BC Supreme Court decides owner-developer should not be penalized for failing to hold strata corporation’s first AGM
December 8, 2015
BY Kevin Zakreski
Some of the most difficult legal issues that can affect a strata property arise early in the life of a strata. When a strata property is created, its owner-developer holds title to all the strata lots. Over time, these strata lots are sold off to new strata-lot owners. But until certain thresholds are crossed the owner-developer retains the power to make critical decisions that can influence the governance and development of a strata property far into the future.
Part 3 of the Strata Property Act contains an intricate set of rules designed to ensure that owner-developers don’t abuse their power. In a recent case called The Owners, Strata Plan KAS 3549 v 0738039 B.C. Ltd, 2015 BCSC 2273, the British Columbia Supreme Court has examined rules relating to the holding of the strata corporation’s first annual general meeting and the consequences that should fall on an owner-developer who fails to hold the AGM. The court concluded that a penalty called for in the Strata Property Act shouldn’t be applied to the owner-developer in this case.
The case concerned a six-lot, bare-land strata property located in Keremeos, BC. The owner-developer sold the first strata lot on 31 May 2010. This set the clock ticking on when the owner-developer should have held the strata corporation’s first AGM. It did so by engaging section 16 of the Strata Property Act, which requires that “the owner developer must hold the first annual general meeting during the 6 week period that begins on the earlier of
- the date on which 50% plus one of the strata lots have been conveyed to purchasers, and
- the date that is 9 months after the date of the first conveyance of a strata lot to a purchaser.”
So the act required an AGM to be held by no later than 11 April 2011. Because the owner-developer “mistakenly focused on the wrong triggering event,” it thought it had a much later deadline, which would only kick in 9 months after 50% plus one of the strata lots had been sold. It didn’t hold the AGM until 28 February 2015.
This brought into play section 17 of the Strata Property Act, which was at the heart of the dispute between the owner-developer and the strata corporation. Section 17 provides “if the owner developer does not hold the first annual general meeting as required by section 16,
- an owner may hold the first annual general meeting after giving notice in accordance with section 45 to the persons referred to in section 45 and to the owner developer, and
- the owner developer must pay to the strata corporation an amount calculated according to the regulations.”
The court noted that, if it were to apply in this case, the penalty “now amounts to $198 000.”
The owner-developer argued that section 17 has to be read conjunctively. The first bullet point essentially sets out a condition for the application of the second. Since no strata-lot owner had stepped forward after the owner-developer failed to hold the AGM by giving notice and holding the AGM himself or herself, the penalty can’t be applied to the owner developer.
The strata corporation argued that section 17 must be interpreted disjunctively. The purpose of the section, in its view, is “protection of the interests of owners while their affairs are in the hands of the developer.” This protection shouldn’t be made to depend on strata-lot owners taking steps to remedy the default of the owner-developer.
Although the court expressed some sympathy for the strata-corporation’s argument, it ultimately sided with the owner-developer’s interpretation of section 17. In the court’s reasoning, section 17
is clearly designed to remedy a particular and specific circumstance. That circumstance is a failure by a developer to call the first AGM on time. Absent the power given under s. 17(a) an owner could not force the devolution of power from the defaulting developer to the strata council. It seems to me logical that the developer should be held to account to the strata corporation for the developer’s dereliction of duty. On the other hand, if it is the developer who calls the first meeting, albeit late, it cannot be said that the developer has imposed a burden on the strata corporation that it would not otherwise have had to bear.
So, in conclusion, the court found
it would do no violence to the overall purpose of Part 3 if the penalty is imposed only in the case of an owner calling the first AGM.
This case appears to be the first time that the court has interpreted section 17 of the Strata Property Act. It’s sure to be of interest in navigating one of the most complex areas of strata-property governance.