Real Estate Agent, Active Director of a Company, Personally Liable for Breach of Statutory Trust by the Company #309

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

The Alberta Condominium Property Act requires that, upon the sale of residential units, substantial holdbacks from the sale proceeds to be paid to the developer, are to be retained to cover not only the cost of completion of the strata lot, but of the common property. The holdbacks are deemed to be trust funds and the persons responsible to retain them are the developer and any person acting on its behalf.

In one Alberta project, a family consisting of a father and two sons, one of whom was a licensed real estate salesperson, incorporated two companies, one to develop some property and the other, a real estate firm to market it. The project fell into financial difficulties and the development company became insolvent. The buyers of strata lots sued the developer, the real estate firm and the lawyers acting for the developer for their failure to hold back the estimated amount of $360,000 required to complete the common property.

None of the parties thought the holdback provisions applied because the subdivision created a bare land strata to be used for resort or recreational use and not as a residence or permanent residence. The judge held that this opinion was wrong. Since the law and real estate firms had paid to the developer the proceeds of the sale of strata lots and of excess deposits respectively, each was found liable in damages to the lot owners.

The three family members were directors of the development company, the real estate licensee and his brother were directors of the real estate firm, and all three were sued personally by the lot owners. While it was clear that none of them, including the real estate salesperson, had actual knowledge of the holdback provisions, the law deems that both the company and its directors must know of the existence of a statutory trust.

The licensed real estate salesperson, who was acknowledged as being the driving force behind the project, was found personally liable for the breach of trust of which he was deemed to have knowledge. Neither the father or brother were found personally liable because of their relative lack of participation in the activities of the developer.¹

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Ingenious schemes are often put forward in an attempt to avoid the sometimes onerous provisions of a statute. Some work, some do not, and the one described below is in the latter category.

It was an attempt to avoid the requirements for registration of a bare land strata plan. Two hundred resort strata lots and one commercial lot were to be created, and to each resort strata lot was to be assigned one of 200 recreational vehicle sites as limited common property. The Land Title Office refused to register the strata plan because the building in which the 200 strata lots were located was a mailbox, without floors, walls, a ceiling and incapable of occupation. The developers unsuccessfully appealed the registrar’s ruling, the judge holding that it was reasonable for the registrar to conclude that compartments in the community mailbox did not constitute a building.²

1.

Bare Land Condominium Plan 8820814 v. Birchwood Village Greens Ltd., 22 RPR (3rd), p.263.

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