A closer look at the Report on Complex Stratas—should the Strata Property Act continue to require a strata corporation to hold an annual general meeting after the deposit of each phase in a phased strata plan other than the first phase?
July 18, 2017
BY Kevin Zakreski
This post is the third in a three-part series highlighting key recommendations in the Report on Complex Stratas (PDF). For other entries in the series, click here.
The committee’s review of phased strata plans was diverse and wide-ranging. A lot of its time was spent considering how to apply the act’s governance standards to phases deposited after the new phase. A representative example is the requirement to hold an annual general meeting in set time after the deposit of each new phase. Applying this requirement can set in motion a series of other operational and administrative issues. It can also result in multiple “annual” general meetings being held in a single year. The committee decided that the phasing process would benefit from the simplification that would result from the repeal of provisions like this one. Here is a closer look at the committee’s reasoning.
Brief description of the issue
The act’s basic rules on annual general meetings apply to the strata corporation created by the deposit of the first phase in a phased strata plan. But the act also calls for holding annual general meetings, within a defined timetable, for each new phase. Since more than one new phase could be deposited within the same year, this requirement has been criticized as causing duplication and confusion. Should the act rechristen the general meeting that needs to be held after the deposit of a new phase? Should it alter some of the demands made in connection with holding that meeting? Or should it do away with the requirement to hold a general meeting at all?
Discussion of options for reform
The committee considered several options for reform, ranging from simply changing the name of the general meeting to fundamentally reworking the requirements upon deposit of a new phase to doing away with those requirements altogether. Its starting place was an examination of the rationales for the current rule, along with its advantages and disadvantages.
The holding of an annual general meeting is a milestone in any strata corporation’s governance. The election of a strata council and the adoption of an annual budget take place at the annual general meeting. There are special obligations on an owner-developer that tie into the first annual general meeting, such as the turnover of major documents and the transfer of physical and financial control from the owner-developer to the strata council, and special requirements that relate to the budget presented to the first annual general meeting.
Calling for an annual general meeting after the deposit of new phases can be seen as an efficient way to integrate those phases into the regulatory structure applicable to strata corporations generally. It’s of a piece with the broader approach to phased-strata governance found in the act and the Strata Property Regulation , which relies heavily on incorporation by reference.
But this approach has been criticized in commentary on the act and the regulation.
Commentators’ criticisms appear to be aimed at two related but distinct targets. First, commentators have criticized the legislative drafting of the relevant provisions of the act and the regulation, specifically their reliance on the expression annual general meeting. This expression can lead to confusion in cases in which it appears to require a strata corporation to hold two or more “annual” meetings in one year.
Second, commentators have also questioned some of the substantive requirements imposed by this choice of words. The target here appears to be the policy that deposit of a new phase should be treated as the functional equivalent of deposit of a non-phased strata plan (with a few exceptions allowed by regulation). This approach has been characterized as “complex” and burdensome.
One commentator has illustrated these points with a detailed example, which featured the following events happening at the following dates:
- 15 January 2015: strata corporation for a phased strata plan with only one phase deposited in the land title office holds its annual general meeting;
- 30 January 2015: second phase deposited in the land title office;
- 30 March 2015: third phase deposited in the land title office;
- 30 July 2015: strata corporation holds second annual general meeting;
- 30 September 2015: strata corporation holds third annual general meeting.
According to this commentator, this scenario illustrates the general “confusion,” “inconvenience,” and “expense” of the reliance on annual general meetings as part of the means of integrating new phases into an existing strata corporation. Fleshing out the point, the commentator referred to the following specific difficulties that may occur in such a scenario:
- the strata corporation must incur the time and expense needed to prepare and distribute a budget multiple times;
- there may be confusion about the numbers and terms of strata-council members to be elected;
- strata corporations may fail to ratify rules at the appropriate annual general meeting, leading to confusion about their status (as ceasing to have effect).
A simple way to address the drafting issue would be to change the word annual in the legislation to special. Since it’s always possible to hold multiple special general meetings in one year, this change would address the logical confusion that is caused by having the act appear to call for more than one annual general meeting in one year.
But this drafting change would also sever the link between the first general meeting held after the deposit of a subsequent phase and the act’s general requirements for a strata corporation’s first annual general meeting. This could be the intended consequence of this change. In addition to clarifying the language of the provision, it would also address two of the three areas of confusion noted above. Since the meeting is a special general meeting, there would be no requirements to approve a budget or elect a new strata council.
The content of such a special general meeting would appear to be completely under the control of the affected strata corporation. There may be advantages to this approach. It may give phased stratas the flexibility to deal with just the issues that affect them, without getting bogged down in irrelevant general requirements.
But there would also likely be drawbacks to this proposed change. It could result in swapping the confusion caused by trying to apply the overly specific framework for annual general meetings to the meeting held after deposit of a subsequent phase for the confusion that will likely be caused by trying to apply the open-ended framework for special general meetings to the meeting held after deposit of a subsequent phase. It’s possible that strata corporations could simply put off dealing with financial and governance issues until the next strata-corporation annual general meeting, robbing this special meeting of most of its purpose. This might result in ongoing confusion and tensions within the strata corporation.
Another way to approach this issue would be to make the drafting change—swapping annual for special—and then make additional amendments designed to give specific instructions about what a strata corporation would need to address in this special general meeting. Under this approach, it would be necessary to go through all the matters that must be addressed at an annual general meeting and decide whether they should be addressed in this type of special general meeting.
This approach might be the clearest way to proceed. It would address the logical confusion caused by holding multiple “annual” meetings in one year. It would also present the opportunity to expressly set out the issues that must be addressed at this general meeting, rather than relying on a form of incorporation by reference.
There may be downsides to this option, which would vary with the approach to it the committee decides to take. A modest approach would likely result in something similar to the status quo, which has been criticized as complex and burdensome. A more ambitious approach runs the risk of resulting in an even-more complex legal framework.
Finally, another option would be to repeal the requirement to hold a general meeting after deposit of a new phase. This approach would have the advantages of clarity and simplicity. The confusion generated by having to hold multiple “annual” general meetings in one year would disappear. This option would also lessen the administrative burden on the strata corporation, which would be allowed to plan for the integration of the new phase on the strata-corporation’s existing general-meeting timetable.
The downside of this option is that it would delay integration of the new phase into the strata corporation. The act provides that a new phase is instantaneously amalgamated with the existing strata corporation upon its deposit in the land title office. Doing away with the requirement to hold an annual general meeting shortly after depositing the new phase means that the ultimate integration of that phase into the strata corporation will take place on a longer timetable. Important governance and financial issues might only be addressed in as many as 11 months after deposit of the phase. This could allow problems to develop and fester.
The committee’s recommendation for reform
The committee gave this issue extensive discussion. It considered various name changes, as well as potentially rolling back some of the substantive requirements that crop up when a new phase is deposited in the land title office.
In the end, the committee favoured the clarity and simplicity of repealing the requirement to hold a general meeting shortly after deposit of a new phase.
The committee understands that it isn’t uncommon to see multiple new phases deposited in a single year. As the commentary on this issue shows, when this occurs it imposes significant levels of confusion and administrative burdens on the strata corporation and its agents and advisors. These problems could be addressed by renaming the general meeting and by tweaking some of its requirements. But this approach would only provide a partial solution. The greater gains in simplifying the administration of a phased strata plan, in the committee’s view, outweigh any disadvantages in lengthening the timetable for integrating the new phase into the existing strata corporation.
The committee addresses the major implications of this decision in its following recommendations on phase-strata-corporation governance and finances.
The committee recommends:
Section 230 of the Strata Property Act, which requires a strata corporation to hold an annual general meeting during the six-week period that begins on the earlier of the date on which 50% plus one of the strata lots in the new phase have been conveyed to purchasers and the date that is six months after the deposit of the new phase, should be repealed. Consequential amendments should be made to sections 13.2 to 13.6 of the Strata Property Regulation.