The Condominium Act - Section 49 #159

By Gerry Neely
B.A. LL.B

This section states that no expenditures in excess of $500 shall be made by a strata council unless: (a) an emergency exists, or (b) the expenditure was set out in the annual budget of the corporation which was approved by the owners at a general meeting, or (c) the owners approve the expenditure by a special resolution.

A company entered into a contract with a property management company acting for a strata corporation for the sale to it of heat saving devices costing $3,200. The property manager did this with the prior approval of the strata council although there was no evidence of a meeting at which formal approval was given by the council.

The expenditure was not included in the budget, no emergency existed and no special resolution approving the expenditure had been submitted to the owners. New property managers were appointed and upon an examination of the contract, the council instructed the property manager to advise the supplier to remove the system. The supplier refused to do so, and the lawsuit followed.

The failure to submit the special resolution to the owners was a breach of Section 49 which the strata corporation relied upon to deny that the contract was valid. The judge remarked that he had found no reported decisions interpreting this section and came to a conclusion with which one might argue, that the contract was valid but voidable at the option of the strata corporation. It could elect to affirm the contract or to avoid it.

Other examples of voidable contracts cited by the judge included contracts entered into by mentally disordered persons or persons affected by drink. Depending upon the circumstances, people who sign contracts when insane or drunk should avoid them until they become lucid or sober.

The judge concluded that the strata council exercised its right to avoid the contract when it gave notice to the supplier to remove its equipment. The result is that instead of bearing the consequences of its own default, the strata corporation was able to use its own omission to defeat the supplier's claim for the purchase price.

What does this decision mean for property managers, strata councils and third parties contracting with a strata corporation? The judge clearly assumed that before incurring this expenditure, the property manager had a responsibility to obtain the approval of the owners by special resolution. Few will argue that a property manager's duty is to be able to provide to council and the owners, advice of the sections of the Condominium Act which affect them, and in particular, those dealing with the strata corporation's finances.

No reference was made to the strata council's responsibility although surely it must be argued that it had an equal responsibility to obtain approval.

What may a future judge do when asked to balance the rights of an innocent supplier against the actions of a careless strata council? A judge might decide that in agreeing to serve as strata council members, they have accepted the responsibility of knowing the principal provisions of the Condominium Act which affect them and the owner.

The Condominium Act relieves a member of a strata council from personal liability in respect of acts done in good faith. However, failure to observe the requirements of Section 49 might be deemed to be bad faith in an action brought by a supplier against members of a strata council who entered into or authorized the execution of a voidable contract.

Finally, as to a supplier dealing with a strata corporation, this judgement says that the supplier cannot assume that a strata council has authority to approve an expenditure of more than $500, or to authorize a property manager to do so. There may be circumstances when a supplier will wish to obtain proof that the expenditure is authorized by the budget or by a special resolution.¹

1.

Can-Pac Energy Consultants Ltd. v. Carriage Management Inc. and the Owners, Strata Plan VR.201Reasons For Judgement SCBC Vancouver Registry F866241.

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