In this installment of Legally Speaking I thought
I would review three relatively recent cases involving Section 164 of the Strata Property Act (the “Act”). Each involves the
allocation of expenses between different groupings of strata lots within the
strata corporation (i.e. town homes vs. apartments). The decisions reached in
these cases could have a significant impact on how strata corporations approach
financial matters.
The basic
premise under the Act is that all the strata lots contribute to the
common expenses in proportion to their “relative unit entitlement” (which can
be found on the Schedule of Unit Entitlement filed in the Land Title Office).
This can be varied by the designation of different “types” of strata lots
pursuant to Regulation 6.4 (for which there must be some difference in form or
structure between the various groups) or the creation of sections pursuant to
Section 191 of the Act (in which instances only some of the strata lots
will pay for certain expenses). However, to designate “types’ of strata lots or
create sections, a ¾ vote of the owners at a general meeting is required. That
is not always possible to achieve.
Section 164 of the Act provides an
avenue for an owner to obtain relief where the actions of the strata
corporation or the strata council have been “significantly unfair”. The
definition of significantly unfair has been determined by the court to be as
follows:
"The
meaning of the words "significantly unfair" would at the very least
encompass oppressive conduct and unfairly prejudicial conduct or resolutions.
Oppressive conduct has been interpreted to mean conduct that is burdensome,
harsh, wrongful, lacking in probity or fair dealing, or has been done in bad
faith. "Unfairly prejudicial conduct" has been interpreted to mean
conduct that is unjust and inequitable."
"I would add to this definition only by
noting that I understand the use of the word 'significantly' to modify unfair
in the following manner… the court should only interfere with the use of this
discretion if it is exercised oppressively, as defined above, or in a fashion
that transcends beyond mere prejudice or trifling unfairness."
“I am supported in this interpretation by the
common usage of the word “significant”, which is defined as “of great
importance or consequence.”
This then is the very
general framework within which the following cases are to be set.
Large, McCall et al v.
The Owners, Strata Plan No 601 2005 BCSC 1128.
This
particular case involved a 46-unit residential strata corporation in the
Victoria area. It consisted of 38 apartment style strata lots and 8 town home
style strata lots (the latter being in four buildings). For a number of years
the expenses were divided between the two groups on a percentage basis in
attempt to make the allocation of expenses fairer since some expenses benefited
one group more than the other. (This was done in the absence of a bylaw
creating different “types” of strata lots). However, in 2003 the strata
corporation began to allocate expenses in strict compliance with the Act. Therefore the town homes paid for
expenses, which benefited only the apartments and vice-versa. A group of owners
(Large, McCall, et al) objected to this and commenced a court action to have
the matter resolved.
The primary
argument of the petitioners was that it was significantly unfair pursuant to
Section 164 that the town homeowners have to pay for expenses, which benefit
only the apartments. It was argued that the court, under Section 164, had the
power to order the creation of separate sections. The court disagreed with that
argument, citing the specific provisions in the Act for the creation of sections and
taking that as an ouster of the court’s inherent jurisdiction. Nor was the
court, for similar reasons, prepared to designate the common areas of the
apartment as limited common property for the benefit of the apartment strata
lots.
The court
did, however, agree that the history of allocating expenses on the basis of
benefit to only a certain group of strata lots was a recognition that it would
be unfair for the town home style strata lots to pay for expenses which
benefited only the apartment style strata lots. It was on that basis and the
fact that objectively, certain expenses did only benefit the apartment style
strata lots, that the court exercised its powers under Section 164 and declared
that:
“…it is significantly unfair that the respondent corporation includes
within its operating expenses the costs associated with the provision of benefits
and services that are of practical use only to the apartment owners and that it
does not provide the same benefits and services to the townhouse owners.”
The court went on to order that the strata
corporation stop including in its Operating Budget those expenses which benefit
only the apartment owners. The practical effect of which would be to force the
owners to create sections (which had previously been blocked, presumably by the
apartment owners).
Chow v. The Owners, Strata Plan
LMS 1277 2006 BCSC
335.
Strata Plan LMS 1277 is a residential strata
corporation consisting of 17 town home style strata lots and 33 apartment style
strata lots. The case involved two “cross-actions”, one by the apartment owners
and the other by the town homeowners.
Since 1994 the budgets of the strata corporation
allocated expenses in three ways: for all of the strata lots, for the town home
strata lots only, and for the apartments strata lots only. Contributions to the
Contingency Reserve Fund (“CRF”) were also allocated separately, resulting in
separate CRF funds for the apartments and town homes. All was well until the
complex developed building envelope problems. While both the apartments and the
town homes required remediation, the town homes could be partially remediated
at about 1/3 the cost of the apartments. A vote was held but approval for the
repairs could not be obtained. The creation of sections was explored at a
subsequent meeting, but met with overwhelming opposition from the apartment
owners.
The town homeowners sought an order that sections
be created, as the allocation of all expenses to all the strata lots was
significantly unfair. The court then reviewed a number of cases, including Large, and determined that the situation was
significantly unfair to the town homeowners. Most interestingly the court
concluded that Section 164 does in fact create for the court the ability to
order sections (based upon the wording of subsection (2)(c) which permits
regulation of the strata corporation’s affairs). In the end the creation of
separate sections was ordered.
Terry v. The Owners, Strata Plan
LMS2153 2006
BCSC 950
The Terry case involved a three phase strata corporation
built over a period of time (1995 to 2004).
Phase 1 had two buildings and each of Phases 2 and 3 consisted of a
single building. Phase 1 developed water ingress problems. It was not until
2002 (which was when strata lots in Phases 2 and 3 were being sold) that the
need for whole scale building envelope repairs was known. The new owners in Phases
2 and 3 were furious when they discovered this since (based upon the provisions
of the Act) they would be responsible for paying their proportionate share of
the repairs. The Phase 2 and 3 owners brought a petition seeking a declaration
that it would be significantly unfair to them to have to contribute to the
repair costs for Phase I. The court concluded that there had been no
significant unfairness. Nothing had been hidden from the Phase 2 and 3 owners
at the time that they bought. They may have been under a misconception that
they were not responsible to pay for the repairs, but that does not make it
significantly unfair.
Conclusion
It should be remembered that cases of this nature
are somewhat fact specific. As such, they cannot be taken as universal
statements that the courts will always find that only certain strata lots must
contribute to expenses, which benefit only them. In fact, the cases go in
opposite directions on what constitutes significant unfairness and what the
court can do about it. However, both Large and Chow do raise the prospect that where there are strata
corporations which contain both town home and apartment style strata lots, a
finding of significant unfairness might occur where all must contribute to
expenses which benefit only one group. This in itself raises a specter of great
uncertainty and discord in strata corporations of that nature.
This article is intended for information purposes
only and should not be taken as the provision of legal advice. Shawn M. Smith
is a partner with the law firm Cleveland Doan LLP and can be reached at (604)
536-5002 or
shawn@cleveland-doan.com.