Condo Laws

Conflicts of Interest for Ontario Condo Directors: Disclosure Under Section 40

What section 40 of the Condominium Act, 1998 and Ontario Regulation 48/01 require when an Ontario condo director has an interest in a contract, from written disclosure and timing to stepping out of the vote and minuting it.

Condo board members at a table reviewing a written contract and disclosure form before a vote, with a pen and notebook in hand

By Eric Plant, Director, RCM, MBA

Why conflicts of interest matter on a condo board

Condo directors are volunteers, and most of them live in the building they govern. That closeness is a strength: directors understand the property and care how it is run. It also means directors sometimes have links to the people and companies the corporation does business with. A director might own a renovation company that wants to bid on the lobby refresh, have a spouse who works for the elevator contractor, or own a unit next to a common element that a proposed project would improve.

None of these situations is automatically improper. Problems arise when an interest is hidden, when the interested director takes part in the decision, or when the board cannot later show owners how a contract was approved. The Condominium Act, 1998 deals with this directly in section 40, and Ontario Regulation 48/01 adds disclosure duties for candidates and sitting directors. This guide explains what the rules require, how a disclosure should be handled at a meeting, and the practical habits that keep a board on solid ground.

What section 40 of the Condominium Act requires

The core duty

Section 40(1) says that a director who has, directly or indirectly, an interest in a contract or transaction to which the corporation is a party, or a proposed contract or transaction to which it will be a party, must disclose in writing to the corporation the nature and extent of the interest.

A few words in that sentence do a lot of work:

  • Directly or indirectly. The interest does not have to be in the director's own name. An interest held through a company the director owns or works for, or through a business relationship, can be caught.
  • Contract or transaction. Service contracts, construction work, purchases, leases of common elements and similar dealings are all included.
  • Proposed. The duty starts before anything is signed, as soon as the corporation is considering the deal.
  • In writing. A passing comment at a meeting is not enough on its own.
  • Nature and extent. The director should explain what the interest is and how significant it is, so the rest of the board can judge it.

Materiality

Section 40(2) limits the duty to cases where both the contract or transaction and the director's interest in it are material. The Act does not define "material", and whether something meets that threshold depends on the facts. Because the consequences of getting it wrong fall on the director, many boards take a cautious approach: directors disclose anything that could reasonably be seen as a conflict, and the board, with legal advice where needed, decides how to treat it.

Purchases of property

Section 40(3) adds a specific rule for purchases or sales of real or personal property by the corporation. If the seller acquired the property within five years before the contract or transaction, the director must also disclose the seller's cost of the property, to the extent that information is within the director's knowledge or control.

When the disclosure has to be made

Section 40(4) sets out the timing. The disclosure is made:

  1. at the board meeting where the contract or transaction is first considered;
  2. if the director was not interested at that meeting, at the next board meeting held after the director becomes interested;
  3. if the director becomes interested after the contract is entered into, at the first board meeting held after that happens; or
  4. if the contract is one that would not normally need approval by the directors or owners, at the first board meeting held after the director becomes aware of it.

The fourth case is easy to miss. Routine purchases that the manager handles within an approved budget may never come to the board for a vote, but a director with an interest in one still has to raise it at the next meeting after learning about it.

What happens at the meeting

Recording the disclosure

Section 40(5) requires the board to enter the disclosure in the minutes of the meeting where it was made. Minutes are corporate records that owners can generally request under section 55, so a clear entry protects both the director and the board. A good minute names the director, the contract or transaction, and the nature of the interest, and notes that a written disclosure was received. Our guide to what belongs in board meeting minutes covers the wider recording rules, and our article on owner records requests explains how owners can access them.

Stepping out of the discussion and vote

Section 40(6) goes further than many people expect. A director with an interest covered by section 40(1) must not be present during the discussion at a meeting, must not vote, and must not be counted in the quorum on a vote about that contract or transaction. Abstaining while staying in the room is not enough.

There are two narrow exceptions. The first is where the director's interest is limited solely to the directors' and officers' insurance described in section 39, or to remuneration as a director, officer or employee of the corporation. The second applies only to a director appointed to the first board by the declarant, where the interest arises solely because the director is a director, officer or employee of the declarant.

Check quorum before the meeting

Because an interested director cannot be counted in the quorum for that item, a small board can lose quorum for a single vote. Chairs should check disclosures before the agenda is finalized. If removing an interested director would leave too few directors for that item, the board may need to defer it, schedule it when more directors can attend, or get advice on other options.

Protection for directors who follow the rules

Section 40(7) gives a director who complied with section 40 and was acting honestly and in good faith when the contract was entered into an important protection. The director is not accountable to the corporation or its owners, merely because they hold office as a director, for any profit or gain from the contract, and the contract is not voidable only because of the director's interest.

Section 40(8) offers another route. Even without full compliance, a director who acted honestly and in good faith gets the same protection if the contract is confirmed or approved by at least two-thirds of the votes cast at a meeting of owners called for that purpose, and the nature and extent of the director's interest are disclosed in reasonable detail in the notice calling the meeting. That is a cumbersome and public process, which is a good reason to get the disclosure right at board level.

These conflict rules sit alongside every director's general standard of care under section 37(1): to act honestly and in good faith, and to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. Our article on director duties and liability explores that standard in more depth.

Disclosure duties under Ontario Regulation 48/01

Section 40 is not the only disclosure rule. Clause 29(1)(f) of the Act says a person cannot be a director if they have not complied with the prescribed disclosure obligations within the prescribed time, and clause 29(2)(f) says a director immediately ceases to be a director for the same reason. Ontario Regulation 48/01 sets out those obligations.

Candidates

Section 11.6 of the regulation lists statements that candidates for the board must provide. Among them, a candidate must disclose, subject to the materiality test, a direct or indirect interest in a contract or transaction to which the corporation is a party, in a capacity other than as a purchaser, mortgagee, owner or occupier of a unit, along with the nature and extent of the interest. The list also covers matters such as legal actions between the corporation and the candidate or certain family members, recent convictions under the Act, arrears of 60 days or more, and any further information the corporation's by-laws require.

Sitting directors

Section 11.10 of the regulation sets out continuing disclosure duties for directors once they are on the board, again including interests in contracts or transactions with the corporation (and with the declarant or a declarant affiliate), subject to materiality. These statements must be in writing, signed and current when given, and the regulation sets timelines that line up closely with the meeting-based timing in section 40(4).

Some of the candidate disclosure wording in Ontario Regulation 48/01 is scheduled to change on December 31, 2026, so check the current version on e-Laws before you update nomination packages or disclosure forms.

Common conflict situations in Toronto condos

Every building is different, but certain situations come up again and again:

  • A director's business wants to bid. A director who owns or works for a contractor, supplier or consulting firm must disclose before the board considers the work, and stay out of the discussion and vote. Many boards also choose to run a competitive process so the decision can be defended. Our article on procurement for major contracts covers how to structure one.
  • A family member works for a supplier. Whether a relative's employment creates an indirect interest depends on the facts. When in doubt, disclose and let the board decide with advice.
  • A project benefits a director's unit. Improvements that mainly benefit a director's own unit or exclusive-use area deserve the same care, even if the director's interest is as an owner.
  • Gifts and hospitality from suppliers. The Act does not address gifts directly, but many boards cover them in a code of conduct.
  • A director is in a dispute with the corporation. Litigation involving a director or certain family members must be disclosed under the regulation, and boards often ask that director to step out of related discussions.

Building a simple conflict of interest process

The Act sets the minimum. A short written process makes it easier for volunteers to follow:

  1. Use a standard disclosure form. It should name the contract or transaction, describe the nature and extent of the interest, and include the director's signature and date.
  2. Ask at the start of every meeting. Make "declarations of conflict of interest" a standing agenda item so directors are prompted each time.
  3. Keep a register. A running list of disclosures, updated after each meeting, helps the manager and the chair spot conflicts before agendas go out.
  4. Minute the step-out. Record that the director left the room, that they did not vote, and that quorum was confirmed without them.
  5. Review by-law requirements. The regulation allows by-laws to add disclosure obligations. Check what yours say and whether they still fit.
  6. Refresh at elections. Remind candidates of their disclosure duties in the meeting materials and keep their signed statements with the corporation's records.
  7. Get legal advice on close calls. Materiality and indirect interests can be difficult. A short opinion from the corporation's lawyer is cheaper than a dispute.

The manager's role

A professional condominium manager does not decide whether a director has a conflict, but can make the process work. That means building the disclosure item into every agenda, keeping the register and signed forms, flagging when a bidder has a known connection to a director, running fair tendering for contracts, and making sure minutes capture disclosures and step-outs. Condominium managers are also licensed under the Condominium Management Services Act, 2015 and have their own professional obligations.

At Brilliant Property Management, we support boards with governance as well as day-to-day operations. Learn more about our approach to condo property management in Toronto and our full range of management services, or request a proposal for your corporation.

Frequently asked questions

Does a condo director have to disclose every conflict of interest?

Section 40 of the Condominium Act, 1998 applies when a director has a direct or indirect interest in a contract or transaction, or a proposed one, to which the corporation is or will be a party. Under section 40(2), the duty applies only if both the contract and the director's interest in it are material. Many boards still ask directors to disclose any possible conflict so the board can decide together whether it is material.

When does a condo director have to disclose an interest?

Under section 40(4), the disclosure is generally made at the board meeting where the contract or transaction is first considered. If the director becomes interested later, or after the contract is signed, it is made at the first board meeting after that happens. The disclosure must be in writing, and the board must record it in the minutes of the meeting where it was made.

Can a director with a conflict vote on the contract?

Generally no. Section 40(6) says the director must not be present during the discussion, vote, or be counted in the quorum on that contract or transaction. The exceptions are narrow: an interest limited to the directors' and officers' insurance under section 39 or to remuneration as a director, officer or employee, and certain declarant appointees on the first board.

What happens if a director doesn't disclose?

If a director complies with section 40 and acted honestly and in good faith, section 40(7) protects them from accounting for any profit and the contract is not voidable only because of their interest. A director who does not comply loses that protection. Separately, a director who does not make the disclosures prescribed under Ontario Regulation 48/01 within the prescribed time ceases to be a director under section 29(2)(f) of the Act.

This article is general information about the Condominium Act, 1998 and Ontario Regulation 48/01, current as of November 2026. It is not legal advice. Whether a particular interest must be disclosed, and how it should be handled, depends on the facts and your corporation's by-laws. Consult your condominium lawyer about your corporation's situation.