Adjustment to strata fees “paid in the period between the end of a fiscal year and the passing of the budget for the next fiscal year, is not a retroactive charge”: BC Supreme Court
September 24, 2018
BY Kevin Zakreski
In 625536 B.C. Ltd v The Owners, Strata Plan LMS4385, 2018 BCSC 1637, the Supreme Court of British Columbia took on the issue of whether an “adjustment” to strata fees to bring them into line with amounts approved in a budget passed after a strata corporation’s fiscal year end is a valid practice. The issue had been considered in two decisions of the Civil Resolution Tribunal—The Owners, Strata Plan NW 2729 v Haddow, 2018 BCCRT 37, and The Owners, Strata Plan KAS 1459 v Leonard, 2018 BCCRT 159—which concluded that the practice amounted to a retroactive assessment of strata fees that isn’t authorized by the Strata Property Act. Now the BC Supreme Court has “disagreed” with the tribunal’s conclusions and upheld the practice in a case involving a “commercial development” located in Surrey.
As the court noted, the significance of this decision likely goes beyond the dispute at hand, because it touches on a practice that is widespread and of “general importance” to the strata sector and the strata-management profession:
It is commonplace for a strata corporation to hold its AGM after its fiscal year end. If the AGM is held prior to the end of the fiscal year, financial statements must be prepared and circulated to the owners in advance of the AGM (s. 103). Then, within eight weeks following the AGM, updated financial statements must be circulated (BC Regulation 43/2000 s. 6.7(2)). By holding the AGM for a given fiscal year after the previous fiscal year end, the requirement for two sets of financial statements is averted.
This case focused on budgets passed in 2016 and 2017. The 2017 budget increased strata fees, with the following effects for the petitioner:
At the 2016 annual general meeting of the Strata held on August 25, 2016, the owners unanimously approved the 2016–2017 annual budget (the “2016 Budget”). Pursuant to the 2016 Budget, the petitioners were assessed the following monthly strata fees for their respective units:
a) Unit 205: $315.49;
b) Unit 101: $265.83;
c) Unit 102: $295.04; and
d) Unit 110: $274.59.
The Strata charged the petitioners these amounts for the 12 months commencing October 2016.
At the 2017 annual general meeting of the Strata held on August 29, 2017, the owners unanimously approved the 2017–2018 annual budget (the “2017 Budget”). Pursuant to the 2017 Budget, the petitioners were assessed the following monthly strata fees for their respective units:
a) Unit 205: $396.57;
b) Unit 101: $334.15;
c) Unit 102: $370.87; and
d) Unit 110: $345.16.
The Strata commenced charging the petitioners these amounts in October 2017. It did so by sending the petitioners (and presumably all other owners) an invoice dated October 1, 2017 setting out the new strata fee for the unit together with a lump sum adjustment representing the difference between what had been paid for the months of July, August and September 2017 and what would have been paid for those months had the 2017 Budget been approved prior to July 1.
As the court noted, this dispute primarily turned on the interpretation of the act, particularly section 103:
The question for determination is whether the words of the Act, read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of the legislature, giving such fair, large and liberal construction and interpretation as best ensures the attainment of the Act’s objects, authorise a strata corporation to do what the Strata did in this case.
In the court’s view, there was nothing in the strata corporation’s approach to strata fees that placed it offside the act:
In my view, a subsequent “adjustment” to the fees paid in the period between the end of a fiscal year and the passing of the budget for the next fiscal year, is not a retroactive charge. I note that there have been at least two decisions of the Civil Resolution Tribunal that found such charges were retroactive: The Owners, Strata Plan NW 2729 v. Haddow et al, 2018 BCCRT 37 (CanLII) at paras. 37–47; The Owners, Strata Plan KAS 1459 v. Leonard, 2018 BCCRT 159 (CanLII) at paras. 27–28. The Leonard decision followed the decision in Haddow without analysis.
In Haddow, the Tribunal based its determination in large part of the notion that the strata fee information required to be disclosed in a Form B or Form F would be inaccurate if a prospective purchaser of a strata unit obtained those forms (a Form F remains “current” for a period of 60 days after it is issued: Act s. 115(2)) prior to the approval of a new budget. The buyer would be led to believe that the seller’s strata fee payment obligation was up-to-date when in fact it was not.
With the greatest of respect to the Tribunal, I disagree. An owner’s strata fee obligation does not arise until it is approved at the AGM. The Form F (and indeed the Form B) will have been accurate when issued. The Tribunal in Haddow appears to have begun its analysis based upon the conclusion that the fees had been imposed retroactively. In my view they were not.
There is no requirement in the Act that strata fees be paid in equal installments. Plainly, the schedule of strata fee payments can require equal monthly installments, or installments that include adjustments to make up a deficit between what was paid and what would have been paid had the budget for the current fiscal year been in place at the commencement of the current fiscal year. Fees for one month may be different than for other months.
The Strata could easily have included the adjustments as part of the fee schedule included in the 2017 Budget materials which were sent to the strata owners and approved at the AGM. Instead, it merely set out in the materials a schedule showing what each strata unit’s monthly fees under the 2017 Budget would be, based upon the unit entitlement. Alternatively, the Strata could have convened a meeting to approve a special resolution imposing a special levy for the adjustment: Act s. 108 .
Instead, the Strata simply sent the petitioners (and the other owners) an invoice which included the adjustment in question. The strata fees that were invoiced were precisely those that had been approved at the AGM. Because the Strata’s invoices for the months of July, August and September 2017 were based upon the previous fiscal year’s fees, the October 2017 invoice simply included the deficit that had not been invoiced for those earlier months. The Strata could not have invoiced for the deficit any earlier than it did because the new fees had not been approved until the AGM. The deficit only became due and payable after the AGM as a result of the 2017 Budget being approved.
In my view, a full answer to the petitioners’ argument is this: the 2017 Budget did not establish a new fee schedule for only the period after the AGM—it established a new fee schedule for the entire fiscal year, commencing July 1, 2017. The October 2017 invoices did nothing more than require payment of the fees that were approved by the owners.
I agree with counsel for the Strata that the petitioners’ argument undermines the objects of the legislature and the intentions of the Act, namely to ensure that strata corporations, which are responsible for the payment of the expenses associated with the strata development, are able to fund those expenses by way of an operating fund contributed to by the individual strata unit owners in proportion to their unit entitlements.
In the result, the petition was dismissed, with costs awarded to the strata corporation.