. Longer term, it leads to lower property values and much higher fees.
Apathy is high in governance, so much so that managers used to have to go door-to-door at the last minute to beg for proxy forms even to hold a valid AGM. That means fewer than 25 per cent of owners actively participated in the governance of their properties. With the development of AGMs by videoconference, largely thanks to COVID-19, we have seen an improvement at the local level. It is usually quite easy to reach quorum these days.
But that’s only part of the story. Often, individual board members hesitate to make decisions because they feel they don’t have a good grasp on what the community wants, or the responsibility seems too enormous. Besides, condo communities exist for the purpose of shared ownership, which requires shared decision-making, and when there are decisions to be made that will affect the wallets of hundreds to thousands of co-owners, it is difficult to consistently put the weight of those decisions on three-to-five people.
How do we take owner participation to the next level?
What if there was an easy way to improve participation in governance to achieve a higher standard, particularly on questions of significant importance?
If condos/strata are truly about community governance of shared properties, interested owners should have a way of providing meaningful input without spending time on a board of directors.
Enter the Decentralized Autonomous Organization, or DAO
A DAO in this case would be an association of condo/strata owners across a distributed tech network (think Internet) working together towards the same goal.
What are the technological components? Think of an Internet application platform such as Facebook. This would include a discussion forum to share ideas and ask questions, a secure electronic voting mechanism, and a mechanism to contribute funds for contribution to shared goals, such as optional common element fees for special projects, if applicable.
The role of participants
Participants in a DAO would include members, contributors and a board of governors. Members would provide input and expertise, make proposals for improvement, and vote on such proposals, including electing the board of governors.
Contributors would be members who complete work tasks (usually administrative) for the DAO. Governors would be elected members who facilitate the activities of the DAO and complete work for the DAO. However, governors would not have decision-making authority. All members could take part in creating solutions based on common cause.
How do DAOs operate differently from condos/strata?
Currently, an owner can email a suggestion to the board via management, to be discussed at the next board meeting. The board can decide to act upon the suggestion or can ignore it. If they decide to get input from other owners, they can run an informal poll (non-binding) on a local platform or via email requesting responses by a certain date. They may get a few responses, or even up to the 25 per cent threshold discussed above, or more. They can then ignore or implement the suggestion.
In a condo-related DAO, owners would make proposals on the forum. Proposals would need to meet specific criteria in line with the condo declaration, by-laws and rules and with condo law. Otherwise, they would not be eligible for implementation. If a vote required funds to be spent, they would be automatically released based on the vote. The vote threshold for proposal implementation would be pre-set by the same process (voted on by membership, i.e. – 75 per cent of the vote is required for implementation) and vote results would be binding.
This would be more akin to direct participatory democratic procedure and would address complaints about the inability of interested owners to directly partake in the governance process. Prior to votes, education sessions could be held electronically and/or in person to ensure voters are aware of the implications of each vote.
When would a DAO most useful?
DAOs are most useful for solving problems as a community. If there is a challenge that needs to be overcome and the solution benefits the community, a DAO is a good way to meet that goal. It brings in expertise and suggestions from the wider community and allows the collective voice to make important decisions, taking the pressure off individual board members. It is in line with the ethos of community ownership.
Where would a DAO be most useful?
A DAO could be used on a local level by individual condos and/or it could be used by the wider condominium ecosystem to solve greater challenges. An association of condos/strata could include a membership made up of (and, therefore, receiving contributions from) owners across the country or even worldwide to provide solutions to common industry/real estate sector challenges. Because DAOs run on technological platforms or apps, there are no geographic restrictions to membership other than where incompatible laws may negate the implementation of a shared solution.
At a higher level still, a DAO of condominiums could be structured to give membership to condos/strata themselves, and individual owners from each condominium could contribute on behalf of their condo corporation.
The technology that makes a DAO possible
There is a technological innovation that has been developing since 2009 called blockchain. Blockchain is just now maturing and is creating the next iteration of the Internet, being adopted by governments, the world’s financial institutions (i.e. JP Morgan), supply chain management and retail companies (i.e. Walmart) and tech companies such as Google, Microsoft and Amazon.
DAOs are just one use for blockchain, and they are already revolutionizing the way many private companies govern themselves and manage assets. As blockchain applications continue to develop better user interfaces, adoption will undoubtedly grow to include other aspects of condo/strata management.
Douglas Baker is an Ontario Licensed Condominium Manager with seven years experience in the industry and is currently working remotely from Thailand. He has an educational background in technology and worked as a Programmer/Analyst in Toronto’s financial sector.
While new ideas are needed about how to get condo owners involved, another level of electronic participation isn’t the answer. Owners don’t see their condo corps. as businesses (as they should) and likewise, pay much more attention to their investments in more traditional businesses and/or bank accounts.
Here in Alberta, there are no condo police and provincial legislation has no enforcement mechanisms apart from some affecting developers. So when a Board decides not to provide owners with important technical/engineering assessments (those not being used as evidence in a court matter), how can those owners fully/knowledgeably participate in making decisions or airing out the issue? AB courts tend to get to the end of a case [owner(s) vs the Corp./Board] and say ‘Well, the volunteer Board is doing the best they can’ and the owners are left with the same problem they went in with and zero options apart from EGM’s. Most condo owners here aren’t aware that they have the ability to hold a Board accountable and even when they do, apathy reigns. It can be a short term (but full time) job to pull together a group of owners and satisfy requirements regarding titles, sufficient unit factors, agendas, meeting times/places etc.
Again (and speaking to conditions here in Alberta), if a Board of Directors can hide important documents/issues and not be required to maintain healthy Reserve Funds, or they can simply go out and acquire external financing/loans when caught by a major repair coming due (generally due to history of inadequate RF savings), what good is another platform?
I advocate that A) condo Boards should have a minority of members who are actual business people and not emotionally invested in the property and that B) Board members should be remunerated. When monthly fees are held artificially low because Board members don’t want to be screamed at in the parking lot, your condo is heading straight for trouble.
I hope we all agree that Boards should be transparent, accountable and form good communication strategies. After which, owners might be more inclined to participate in AGM’s and townhall/info meetings, which is where condo discussions should be. If you tell owners clearly that it’s about their money, they’ll likely pay more attention.
It’s my experience (AB) that all kinds of technologies and specialty lenders are finding ways into the deep pockets of condos, which are starting to outprice themselves. Banks and insurers are certainly sitting up straighter. Let’s not leave good condo governance/practices up to the big money players like we did when condos were forced into huge commercial insurance increases to get a handle on ridiculously high numbers of water damage claims.
Let’s start at the root of the problem. Condos are businesses and owners/investors must place their security and peaceful enjoyment (of their homes) in the hands of strangers. Board duties are to fully maintain that investment and marketability. Good communication practice is a principle foundation. The more passwords and platforms to wade through will only frustrate. Get back to basics. It’s all about the Board. It starts and ends, with the Board.
Kudos to ON though, for requiring Board members to take some training. Here in the wild west, provincial gov’t refuses to see or tackle condo issues.