BC Supreme Court appoints administrator, orders special levy aimed at remedying “quintessential leaky condo”

5 October 2016

By Kevin Zakreski

In a recent decision, the Supreme Court of British Columbia appointed an administrator for a strata corporation under section 174 of the Strata Property Act and ordered a special levy to a maximum amount of $16 827 000 under section 165 of the act.

Santos v The Owners, Strata Plan LMS 1509, 2016 BCSC 1775, involved “a large 250-unit residential strata complex” located in east Vancouver and made up of 11 buildings: “four mid-sized four storey buildings (buildings A, B, D, E); and five small two-storey buildings (buildings F1, F2, F3, F4 and F5).”

The strata property was suffering from “serious and long-standing water ingress problems,” which dated back to shortly after completion of its construction in 1994. But the strata-lot owners were divided over how to address these problems and how to fund the necessary repairs. While there was a lengthy history to these divisions, with many twists and turns, by the time of this proceeding the dispute had narrowed to the following dimensions:

The outstanding dispute between the parties turns, fundamentally, on the cost of repairing the building envelope. While the parties agree on the nature of the repairs required (e.g., the replacement of the face-seal cladding system with a rain-screen cladding system), they have not been able to agree on the amount of the appropriate levy to fund the repairs.

This dispute generated the current litigation, in which a group of owners essentially sought the following orders:

  • an order under s. 174 of the Act appointing an administrator to oversee the necessary remedial repairs; and
  • an order under s. 165 of the Act that: (a) the respondent strata corporation fulfill its statutory duty to repair and maintain the building envelope and other common property; and (b) a special levy be issued for purposes of funding the repairs.

The strata corporation was opposed to the requested orders.

“In discerning whether the appointment of an administrator is in the best interests of the strata corporation,” the court considered the factors set out in Lum v Strata Plan VR519 (Owners of), 2001 BCSC 493 at para 11:

In my view after reviewing the authority available, bearing upon this question, factors to be considered in exercising the Court’s discretion whether the appointment of an administrator is in the best interests of the strata corporation include:

  • whether there has been established a demonstrated inability to manage the strata corporation,
  • whether there has been demonstrated substantial misconduct or mismanagement or both in relation to affairs of the strata corporation,
  • whether the appointment of an administrator is necessary to bring order to the affairs of the strata corporation,
  • where there is a struggle within the strata corporation among competing groups such as to impede or prevent proper governance of the strata corporation,
  • where only the appointment of an administrator has any reasonable prospect of bringing to order the affairs of the strata corporation.

In addition, there is always to be considered the problem presented by the costs of involvement of an administrator.

In the court’s view it was “patent” that an administrator be appointed:

In light of the admitted dispute between competing groups, the inability of the strata corporation to effectively implement and oversee these repairs over the course of two decades, and the consequent protracted delay in repairing the common property, it is patent that the appointment of an administrator is in the best interests of the strata corporation.

The bulk of the court’s decision was taken up with whether to grant the order requested under section 165 for a special levy.

It began its analysis by noting that section 165 (c) gives the court the “discretion to issue a special levy.” After noting that section 108 of the act requires approval of a special levy by a resolution passed by a 3/4 vote, the court observed:

the democratic process has been engaged previously and special resolutions have failed. The owners now seek protection through the issuance of a special levy order by this Court so that long overdue repairs can be made to common property at Gardenia Villa. Of significance, these resolutions failed even though the owners accepted the recommendations of the BC Building Science Report (as well as two previous reports) that such common property repairs are necessary.

The court then went through a series of arguments submitted by the respondent strata corporation. In response to an argument that the appointment of an administrator should be sufficient to remedy the strata property’s problems, the court observed:

Further delay and further votes will not remedy the deadlock and may serve to exacerbate an already untenable situation. In the context of this case, without the issuance of a special levy order, even the appointment of a very able administrator is, in my view, unlikely to remedy the deadlock. The administrator will most probably be dealing with the same owners, the same factions and the same dynamic of conflict among them.

Next, the court tackled an issue of statutory interpretation. The respondent argued “that the statutory scheme does not permit this Court to order a special levy in this case because the Act does not permit both the appointment of an administrator and the issuance of a special levy.” The court rejected this argument for the following reasons:

It is noteworthy that both s. 165 and s. 174 are remedial in effect and are situated within Part 10 of the Act, which deals with “Legal Proceedings and Dispute Resolution”. Both provisions provide the Court with a discretionary power to provide remedies on an application to the Court. These sections provide distinctive remedies to address different disputes affecting a strata corporation. In this case, appointing an administrator to remedy executive dysfunction while also issuing a special levy to remedy legislative deadlock would give effect to the remedial purpose of these provisions and would, in my view, be in the best interests of the strata corporation. In reading the Act as a whole, it is clear that these are not mutually exclusive remedies and that there is nothing to prohibit this Court from ordering these remedies concurrently.

Finally, the court considered whether the recently enacted section 173 (2) of the act constrained its discretion to order a special levy, finding that it did not:

While I agree that s. 173(2) provides an additional remedy to owners who are seeking approval of a levy in circumstances w[h]ere a 3/4 vote is defeated but where a bare majority approves the levy, I do not accept that that the enactment of this provision circumscribes the authority and the discretion of this Court to issue a special levy in the proper circumstances, even if less than a bare majority of owners approve the levy. In this regard, the reasoning in cases such as Clarke and Toth remains compelling. Put differently, the broad remedial powers of the Court under the Act have been expanded rather than constrained by the enactment of s. 173(2).

In the result, the court granted the requested orders, with costs for the petitioners.

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