Often I am approached by strata corporations to provide guidance regarding the use of common property by owner/ developers and others who are not owners of strata lots at the time such guidance is requested. This situation is often reflected by a 99 year lease of parking stalls or the use of roof top decks or the like. There have been cases decided in the past 5 years or so that have addressed the issue and resolved the disputes in favour of the strata corporations.
There are a number of principles that one must keep in mind. Firstly, section 12 of the Condominium Act provides that the common property, common facilities and other assets of the strata corporation must be held by the owners as tenants in common proportional to the unit entitlement of their strata lots. Secondly section 116(a) of the Condominium Act states that a strata corporation must control, manage and administer the common property, common facilities and other assets of the strata corporation for the benefit of all owners (which has been judicially considered and held to mean “the greatest good for the greatest number”). Thirdly, section 20 of the Condominium Act provides that a strata corporation can dispose of common property by special resolution. Of course a special resolution requires a 75% affirmative vote at a properly convened general meeting of the owners – that means a minimum of 14 days notice of the resolution.
In Strata Plan 1229 v. Trivantor (March 1995), the B.C. Supreme Court held that members of a strata corporation bear a fiduciary duty to protect the interests of all strata lot owners, as well as the interests of the strata corporation. The Court also held that this duty remains at all times regardless of whether the members are owner developers or simply owners. This case dealt with the obligations of the single owner of all strata lots for many years to properly maintain the common property.
In December 1995, another decision of the Supreme Court of British Columbia addressed the fiduciary duty issues and expanded upon the principle in the Trivantor case. In Strata Plan 1261 v. 360204 B.C. Ltd., the Court addressed the parking stall agreement and whether a 99 year “lease” was a contractual license for exclusive use and enjoyment of all parking stalls for a period of 99 years. The Court held that the Developer was under an obligation to the individual purchasers of strata lots not to allow its self interest to interfere with the interests of the present and future owners. That principle prevented the owner developer from using its control of the strata corporation in its infancy to ameliorate its position at the expense of the future owners. The owner developer should be prevented from entering into transactions with itself for its benefit as developer but to its detriment as owner. The Court held that the parking stall agreement was made for the exclusive benefit of the Developer with no benefit to the individual owners.
Both the Trivantor and Strata Plan 1261 decisions were recently considered (March 24, 2000) by the B.C. Supreme Court (Matthias v. Strata Plan VR2135). In this case, Ms Matthias, when purchasing her strata lot, entered into a lease agreement with the Developer and the Strata Corporation, that provided, among other things, that Ms. Matthias would enjoy the exclusive use of one of two roof top deck common areas for a 99 year period and a further 99 year option. The Lease was registered in the Land Title Office and all subsequent purchasers of strata lots were deemed to be aware of the Lease. Mr. Justice Wong applied the Strata Plan 1261 decision and held that the roof top deck Lease Agreement was void.
Although the Judge did not expressly mention section 20 of the Condominium Act it is clear that even if a special resolution were passed to dispose of common property, it would need to be passed after the first AGM, by operation of the Fransecutto case, a British Columbia Court of Appeal decision.
What does all this mean? It means that an owner developer must be very careful before it decides to grant multi year lease of common property that may be to the detriment of strata corporations. Often these agreements are signed by the same person who conceptually is wearing two hats – one as a Developer representative and the other as a Strata Corporation representative. The Courts are protecting the owners by holding such arrangements are a breach of fiduciary duty.
Frequently I hear owners complain that while they are responsible for the maintenance of common property such as parking stalls the developer or anther receives the benefit of the maintenance at no cost – often as the developer or another receives considerable revenue as a result of the assignment of the exclusive use of say parking stalls. Strata Plan VR2135 reinforces the notion that strata corporations can do something about such arrangements; namely applying to Court to have the agreements declared void based upon section 116(a) of the Condominium Act and the fiduciary duties owed by developers to present and prospective owners.
Once a strata plan is registered the developer is a completely separate entity from the strata corporation formed as a result of the strata plan registration and the developer must act in the best interests of the strata corporation, not itself, when holding itself out as the strata corporation. Perhaps a paragraph from Justice Wong’s decision in Strata Plan VR2135 states it best:
“In my opinion, this Lease Agreement was not in the best interest of all the owners. Such owners include prospective owners. The agreement would only be of benefit to the owner/developer who received a higher price and the petitioner, who received exclusive use and potential maintenance expense subsidization from other owners. No benefit can be seen for the other unit owners.”