Spotlight on sections: Qualifying conditions to create a section
September 15, 2016
BY Kevin Zakreski
BCLI is running a public consultation on complex stratas. It is asking for public input into proposed changes to the law governing sections, types, and phases. For information on how to participate in the consultation please visit the Strata Property Law Project—Phase Two webpage.
This post is part of a series that spotlights issues on sections, types, and phases discussed in the Consultation Paper on Complex Stratas. To read other posts in the series please click here.
Brief description of the issue
British Columbia’s strata-property legislation has never given stratas a completely free hand to form sections. The legislation has always required a strata corporation or its owner-developer to meet some condition regarding the organization of its sections. First, this condition was proximity, but that condition was fairly quickly abandoned for one based on use of the strata lots. This condition has remained in place in the Strata Property Act, albeit in a liberalized form. This approach stands in contrast to the approaches taken in other jurisdictions, which don’t impose qualifying conditions on the creation of sections. Should British Columbia follow their lead?
Discussion of options for reform
The main rationale for removing the qualifying conditions for creating sections is that it would provide additional support for the policy goal of having legislation on sections in the first place, which is to give strata corporations a flexible set of governance tools to deal with complex developments and arrangements. If strata corporations and owner-developers are able to make their own decisions on whether to have sections, without having to adhere to a set of legislative criteria, then this flexibility is enhanced. Conversely, a requirement that strata corporations fit into pre-determined categories in order to create sections means that some strata corporations that want to have sections will not be able to create them. The qualifying conditions place limits on the utility of sections, sacrificing some of the flexibility that is supposed to be their overriding goal. In view of the approach taken to this issue in other jurisdictions, it is open to question whether that sacrifice is needed to ensure the practical functioning of the provisions on sections.
The experience of other jurisdictions could also be relevant for British Columbia. Saskatchewan, Tasmania, the Australian Capital Territory (PDF), and Victoria (PDF) all freely allow the creation of sections. Section 47 (1) (m.1) of Saskatchewan’s legislation, for example, simply authorizes condominium corporations to “pass bylaws . . . for the establishment of sectors within a corporation.” No external standard is used to determine whether or not establishing sectors (Saskatchewan’s version of sections) is appropriate for a given condominium corporation. The decision is entirely in the hands of the condominium corporation.
A rationale for maintaining conditions for the creation of sections has not been explicitly stated. Implicitly, these conditions may be a means of confining the use of sections to their place within a broader system for managing cost sharing specifically and strata-corporation governance generally. The default rule under the Strata Property Act is that expenses are shared in accordance with unit entitlement. Creating sections gives strata corporations tools to modify this rule, but there are other ways to displace the default rule. The act and the regulation also allow for the use of bylaws allocating expenses by types of strata lots and for the use of a formula other than unit entitlement (so long as it is approved by a resolution passed by a unanimous vote). An argument could be made that liberalizing the use of sections may upset this broader scheme. A further argument that could be marshalled in favour of retaining conditions for creating sections is that they have become fully entrenched in British Columbia strata-property law (unlike the case in other jurisdictions) and no one here appears to be publicly calling for their removal. Finally, when the Strata Property Act was enacted it liberalized the conditions for creating sections, a reform which was well received, and which may have removed the practical need for further liberalization.
Finally, it should be noted that there is no reason to treat this issue as a yes-or-no proposition. It is possible to retain conditions for creating sections, but to propose changes to the current conditions.
The committee’s tentative recommendation for reform
The committee was wary of liberalizing British Columbia’s approach to sections. It was concerned that going the route taken in other jurisdictions would lead to mischief here. Removing qualifying conditions from the legislation could result in highly balkanized strata corporations. This result would undermine the act’s general rules on cost sharing.
The committee gave extensive consideration to broadening the current approach by adding new qualifying conditions or by modifying the existing conditions. Noting that when this issue has arisen in litigation it has involved strata corporations that have developed in phases or that consist of more than one building, the committee discussed at length the possibility of allowing separate buildings to form sections. Ultimately, it decided against proposing this reform. There were concerns that it could be difficult to define the scope of the condition in legislation. For example, buildings that may appear separate to the naked eye could in fact share an underground parkade. Further, allowing sections to be formed in these circumstances could be courting problems with regard to access to property and governance. Finally, liberalizing the approach to sections would inevitably lead more and more strata corporations and owner-developers away from the general rule on cost sharing, exposing them to the practical and administrative problems that have cropped up in this area.
The committee tentatively recommends:
The Strata Property Act should continue to allow sections only for the purpose of representing the different interests of (a) owners of residential strata lots and owners of nonresidential strata lots, (b) owners of nonresidential strata lots, if they use their strata lots for significantly different purposes, or (c) owners of different types of residential strata lots.