There are a good number of strata corporations consisting of townhouse units and apartment units. While all units comprise the one strata corporation, it has been my experience that in a great many situations the townhouse owners wish to be “separate&uot; from the apartment owners. The Condominium Act provided for that separation by operation of section 128(2). The Strata Property Act, of course, has replaced the Condominium Act. In the process of that replacement, the new Act has recognized that there can be different “types&uot; of residential strata lots, the word “type&uot; having been used in section 128(2) of the old Act. This independence is relatively easy to deal with when addressing costs such as high rise enterphone or elevator. However, this independence and how it is addressed has become very significant when dealing with common property building envelope repair as the result of leaks and other deficiencies.
In the case Strata Corporation LMS 509 v. Andresen and others, (known as the “Chelsea Green&uot; case), Mr. Justice Skipp of the B.C. Supreme Court dealt with the responsibility of townhouse owners assisting with the expense of repairing the apartment building envelope. This case has a number of issues and a far reaching effect on mixed townhouse and apartment units in the future. The balance of this article will reflect a summary of the Chelsea Green case and the findings of the Court judgement delivered February 7, 2001.
Chelsea Green was a leaky condo to the extent that the apartment building leaked and the estimated cost to repair amounted to over $600,000.00. Predictably the 182 townhouse units owners were very reluctant to agree to pay unit entitlement contribution for the repair of the 42 apartment unit building. The resolution to repair the apartment building on the basis of contribution of all the owners was defeated.
The Court first had to deal with the issue whether the Condominium Act or the Strata Property Act governed the situation. The apartment owners lawyer argued that the old Act applied because all times relative to the dispute occurred and all pleadings were filed prior to July 1, 2000. The Court held that pursuant to the transition provisions of the new Act, the Strata Property Act and the Strata Property Act Regulations governed the dispute, even though events prior to July 1, 2000 were relevant in determining how the repair levy would be treated as an expenditure.
The Court then addressed whether there were actually different “types&uot; of strata lots at Chelsea Green. The Judge found on certain unique circumstances that due to the Strata Council conducting itself for past repair expenses on the basis that there was only one type of strata lot, even though the budget indicated different types, the Strata Council had acted within its discretion as afforded by the legislation. However, that ruling did not really matter because the Court addressed the issues in any event on the basis that it, the Court, could be incorrect.
The Judge addressed sections 92 and 99 and Regulations 6.4(2), 11.2(2) and 17.13 of the Strata Property Act, Regulations 6.4(2). Section 99 states that owners must contribute to the strata corporation their strata lots’ share of the total contributions budgeted for the operating fund and contingency reserve fund by means of strata fees calculated in accordance with s. 99 and the Regulations. The decision whether the costs to repair were included in the definition of the Operating Fund appeared to be crucial. Operating fund expenses are those expenses that usually occur either once per year or more often than once per year. On the other hand, contingency reserve expenses were expenses that occurred less often than once per year or that did not usually occur at all (s. 92).
The lawyer for the townhouse owners submitted that the costs to fix the apartment building were operating expenses. If he were successful in that argument, then by operation of Regulation 6.4(2), if a contribution to an operating fund relates to and benefits only one type of strata lot (in this case the argument was it benefits only the apartment units), and that type is identified as a different type in the bylaws of the strata corporation, then there is no need for the townhouse owners to contribute. Of course the lawyer for the apartment owners argued that the expense, for fixing the envelope, was an expense that occurred less often than once per year and hence a contingency reserve expense. Regulation 6.4(3) provides that such an expenses must be shared by all the owners. Surprisingly, at least at first blush, the court held that the cost to repair was an operating fund expense, one that occurs once per year or more often.
The reader may recall the Marco Polo v. Strata Plan LMS 1328 case that held that the cost or building envelope repair of a leaky condo could be considered an administrative expense and part of the budget rather than a special assessment, when a special resolution vote could not be obtained. Mr. Justice Skipp applied that case to the Chelsea Green situation. He held that expenses concerning interim and emergency repairs to the apartment building envelope, investigative work, design work and remedial work would continue to be incurred each year that the building was not repaired. In retrospect that can be understood because the Courts are doing their best to ensure that strata corporations are discharging their statutory duties and ensuring that minorities of owners cannot block a strata corporation from repairing building envelopes.
I am convinced that at this point in reading the Reasons, the lawyer for the townhouse owners would believe he had been successful. However, prior to his determination that the repair was an operating expense the Judge had also referred to the Royal Bank v. Holden case where Mr. Justice Bauman had referred to the condominium concept of people living together in individually owned units within a common shell. Adopting that concept, Mr. Justice Skipp found that Regulation 6.4(2) did not apply to Chelsea Green. He held that the levy to repair the apartment building envelope would relate to and benefit the townhouse strata lots as well as the apartment lots. He found that there had been a diminution in value of the townhouse units exceeding the average downturn of condo units in Langley and that the repair would affect both types of units in terms of increased saleability. On that basis, the Court held that the townhouse unit owners must pay their unit entitlement share of the repair of the apartment building envelope.
While I am still not convinced that such repair is an operating expense, there are now two Supreme Court case, neither of which has been appealed, that hold otherwise. As stated earlier, I believe the Courts have held that to ensure that the Strata Property Act obligation upon a strata corporation to repair is paramount and the courts will assist owners in discharging that obligation. On the other hand, I am convinced that Mr. Justice Skipp made the correct decision with respect to the obligation of all owners to contribute in the repair because condominium living as a community demands no less.
Regardless of my view, it is clear to me that the Courts have decided “all for one and one for all&uot; when it comes to significant repair of building shells, rather than funding routine and regular expenses such as enterphone and elevator maintenance.
One final comment. The Court addressed Regulation 17.13. It is extremely important for owners, strata councils, strata corporations and property managers to understand this Regulation. If a strata corporation has been addressing expenses on the basis of different types of strata lots as contemplated by section 128(2) of the Condominium Act (and of course all readers know that Part 5 of that Act will no longer exist after Jan. 1, 2002) and the strata corporation does not have any other particular bylaw on that issue, the ability to continue to segregate expenses on the basis of types will cease Jan. 1, 2002. The government recognized that and by Regulation 17.13 has provided that a bylaw, provided it is passed before Jan. 1, 2002, can be passed by a simple majority to reflect the segregation. If the bylaw is not passed by the strata corporation by Dec. 31, 2001 then it will no longer exist and can only be passed at a later date by the usual 3/4 majority required to amend all other bylaws. In other words, deal with it now, do not wait!