A closer look at the Report on Governance Issues for Stratas: Should the Strata Property Act provide strata corporations with a limitation period that is longer than the basic limitation period of two years in which to enforce claims for money owing from a strata-lot owner to the strata corporation?
2 April 2019
By Kevin Zakreski
This post is the part of a series highlighting key recommendations in the Report on Governance Issues for Stratas. For other entries in the series, click here.
Brief description of the issue
British Columbia’s limitation law was recently overhauled, with a new Limitation Act coming into force on 1 June 2013. The effect of this change for strata corporations was explained in commentary from a leading practice guide:
On June 1, 2013, the Limitation Act, S.B.C. 2012, c. 13, came into force, changing the limitation period for an action in debt from six years to two years (s. 6). There are transitional provisions that make all debts owing up to and including May 31, 2013, subject to the six-year limitation period (s. 30). All debts that accrue on or after June 1, 2013 are subject to the new two-year limitation period. As a result, strata corporations will have to be proactive in collecting amounts owing under the Certificate of Lien to avoid expiry of the limitation period.
The main concern with the new, shorter limitation period is pointed to at the end of this passage, which calls on strata corporations to be “proactive in collecting amounts owing.” And, while the passage refers expressly to a strata corporation’s Certificate of Lien, it is also clear that similar considerations would apply to money owing that couldn’t be secured by the statutory lien. The practical concern is that a two-year limitation period may be too short for strata corporations, significantly curtailing their flexibility in dealing with money owing from strata-lot owners. (And note that, while limitations law is focused on court proceedings, the new act also has the effect of barring “self-help remedies” that strata corporations often employ in collection cases.) Should the Strata Property Act create a special, longer limitation period for these cases?
Discussion of options for reform
This issue presents readers first with a yes-or-no question. If the answer to this question is “yes, the Strata Property Act should create a special limitation period,” then a follow-up question emerges. This question concerns the length of that limitation period. It’s a question that is much more open-ended, as potentially any number could be provided as an answer.
On the basic question, the case for a special limitation period would have to be based on characteristics of the strata corporation and strata-lot owner relationship that set it apart from other creditor-debtor relationships. It could be argued that, unlike most creditor-debtor cases, the parties involved in a strata case will usually carry on their relationship after the debt is settled. Most strata-corporation debt claims don’t end with the forced sale of the debtor’s strata lot. This means that the debtor will remain an owner in a collective residential or commercial property. An argument may be made that the legislative framework should carefully balance the needs of the debt-collection process with the goal of fostering at least a semblance of long-term harmony between owners and strata corporations. This balancing act may call for a longer limitation period, which would give the strata corporation added flexibility to deal with debts and not compel it to take early enforcement action, which could be seen as aggressive, to avoid its claim becoming statute-barred.
The difficulty with these arguments is that there may not be enough special characteristics in the strata corporation and strata-lot owner relationship, which would warrant special treatment under limitation law. After all, most creditors would prefer to have the benefit of more time and flexibility. Most creditors would also prefer not to have their options curtailed because their claims are coming up against the limitation period. The Limitation Act is relatively new. It’s unlikely that the government would be inclined to revisit it to start making exceptions for certain creditors, unless particularly strong evidence could be marshalled to prove that changes need to be made. It isn’t clear that this evidence is in place for strata corporations. After a small burst of commentary in anticipation of the coming into force of the new Limitation Act, this subject has largely disappeared from published writing on strata-property issues. This could mean that strata corporations are managing to live with the new limitation period.
If the Strata Property Act should contain a special limitation period, then the next question that arises is how long that limitation period should be. There is potentially a wide range of numbers that could be considered here.
In selecting a limitation period, it’s necessary to bear in mind the purposes of limitation law. Its purposes include promoting certainty and finality and restraining the adjudication of stale claims. The longer the limitation period, the greater the likelihood that stale claims will come before a court. Claims go stale through fading memories and lost or disposed-of records. Further, a longer limitation period brings with it the risk of losing evidence. Changing membership in strata councils, problems with accuracy of meeting minutes, and changing strata managers all increase the risk that receivables will not be collected. These concerns may arise with longer limitation periods, but they may not come to the fore in shorter limitation periods.
The committee’s recommendation for reform
The committee grappled with this issue over an extended time. On the one hand, it accepts the general points of the importance of consistency to limitations law and the need to give a relatively new act some time to be considered in practice. On the other, it was aware of problems being caused by the new, shorter limitation period.
Concerns over the effect of limitation law on strata-corporation administration can cut in two directions. A longer limitation period can increase the risk of lost evidence. It can also lead to a slackening of debt-collection practices.
But the two-year limitation period does create a real hardship for strata corporations. Financially, it doesn’t make sense for a strata corporation to move quickly to commence court proceedings to enforce a claim against an owner. In most cases the debt is small early on (but it often piles up over time), and the up-front costs of enforcement are high. Because the indebtedness tends to increase as time goes on, it makes financial sense for strata corporations to wait before beginning court proceedings.
Further, the relationship between a strata corporation and a delinquent owner is significantly different from the standard creditor-debtor relationship. When one owner fails to pay strata fees or other amounts due to the strata corporation, the harm ultimately falls on other owners, who must pick up the slack or see the value of their own strata lots decline.
The committee examined many ways to adjust the current law to reflect these two points. In the end, the simplest and best way in its view would be to create a special, longer limitation period in the Strata Property Act. The committee also decided that this limitation period should have a restricted application to just those debts that may be made the subject of a lien under section 116 of the act.
While a majority of consultation respondents (in both the full and summary consultations) agreed with the committee’s tentative recommendation on this issue, a sizable minority disagreed. Comments from consultation respondents showed there was a split on the reasons for disagreeing with the tentative recommendation. Some respondents disagreed because they favoured the current two-year limitation period. Others expressed a preference for a longer limitation period—or even no limitation period—in these circumstances.
The committee recommends:
The Strata Property Act should provide for a special limitation period for claims of money, capable of being subject to a lien under section 116, owing from a strata-lot owner to a strata corporation, of four years.