Commission, Defaulting Buyer, Commission Payable to Listing Agent (continued) #298

Dec 01, 1998

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By Gerry Neely
B.A., LL.B.

We have leasehold strata plans and phased strata plans and now something entirely new: "sections." A strata corporation may create sections to represent the different interests of owners of residential lots and of non-residential strata lots; owners of different types of residential strata lots; or owners of non-residential strata lots whose uses are significantly different. When created, a section has the same powers and duties as the strata corporation concerning matters relating solely to the section.

Property managers are affected by at least three sections, one of which states that they may not be proxy holders. A contract for strata management services may be cancelled by Special Resolution at any time, despite the terms of the contract. A property manager can be penalized for failing to return to the strata corporation any records in the property manager's possession or control, within four weeks after the contract ends.

The rights and responsibilities of owners/developers will be changed significantly. The owner/developer, as the first council of the strata corporation, will now have a statutory duty to act honestly and in good faith with a view to the best interests of the strata corporation, and exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. This duty to act honestly and in good faith in the best interests of the strata corporation is identical to the duties of directors of a company.

Owners/developers who now pay the operating expenses but not the amount required to be paid based upon unit entitlement, and who fail to pay monies into the contingency reserve fund, will have to change their ways. Upon the first transfer of title to a buyer, the owner/developer must pay into the contingency reserve fund at least five per cent of the estimated operating expenses, and commence payments for unsold strata lots based upon their unit entitlements.

If the budget prepared by the owner/developer underestimates the operating expenses by ten per cent or more, the owner/developer may be penalized by an amount to be set by regulation. Financial penalties may also be levied by the strata corporation against an owner/developer who fails to call the first annual general meeting, which is instead called by another owner.

There are two circumstances in which a tenant is eligible for election to a strata council. The first is where the landlord has assigned to the tenant some or all of the powers and duties of the landlord. The second is where the term of the lease is for a set term of three years or more.

A council member's standard of care is the same as that of the owner/developer. A conflict of interest must be disclosed by a council member. Failure to do so means that any contract or transaction involving the council member cannot be enforced unless the contract or transaction is approved by Special Resolution or upon an application to the court. A judge may order the council member to compensate the strata corporation for any loss, or to pay to it any profit that may have arisen from the contract or transaction, if the judge finds it to have been unreasonable or unfair.

When an elected strata council takes control it can decide the percentage contribution to be made to the contingency reserve fund, unless the fund is less than 25 per cent of the average yearly expenditure measured over the immediately preceding three fiscal years. If it is, then no less than ten per cent of the operating fund for the current year must be paid into the contingency reserve fund. Once the contingency reserve fund is equal to or greater than the average yearly expenditure, any additional contributions to the contingency reserve fund must be approved by Special Resolution.

If a special levy has been approved and an agreement for the sale of a strata lot has been entered into, the seller is responsible for the part of the levy payable before the date the strata lot is conveyed and the buyer for the part payable after it is conveyed.

Between the conveyance of the first strata lot and the first annual general meeting, the strata corporation cannot enter into a contract or transaction with either the owner/developer or a person who is not at arm's length from the owner/developer unless the contract or transaction is approved unanimously by the owners.

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