Strata Property Act—Common Expenses, Issue Between Non-Sectioned Apartment and Townhome Units; Strata Property Act—Undisclosed Strata Council Conflict of Interest #392
By Gerry Neely
A strata corporation incorporated in 1987 had 36 apartment-style units and eight townhome-style units. The original owners agreed it would be fair to allocate 18 common expenses on a percentage basis between the two styles, based on the extent to which the benefit of an expense was attributable to one or the other. The allocated common expenses were then shared among the owners of each style in accordance with unit entitlement.
No action was taken under s. 51 of the old Condominium Act to formally create apartment and townhome sections. This arrangement ended in 2003 when the strata council decided the Strata Property Act (SPA) required common expenses to be shared by all owners on the basis of unit entitlement, regardless of the type of dwelling. The townhome owners considered this unjust; however, a resolution to create two separate sections under s. 193 of SPA failed to obtain the necessary three-quarters approval of eligible voters.
The townhome owners then petitioned under s. 164 of SPA, which gives the judge power to remedy a "significantly unfair" decision of the strata corporation. "Significantly unfair" has been interpreted to mean more than "mere prejudice and trifling unfairness" and as much as "oppressive and unfairly prejudicial" conduct.1
Their main complaint was that they were contributing to the costs of providing some services and facilities to the apartment units, while paying fully for the same services and facilities provided to their townhomes. The apartment unit costs included hot water, lighting, maintenance and replacement of storage lockers, washers and dryers, maintaining, cleaning, snow clearing and servicing of parking areas for the apartment owners. The judge agreed this was significantly unfair and ordered the strata corporation to exclude these expenses from future budgets, unless the costs were covered by the apartment units.
In response to the townhome owners' complaint that expenses such as yard and building maintenance benefited the apartment owners more than them, the judge held this wasn't significantly unfair and refused to interfere with the payment of a common expense based on unit entitlement. This result left the townhome owners contributing to nine of the expenses formerly allocated to the apartment units. This could have been avoided had they applied for the creation of apartment and townhome sections under the Condominium Act in 1987, when there was so much goodwill among owners.2
Section 33 of SPA gives a court the power to set aside a contract or transaction for failure of a strata council member to disclose a conflict of interest as required by s. 32, if the contract or transaction is "unreasonable or unfair" to the strata corporation. In addition, the member may be ordered to compensate the strata corporation for any loss arising from the contract or transaction.
Strata council members were found to be in breach of these sections when the strata corporation commenced litigation over the opposition of some strata lot owners and without getting the three-quarters vote required by s. 171 of SPA. This, plus the failure to disclose two conflicts of interest, led to an order directing them to repay to the strata corporation $193,398 for legal fees spent by it from operating funds.3
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