Condominium, Breach of Fiduciary Duty, Developer Required to Repay Parking Rent #284
By Gerry Neely
A licensee called the B.C. Real Estate Association to ask for the result of the appeal referred to in Column #253, of a decision which declared void a 99-year lease granted by a condominium developer to a subsidiary company. The lease, which was for all the parking stalls in a newly-constructed condominium building, had been signed on behalf of the strata corporation, by an employee of the property management company, which was another subsidiary of the developer. The employee's action, and the developer's instructions to him to grant the lease, were held to be breaches of their fiduciary duties to act in the best interests of present and future owners of the strata lots.
While a search disclosed that the appeal had been abandoned, it also revealed a follow-up action by the strata corporation to recover all parking rental revenue received by the developer, between the date the lease was granted in July, 1989 to the date it was declared void in 1996. The strata corporation's claim was that the developer's breach of fiduciary duty entitled the strata corporation to be put in the same position it would have been in, had it had the continuous use of the parking stalls from 1989.
The developer's initial defense was that full disclosure of the developer's intentions to use the parking stalls for its own purposes, had been made to the first owners. This claim was based upon a rule that a person, who is of age and mentally competent, who knows his legal rights and that he is surrendering them, has consented to the breach of fiduciary duty.
The judge decided that, by purchasing their units with the information known to them, the first owners had consented to the developer's breach of duty. Because of an uncertainty in the terms of the lease, the judge held that the first owners' consent was limited to the first three years. Rentals earned beyond that period, that came from parking stalls used by residents of the strata units owned by the first owners, were ordered to be repaid to the strata corporation.
The developer also claimed that it should not have to repay rentals made by residents of strata units owned by subsequent owners. Repayment would be a windfall because they purchased their units at lower prices, which reflected the fact that they would not have the use of the parking stalls, a right they now had.
The judge accepted this argument, in principle, but there was insufficient evidence to establish the low price. He held that the consents of the original owners to the breaches of fiduciary duty were not a defense to the claim by the subsequent owners, and the developer was ordered to repay these rentals as well.1
The same breach of fiduciary duty was found in an Alberta case, in which there were 125 parking stalls for 77 condominiums, and the excess parking stalls were leased to the developer for 99 years.2
In an Ontario case, a developer was required to pay to the strata corporation the amount the developer had received from the sale of additional parking spaces.3
Another case in which a corporate developer was unsuccessful in an action to recover from a lot buyer the GST of $25,000, which the developer was forced to pay to Revenue Canada upon the refusal of the buyer to do so. The sale had proceeded upon the basis of wrong advice, that it was exempt from GST. The developer's action failed because it could not prove that it had given written notice to the buyer, either that the sale price included GST or, if it did not, the purchase price and the amount of GST to be paid by the buyer.
The facts were almost identical to those in the GST case discussed in Column #261, where the obligations and rights of a seller in these circumstances are set out in detail. The significant difference is that the seller in the Column #261 case succeeded, because the parties were using the commercial Contract of Purchase and Sale of the Victoria Real Estate Board. The clause it contained, with respect to GST, formed part of the contract and was held to be the equivalent of an acceptable notice from the seller to the buyer.
In this more recent case, the parties used the standard form Contract of Purchase and Sale. While it refers on the reverse side to GST, this reference is specifically excluded from forming part of the contract.4
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