A Strata Council Member’s Liability #417
Many licensees own condominiums; some also serve on strata councils. Strata property managers regularly encounter strata council members. Recently, the Supreme Court of Canada had the last word on the liability of some strata council members (the Members) for conflicts of interest.
The Strata Property Act requires a council member to fully disclose whether the member has any interest, direct or indirect, in any transaction involving the strata corporation. The Act prohibits the member from voting on the matter and requires the member to leave the meeting.(1)
Dockside Brewing Co. v. Strata Plan LMS 3837 involved a strata hotel in Vancouver.(2) The Members were part of an owners’ group that wanted to lease the strata corporation’s common property. When a competitor obtained the lease rights, the owners’ group sought the rights. The group took control of the strata council by electing their members to eight of nine council seats. Using their control of the strata council, the owners planned to cause the strata corporation to sue to attack the competitor’s lease rights so the owners’ group could acquire them.
Meanwhile, the owners’ group also made certain commitments to others concerning the leases. If the owners’ group failed to get the lease rights, they potentially faced a $600,000 claim.
The Members executed their plan to obtain control of the strata corporation’s affairs, for their own benefit, and to use the corporation’s funds for that purpose. While they didn’t personally take the strata corporation’s money, they spent those funds for legal services intended to benefit their owners’ group. They benefited by sharing the legal expenses with the other members of the strata corporation who were not part of their owners’ group. At general meetings, and at council meetings, the Members did not disclose the true use of the legal expenses incurred by the strata corporation. They didn’t disclose their conflicts of interest, including their potential $600,000 liability if the owner’s group failed to get the lease rights. They didn’t leave the meetings when the relevant resolutions were discussed and they didn’t abstain from voting.
Ultimately, other owners asked the court to order the Members to reimburse the strata corporation for the legal fees improperly spent pursuing the objectives of their owners’ group.
The Supreme Court of British Columbia found that the Members breached the statute’s conflict of interest provisions. They also failed to meet the standard of care expected of council members.(3) The court ordered the Members, jointly and severally, to compensate the strata corporation for approximately $190,399 in legal expenses and to pay, in addition, special court costs of roughly $150,000.(4)
The British Columbia Court of Appeal upheld the decision against the Members. When the Members asked the Supreme Court of Canada to hear their appeal, the court dismissed their application, bringing this legal story to an end.
Whether a licensee serves as a strata council member, or advises the council as its strata manager, the licensee cannot ignore the Strata Property Act’s conflict of interest requirements. Simply put, each council member must:
1. Disclose a conflict, immediately,
2.Leave the meeting (unless asked to stay to provide information), and
Lastly, the strata council member and the strata manager should ensure the minutes of the meeting record that the council member did these things.
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