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

As a strata property is developed, it is important to ensure that it has insurance coverage through the transition of control from the owner-developer to the strata corporation. While the strata property is under construction, the owner-developer will carry course-of-construction insurance. The Strata Property Act spells out the property insurance that a strata corporation must carry.

In most strata properties, the owner-developer manages the transition in insurance coverage. It is initially responsible for obtaining the strata corporation’s property insurance—a responsibility that arises upon deposit of the strata plan. Responsibility for insurance passes to the strata council when the first council is formed at the strata corporation’s first annual general meeting. To smooth the handoff from owner-developer to strata corporation, the Strata Property Act contains a special rule. This rule provides that the owner-developer “must ensure that the term of any insurance policy entered into by or on behalf of the strata corporation continues for at least 4 weeks after the first annual general meeting.”

The phasing process makes this transition more complicated. The picture is relatively clear for the first phase. The rule extending coverage for at least four weeks after the first annual general meeting applies in this case. It’s phases subsequent to the first phase that pose the problem. The Strata Property Regulation provides that the rule calling for a four-week extension in coverage doesn’t apply to any new phase deposited after the phased strata corporation has held its first annual general meeting. This creates a hard transition in responsibility for insurance coverage from owner-developer to strata corporation upon deposit of the new phase in the land title office. Although the owner-developer is required to notify the strata corporation when it plans to deposit a new phase, this notice often doesn’t give strata corporations enough time to arrange property insurance for the new phase. This creates the potential for gaps in insurance coverage. Should the act be amended to address the possibility that a gap in insurance coverage may result on the deposit of a new phase?

Discussion of options for reform

Since any gap in insurance coverage could have catastrophic consequences for a strata corporation, leaving the potential for such a gap to develop wasn’t considered an option for this issue. The committee considered two options designed to ensure such a gap wouldn’t appear.

The first option was to require an extension of the owner-developer’s insurance coverage for four weeks after the deposit of a new phase. This option is analogous to the Strata Property Act’s existing rule, with the reference point of the first annual general meeting changed to the deposit of the new phase. The advantage of this approach is that it gives a strata corporation a reasonable amount of time to obtain its own coverage for property in the new phase. The possibility of a gap in coverage is thereby dramatically lowered, if not entirely eliminated. This approach also extends an existing rule in the act, which ensures some familiarity for participants in the real-estate development sector.

There are disadvantages to this approach. The deposit of a new phase isn’t identical to the situation covered by the existing rule. The existing rule contemplates the owner-developer obtaining strata-corporation property insurance upon deposit of the strata plan and extending that coverage to at least four weeks after the strata corporation’s first annual general meeting. This option, in contrast, contemplates extending the owner-developer’s existing insurance coverage during construction for four weeks after the first phase, in order to give the strata corporation time to obtain property insurance. There is a possibility that an owner-developer’s coverage might not be appropriate in all cases. This approach also creates the possibility of double coverage for a time. Finally, this option will also increase costs for the owner-developer. These costs are likely to be passed on to strata-lot owners.

The other option the committee considered was extending the notice period for deposit of a new phase. The current rule simply provides that an owner-developer must “immediately notify” the strata corporation. The committee understands that, in practice, this tends to result in the strata corporation receiving notice on the day of deposit. Providing a set notice period of, for example, four weeks would give the strata corporation time to arrange insurance coverage before the new phase is deposited in the land title office.

The downside of this approach is that it relies on the owner-developer having a definite sense of when the new phase will be deposited weeks before it happens. In practice, this isn’t always the case. A longer notice period could end up being routinely flouted, as owner-developers simply won’t have the information needed to comply with it. A shorter notice period would be more realistic, but it would also leave in place the possibility that a gap in insurance coverage could result.

The committee’s tentative recommendation for reform

The committee favours extending, by analogy, the current rule generally applicable to strata corporations. Although there may be some disadvantages to this approach, it best addresses the underlying issue and provides the best assurance that a gap in insurance coverage won’t occur.

The committee tentatively recommends:

Despite the Strata Property Regulation, the owner-developer should be required to ensure that the term of any insurance policy entered into by or on behalf of a phase subsequent to the first phase in a phased strata plan continues for at least four weeks after the subsequent phase is deposited in the land title office.

To respond to this tentative recommendation or to read more about issues like this one, please visit the Strata Property Law Project—Phase Two webpage.

The post Spotlight on phases: Insurance coverage for a new phase first appeared on British Columbia Law Institute.

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

Section 13.3 (2) of the Strata Property Regulation restricts the ability of a strata corporation that is being developed in phases to amend bylaws relating to certain listed subjects. These subjects are the following:

• the keeping or securing of pets;
• the restriction of rentals;
• the age of occupants;
• the marketing activities of the owner developer which relate to the sale of strata lots in the strata plan.

So long as the owner-developer remains “in compliance with the dates for the beginning of construction of each phase,” the strata corporation can’t “create, change, repeal, replace, add to or otherwise amend” bylaws dealing with these four subjects. This restriction stays in effect until

• the strata corporation holds “the annual general meeting held following the deposit of the final phase,”
• the owner-developer makes an election not to proceed, or
• the strata corporation “obtains the written consent of the owner developer.”

These restrictions override the general rule, which gives strata corporations a liberal hand to amend their bylaws, in order to facilitate the phasing process. Should the regulation continue to limit the power of strata corporations to make their own decisions on these topics?

Discussion of options for reform

The committee considered three broad options to address this issue for reform: retaining the current regulation, repealing it, and amending its timing rules on when the restriction is lifted from a phased strata corporation.

The main benefit of the current provision is that it supports the owner-developer’s interest in marketing strata lots in the phased strata. All four subjects embraced by this provision are likely to be among the top-of-mind concerns for potential purchasers. For example, moving from an open-ended to a restrictive rental or pet bylaw would reduce the pool of potential purchasers of strata lots. In a similar vein, the marketing of a development to older adults could be upended if an age-restriction bylaw were repealed.

The downside of the current approach is that it achieves this result by bluntly restricting a phased strata corporation’s power to govern itself. It could be argued that this provision doesn’t strike the right balance between the interests of the owner-developer and strata-lot owners. The current rule gives the owner-developer a veto over these areas of the strata property’s governance. This policy choice, in effect, allows marketing to trump any concerns that strata-lot owners may have regarding these four subjects. Owners may feel that the ordinary rule for bylaw amendment (which generally calls for amendments to be approved by passage of a resolution by a 3/4 vote) may strike a better balance.

There are essentially two approaches to address these concerns about the current rule. One approach would be to repeal the regulation. As a result, these four topics would become subject to the general rule on bylaw amendments. This result would enhance the strata corporation’s control over its own governance. It would be consistent with what the court of appeal has recently described (in another context) as “the foundational democratic principles that pervade the [Strata Property] Act.”

But this approach would create difficulties for an owner-developer. The marketing of a phased strata property would be much more challenging if the strata-lot owners had the power to amend bylaws on these four subjects. Even if that power were never exercised, the uncertainty created by opening up this area of the law would complicate the owner-developer’s disclosure obligations. These challenges could erode the desire of owner-developers to create phased strata properties, leading to a decline in their use. This could limit the variety and sophistication of the strata-property market. It could also spur developments that attempt to create approximations of the phased-strata form outside the legal framework provided by the Strata Property Act.

The other option for reform that the committee considered would be to retain the broad features of the current rule but amend it in such a way as to strike a more equitable balance between the owner-developer’s and the owners’ interests. The actual amendment could take on a wide variety of details. The point would be to find a compromise that preserves the owner-developer’s ability to effectively market strata lots while giving the strata corporation more control over its governance. Such an approach does carry the risk, of course, of pleasing neither group.

The committee’s tentative recommendation for reform

The committee decided that the third option was the best option for this issue. It favoured a compromise approach to the problems posed by the regulation.

The committee noted that this provision works reasonably well in most cases. But it could be a sticking point when the phased strata plan is taking a longer-than-usual time to unfold. The committee considered adding a hard deadline to this provision, providing, for example, that it lapses five years from the date the first phase of the phased strata plan is deposited in the land title office. In the end, the committee decided not to follow this approach. Although it had the benefit of certainty, that benefit was achieved by its arbitrariness.

The better approach would be to tie the sunset date for this provision into the Phased Strata Plan Declaration. The declaration calls for “a schedule setting out the estimated date for the . . . completion of construction of each phase.” In the committee’s view, it would be acceptable to end this provision’s sway over a strata corporation six months after this estimated date.

The committee tentatively recommends:

Section 13.3 (2) of the Strata Property Regulation should restrict the ability of a phased strata property to amend bylaws dealing with the keeping or securing of pets, the restriction of rentals, the age of occupants, or the marketing activities of the owner-developer which relate to the sale of strata lots in the strata plan until the earliest of the following: (a) the annual general meeting held following the deposit of the final phase; (b) an election not to proceed is made under section 235 or 236 (2) of the act; (c) the strata corporation obtains the written consent of the owner-developer; (d) the owner-developer is not in compliance with the dates for the beginning of construction of each phase as set out in the Phased Strata Plan Declaration or amended Phased Strata Plan Declaration; (e) the date that is six months after the date of completion of construction disclosed in section 2 (c) of the original Phased Strata Plan Declaration.

To respond to this tentative recommendation or to read more about issues like this one, please visit the Strata Property Law Project—Phase Two webpage.

The post Spotlight on phases: Should the Strata Property Regulation restrict a phased strata’s ability to amend bylaws relating to pets, rentals, age, and marketing? first appeared on British Columbia Law Institute.

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

An approving officer’s approval of a Phased Strata Plan Declaration is subject to a time limit. That approval “expires” after one year, “unless the first phase is deposited before that time.” In the view of one commentator, this expiry creates an “absolute” deadline. If the first phase isn’t deposited in the land title office before this deadline passes, then the approval effectively becomes a nullity. The act does not make any provision for the approving officer to extend this deadline. So an owner-developer who failed to deposit the first phase within this time and who still wanted to press on with the phased strata plan would, in all likelihood, have no option other than to start over at the beginning. The owner-developer would have to start a new application to an approving officer for approval of a Phased Strata Plan Declaration. Should an approving officer’s approval continue to expire after one year, or should it remain in force for a longer period or indefinitely?

Discussion of options for reform

The committee considered four options to address this issue. One option would be simply to retain the current provision. A second would be to retain the current approach, but with a longer period before expiry. The third option considered was to retain the current time limit, but to give an approving officer the discretion to extend it. Finally, the committee considered simply repealing this time limit altogether.

Starting with the current rule, the committee attempted to assess it by examining whether it is fulfilling its legislative purpose. The goals of the current rule are unclear. Unlike much of the act’s legal framework on phasing, which can be traced back, largely unchanged, to the first appearance of phasing provisions in the mid-1970s, this requirement only dates to the advent of the Strata Property Act. There is no public record of why this change appeared in the Strata Property Act. There is also no public commentary on the purposes of this provision.

It is possible to speculate on the goals of the provision. It may be intended to limit the possibility that changing facts and circumstances might cast a shadow over the approval of the Phased Strata Plan Declaration. The risks of this occurring increase as time passes from the date of approval. The one-year expiry date also provides a measure of closure and certainty to the process. In some cases, it may be clear that a project isn’t going to progress to deposit of the phased strata plan. This provision ensures that such projects don’t continue to carry the approving officer’s seal of approval.

It’s also possible to speculate on the drawbacks of this rule. Placing an expiry date on the approval of Phased Strata Plan Declaration does limit the flexibility afforded to owner-developers. The one-year limit might not be realistic in some cases. The choice of one year as the time limit could also be characterized as arbitrary. There is no obvious connection between this period and the time required to move from approval of a Phased Strata Plan Declaration and depositing the first phase of the strata plan.

There are a number of ways to approach reforming this rule. One way would be to change the time limit. Providing that the approval only expired, for example, after two or three years would address concerns about flexibility without any of the practical difficulties in moving from declaration to deposit of the phased strata plan. But it would retain the arbitrary nature of the rule.

One way to address concerns about arbitrariness would be to keep the current time limit and give the approving officer the discretion to grant extensions. This approach would effectively allow for appropriate time limits to be crafted on a case-by-case basis. If there were a good reason for an owner-developer being unable to deposit the phased strata plan within one year, then the approving officer would grant an extension. Inadvertent or sloppy developers would not be rewarded with additional time. The drawback to this approach is that it would inject further complexity into the system, and would require additional resources to administer (by the approving officer) and navigate (by many owner-developers).

The final option to consider is simply to do away with this concept of an expiring approval altogether. This approach would return the legislation to its position before the enactment of the Strata Property Act. It would take arbitrariness out of the rule. But it would also remove the elements of closure and certainty that an expiry date brings to the system.

The committee’s tentative recommendation for reform

The committee favoured the second option for reform. The committee understands that the current rule has caused problems for real-estate developers. Although there are methods to reduce these concerns, they amount to workarounds. It would be better to address the source of developers’ concerns in the legislation.

While there is always some arbitrariness to any time limit, in the committee’s view two years would be preferable to the current one. A two-year limit would give real-estate developers more time to deposit the first phase of a phased strata plan, allaying their concerns. The two-year period would be equivalent to the two-year basic limitation period. This approach would also retain the goals of certainty and finality, which are aspects of the current system, and would avoid the complexity inherent in building a discretionary element into the rules.

The committee tentatively recommends:

The Strata Property Act should provide that an approving officer’s approval of a Phased Strata Plan Declaration expires after two years unless the first phase is deposited before that time.

To respond to this tentative recommendation or to read more about issues like this one, please visit the Strata Property Law Project—Phase Two webpage.

The post Spotlight on phases: Should approval of a Phased Strata Plan Declaration expire after one year? first appeared on British Columbia Law Institute.