A closer look at the Report on Common Property, Land Titles, and Fundamental Changes for Stratas: Should the Strata Property Act provide that a lease of a fixture that is common property or of a common asset entered into by the owner-developer may not exceed five years?
4 July 2019
By Kevin Zakreski
This post is the first of a series highlighting key recommendations in the Report on Common Property, Land Titles, and Fundamental Changes for Stratas. For other entries in the series, click here.
Brief description of the issue
Despite general provisions imposing duties and restrictions on owner-developers, there are still specific concerns about transactions involving common property. These concerns relate to long-term leases tying up a strata’s common property (items such as enterphones and security cameras often figure as examples) after the owner-developer has left the scene. Sometimes, the concerns extend to service contracts entered into on the strata’s behalf by the owner-developer. Other provinces have enacted legislation that reins in these transactions. Should British Columbia follow their lead and amend the Strata Property Act to directly address these concerns?
Discussion of options for reform
There is a range of options that could be considered in response to this issue, which would run from proposing a robust power for the incoming strata council to terminate leases entered into by the owner-developer to retaining the status quo.
Enacting legislation that would create an enhanced termination power for leases entered into by the owner-developer would directly address concerns raised about such leases binding strata corporations to unfavourable terms far into the future. It would also be a simpler mechanism to exercise than litigation over whether an owner-developer has failed in its duty to act in the best interests of the strata corporation.
But such an amendment would also have downsides. The main downside of a broadly framed termination power is that it would cast a chill over all contracts that the owner-developer would attempt to enter into on the strata corporation’s behalf. Contracting parties could decide that the uncertainty created by such a power would make it not worth their while to enter into contracts with the owner-developer. Or they could insist on concessions to make up for the perceived loss of contractual certainty. Either development could have significant long-term economic consequences for the strata corporation.
These disadvantages could lead to the conclusion to retain the status quo. It could be argued that the current legislation strikes the right balance. It gives strata corporations some tools to combat the worst abuses but doesn’t go so far as to create contractual uncertainty.
The drawback of this approach is that it leaves any concerns about the current law unaddressed. There are indications of frustration within the strata sector about leases of common property. The current law appears to lack an answer to this frustration.
Between these two ends of the spectrum there is any number of intermediate options that could be considered. It may be possible to craft a narrowly tailored provision that would weed out concerning leases while not doing much to unsettle contractual certainty. But the downside of such an approach is that it might only provide temporary relief. Frustrations could re-emerge if some new practice, related to but distinct from the current approach, were to grow up as a way to get around a narrowly tailored provision.
The committee’s recommendation for reform
In the committee’s view, there are serious concerns arising from this issue, which should be met with a legislative response. But the committee was unwilling to go so far as to propose an enhanced power to terminate leases of common property. The advantages of such a power are outweighed by its disadvantages.
In the committee’s view, there are problems arising from certain leases of common property and common assets. These problems can be addressed by a tailored provision. Such a provision should be directed at the term of the lease. In the committee’s view, the real problems arise from leases that stretch out far into the future, binding the strata corporation long after the owner-developer has left the scene. A provision that limits the term of such leases would clear up much of the current frustration. Consultation respondents supported the committee’s proposal on this issue, by a solid majority.
The committee favours five years as the length of a statutory limitation on lease terms. Some arbitrariness would attach to any number selected here. Five years is a common lease term, and would appear to strike the best balance between being a reasonable length and not excessively binding the strata corporation. But to address cases in which some flexibility would be desired, the committee also favours building a mechanism into the legislation, allowing for a longer term.
The committee also favours limiting the reach of this proposed provision to common property that can be classified as fixtures and to common assets.
The specifics of these last two points are addressed later in the report.
The committee recommends:
The Strata Property Act should provide that any lease, entered into by the owner-developer, of a fixture that is common property or of a common asset must not have a term that exceeds five years.