ALLOCATION OF EXPENSES UNDER THE STRATA PROPERTY ACT by Shawn M. Smith
A large part of condominium living is the balancing of rights between various individuals and groups (neighbour vs. neighbour; townhouses vs. apartments; residential vs. commercial). Often this process focuses on achieving fairness through equality. Sometimes, however, fairness is found in the imbalance. When it comes to the allocation of expenses, the latter often applies.
The Strata Property Act (the Act) defines "common expenses" as "expenses relating to the common property and common assets of the strata corporation or required to meet any other purpose or obligation of the strata corporation".
For the most part common expenses are to be borne by each strata lot in proportion to its unit entitlement (section 99). There are, however, some exceptions to this rule. They are as follows:
The key is knowing when and how these exceptions apply. The "limited common property exception" found in Regulation 6.4(1) applies where a particular expense (or as the regulation refers to it "contribution") can be identified as relating to and benefiting only limited common property, such an expense must also fall under the Operating Budget. (Special levies are still based upon unit entitlement). Although the Act does not say so, it is in essence limited common property that is not common to all strata lots (i.e. only some of them have it). Two good examples are balcony enclosures and balconies/patios. For example, if only 5 of 20 strata lots have balcony enclosures, then only arguably those 5 strata lots should share in the cost of the repair and maintenance of the balcony enclosures (assuming the owners have not taken responsibility for and are not responsible pursuant to a bylaw for the costs of such repair). The same can be said where 15 of those units have balconies and the other 5 have ground level patios. The cost of repairing the patios should be borne by the 5 ground level owners. (The reverse applies for repairs to the balconies.)
The exception found under Regulation 6.5 is similar to the "limited common property exception" but is perhaps a bit more obscure. Its basis is found in section 72(3) of the Act that permits the strata corporation, by way of a bylaw, to take responsibility for the repair and maintenance of specified portions of the strata lots (usually the structural parts). The same logic applies as with the "limited common property exception". If a portion of the building needs to be repaired or maintained and that portion involves only some of the strata lots then the expense of doing so will be borne by those strata lots only (assuming the bylaw makes the strata corporation responsible for such repair and maintenance and assuming they only benefit a portion of the total strata lots). Unlike the limited common property exception, this formula applies to special levies as well as Operating Fund expenditures.
Section 100 allows the owners to pass a formula for contributions that is different from the standard unit entitlement formula found in section 99 and different again from the formulas set out in Regulations 6.4 and 6.5. Such a formula must be passed by unanimous vote at an annual or special general meeting. There are no other restrictions on the nature of the formula however.
One of the more common ways of allocating expenses is according to "type" of strata lot (pursuant to Regulation 6.4(2)). This requires that the strata corporation pass a bylaw identifying the various "types" of strata lots. The Act, however, does not define what constitutes a type. The case law (which unfortunately cannot be reviewed in detail here) generally requires that there be a difference in form or character of the various strata lots. This in turn generally leads to a division along the lines of use; commercial vs. residential, townhouse vs. apartment. A division based upon the age and hence different construction of almost identical building has been permitted to constitute different "types" (Coupal v. Strata Plan LMS 2503). However, simply having separate buildings, identical in all other respects, is not enough to constitute different types (Lim v. Strata Plan VR2654).
The final exception is that found when separate sections of a strata corporation are created pursuant to Part 11 of the Act. In short, mini strata corporations are created when sections are brought into existence. Each section has (among other things) its own budget. Only those strata lots in that section contribute to the expenses covered by the section's budget. The criteria for creating separate sections are much narrower than that for "types" of strata lots. Sections can only be created in strata corporations where there are residential and commercial strata lots, different types of residential strata lots (apartment, townhouse, detached) or commercial strata lots used for significantly different purposes. While the use of a "type" bylaw will achieve the financial autonomy most often sought in these situations, the use of sections will create administrative autonomy and is preferred for that reason.
The application of such formulas and methods is often overlooked in many strata corporations unless they have an astute property manager or have sought legal advice on such matters. While they do seem complex at first, they are an easy way to avoid disputes and to bring a level of fairness to the allocation of expenses. A good understanding of how these provisions are to be applied is required before a strata corporation embarks on implementing any one or more these "exceptions".
Shawn M. Smith is an associate lawyer with the law firm of Cleveland & Doan located in White Rock and may be reached at 604-536-5002. This article is intended for information purposes only and nothing contained in it should be viewed as the provision of legal advice.