Spotlight on sections: Should all sections have a say in whether a section is cancelled?
7 October 2016
By Kevin Zakreski
BCLI is running a public consultation on complex stratas. It is asking for public input into proposed changes to the law governing sections, types, and phases. For information on how to participate in the consultation please visit the Strata Property Law Project—Phase Two webpage.
This post is part of a series that spotlights issues on sections, types, and phases discussed in the Consultation Paper on Complex Stratas. To read other posts in the series please click here.
Brief description of the issue
The rules on cancelling a section are spelled out in section 193 of the Strata Property Act. These rules require a strata corporation to “hold an annual or special general meeting to consider . . . cancellation [of a section].” Notice of this meeting must include “a resolution to amend the bylaws to provide for . . . the cancellation of the sections.”
There is a special rule that applies to the voting threshold for passing this resolution. It must be approved by both the strata corporation and the affected section. As the legislation puts it, the resolution “must be passed”
- by a 3/4 vote, and
- by a sectional 3/4 vote.
But if the strata corporation has more than one section in existence, there is nothing in the legislation that requires the approval of those other sections to the cancellation of the section at issue. Should the act be amended to contain this requirement?
Discussion of options for reform
The committee considered two options for this issue: amending the act to require approval of all sections (plus the strata corporation) to cancel a section and retaining the status quo.
Amending the act would allow it to directly address situations in which a strata corporation has a number of sections with imbalances in their voting power. Consider, for example, a strata property that consists of a large apartment building and a small row of townhouses. The strata corporation in this example has two sections: one for the owners in the apartment building, the other for the townhouse owners. The sections were created to address the cost-sharing problem. So “expenses of the strata corporation that relate solely to the strata lots in a section” are allocated to the appropriate section. For example, expenses relating to the elevators are allocated to the apartment section, while expenses related to landscaping around the townhouses are allocated to the townhouse section.
At some point after this arrangement is set up, the owners in the apartment section decide that they want to cancel their section. The effect of this decision will be that expenses that were once allocated to owners in the section (such as those for the elevators) will become common expenses of the strata corporation, to be shared by all strata-lot owners in accordance with a formula based on their strata lots’ unit entitlements. Under the current rules, the owners in the townhouse section don’t have an independent say in this decision, even though it will affect the calculation of their strata fees. In other words, the original solution to the cost-sharing problem for this strata corporation could be undone by one group of owners, creating a new arrangement that makes the expenses previously allocated to the apartment section into strata-corporation expenses, while leaving those expenses allocated to the townhouse section as section expenses. (The owners in the townhouse section could seek to cancel their section, but their ability to go through with this decision would be at the mercy of the greater voting power of the apartment owners, as they would determine whether or not a resolution of the strata corporation would pass by a 3/4 vote.)
Requiring the consent of each section of a strata corporation to the cancellation of any section would directly address this concern. It would provide another layer of protection to section owners. Section owners in comparatively small sections would not be faced with situations in which cancellation of another section could leave them financially worse off but in which they also lacked the voting power to prevent this change.
This proposed reform could also provide some encouragement for stratas to think about decisions on sections and cost sharing holistically. Even when these decisions seem only to affect one group of owners they may have consequences that can ripple across the whole strata corporation.
There are some disadvantages to this proposed amendment. It would likely increase the time and cost associated with cancelling a section. And other downsides flow naturally into what may be considered strengths of the other option to consider, retaining the status quo.
In examining the advantages of the current rules on cancellation, it’s important to note that cancelling a section entails “a resolution to amend the bylaws.” As a result, it engages section 128, which provides that “amendments to bylaws must be approved at an annual or special general meeting” and “in the case of a strata plan composed of both residential and nonresidential strata lots, by both a resolution passed by a 3/4 vote of the residential strata lots and a resolution passed by a 3/4 vote of the nonresidential strata lots, or as otherwise provided in the bylaws for the nonresidential strata lots.”
So section 128 already provides some protection against abuse of imbalances in voting power. If the example discussed earlier had featured a residential section and a commercial section, then section 128 would have applied and would have given both sections a say in the decision to cancel. As a result, section 128 lowers the potential for abuse.
The committee’s tentative recommendation for reform
The committee is concerned about possible abuses of voting power in cancelling a section. Section 128 provides some protection, but it doesn’t cover the field.
The committee also considered whether the act’s provision on preventing or remedying unfair acts could address concerns about abuse of voting power in cancelling a section. The first thing to note about this provision is that it can only be invoked on “application of an owner or tenant.” In other words, a section itself can’t bring a court application seeking a remedy under this provision. An owner (or tenant) has to bear the cost and burden of applying to court, something which is likely to prove to be a disincentive to using section 164 to remedy a complaint for the group of owners in the section. Section 164 could be amended to allow for a section to apply to court. The committee considered this possibility. It decided that a provision directly addressing this issue for reform would be superior than attempting to extend section 164 to cover it.
The committee tentatively recommends:
The Strata Property Act should require that a resolution to cancel a section must be approved by sectional 3/4 votes in each other existing section of the strata corporation.