Strata Corporations are weird and wonderful animals. In British Columbia, they have existed since the Strata Titles Act was enacted in 1966. Through the Condominium Act and now the Strata Property Act (the “Act”), it would be so good to feel as though all of us who have worked under the various enactments have learned something. Let me tell you something that I believe that I have learned; namely one can be guilty of overgoverning.
What do I mean by that? Take a look at section 26 of the Act. It reads:
Subject to this Act, the regulations and the bylaws, the council must exercise the powers and duties of the strata corporation, including the enforcement of bylaws and rules.
That sounds so simple. It is, except the Legislature included section 27(1) which reads as follows:
The strata corporation may direct or restrict the council in its exercise of powers and performance of duties by a resolution passed by a majority vote at an annual or special general meeting.
The result has been that many strata corporations, managing agents and lawyers representing strata corporations have interpreted section 27(1) to mean that when in doubt, get the owners to direct council. There was a similar provision to section 27(1) in the Condominium Act. The persons who drafted the present Act were aware of this “direction” section and therefore enacted section 27(2). That section states that the owners cannot direct or restrict council if the direction or restriction is contrary to the Act, the regulations or the bylaws, nor can the owners interfere with council’s discretion to determine whether a person has contravened a rule or bylaw, whether a person should be fined and the amount of the fine and whether a person should be denied access to a recreational facility.
While, to an extent, section 27(2) prevents overgoverning, it is not enough. I see examples all the time of strata councils not being prepared to act, without direction from the owners. This inertia can create huge problems. The problems created result in the strata council being unable to conduct business and the governance of the strata corporation becoming so difficult that strata corporations become dysfunctional.
The problems are created because the owners cannot direct the council with enough democratic majority. I know that section 27(1) calls for a simple majority vote. However, section 71 states that the strata corporation cannot make a significant change to the use or appearance of common property without a 3/4 vote resolution. Who can decide what change is significant? If the council goes to the owners for a vote regarding what is significant, because they are petrified to act otherwise, 65% of the owners might decide a change is significant. That is a majority vote and the council then holds an SGM to deal with whether a light green lobby carpet changed to medium green is a significant change in appearance. At the SGM the same 65% vote in favour of the change. Can it be changed? No, because a 75% vote is now necessary as the result of the direction of the owners that the change is significant. How could this situation be avoided? By council deciding that the change in colour is not significant and just installing the new carpet with a different shade Instead, the strata council has overgoverned by allowing the owners to get involved (section 3 of the Act states that the strata corporation is responsible for managing and maintaining the common property and as noted earlier, section 26 the council exercises those powers and duties) and now nothing can be done. The carpet change needs a 75% resolution and the strata corporation can only get a 65% resolution. Much more than half of the owners want the change but 35% have blocked the change because council overgoverned. What a mess!
There is a recent court case that is an example of this overgoverning. It is Strata Plan LMS 1468 v. Reunion Properties Inc. In this case, the strata corporation started a leaky condo action May 29, 2000. No resolution to start the action was obtained, nor under the Condominium Act was it necessary, if the strata corporation were to take action only with respect to common property building envelope leaks. However, as the result of motions by the Defendants, the strata corporation presented resolutions to the owners, at various times, to continue prosecution, to discontinue, and so on. Votes by a 3/4 majority could not be obtained. At the third meeting with respect to the third time the resolution was voted upon, the vote was tied – that is exactly half the owners wanted to continue and exactly half the owners wanted to stop the action. This could all have been avoided, if the council had realized that it had the authority under the Condominium Act to manage the common property, without direction from the owners.
Under the present Act, a 3/4 vote is necessary to commence an action. However, once commenced the council will get direction from the owners since the continued litigation will be an annual budget item at the AGM. If a resolution is tabled asking the owners to confirm continuation of the action, or indeed discontinuance of the action, the risk is a vote of more than 50% and less than 75%.
Managing agents should not counsel their strata corporations to always have votes regarding governance issues – the result can be unexpected and more importantly, bring governance of the strata corporation to a standstill. I am not recommending that no voting take place; I am just suggesting that asking for direction from the owners when it is not necessary can easily result in a deadlocked complex. Then a lawyer needs to be retained, perhaps an administrator appointed, the owners are up-in-arms and money needs to be spent to resolve a situation that should never have arisen in the first place.