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

The rules on cancelling a section are spelled out in section 193 of the Strata Property Act. These rules require a strata corporation to “hold an annual or special general meeting to consider . . . cancellation [of a section].” Notice of this meeting must include “a resolution to amend the bylaws to provide for . . . the cancellation of the sections.”

There is a special rule that applies to the voting threshold for passing this resolution. It must be approved by both the strata corporation and the affected section. As the legislation puts it, the resolution “must be passed”

• by a 3/4 vote, and
• by a sectional 3/4 vote.

But if the strata corporation has more than one section in existence, there is nothing in the legislation that requires the approval of those other sections to the cancellation of the section at issue. Should the act be amended to contain this requirement?

Discussion of options for reform

The committee considered two options for this issue: amending the act to require approval of all sections (plus the strata corporation) to cancel a section and retaining the status quo.

Amending the act would allow it to directly address situations in which a strata corporation has a number of sections with imbalances in their voting power. Consider, for example, a strata property that consists of a large apartment building and a small row of townhouses. The strata corporation in this example has two sections: one for the owners in the apartment building, the other for the townhouse owners. The sections were created to address the cost-sharing problem. So “expenses of the strata corporation that relate solely to the strata lots in a section” are allocated to the appropriate section. For example, expenses relating to the elevators are allocated to the apartment section, while expenses related to landscaping around the townhouses are allocated to the townhouse section.

At some point after this arrangement is set up, the owners in the apartment section decide that they want to cancel their section. The effect of this decision will be that expenses that were once allocated to owners in the section (such as those for the elevators) will become common expenses of the strata corporation, to be shared by all strata-lot owners in accordance with a formula based on their strata lots’ unit entitlements. Under the current rules, the owners in the townhouse section don’t have an independent say in this decision, even though it will affect the calculation of their strata fees. In other words, the original solution to the cost-sharing problem for this strata corporation could be undone by one group of owners, creating a new arrangement that makes the expenses previously allocated to the apartment section into strata-corporation expenses, while leaving those expenses allocated to the townhouse section as section expenses. (The owners in the townhouse section could seek to cancel their section, but their ability to go through with this decision would be at the mercy of the greater voting power of the apartment owners, as they would determine whether or not a resolution of the strata corporation would pass by a 3/4 vote.)

Requiring the consent of each section of a strata corporation to the cancellation of any section would directly address this concern. It would provide another layer of protection to section owners. Section owners in comparatively small sections would not be faced with situations in which cancellation of another section could leave them financially worse off but in which they also lacked the voting power to prevent this change.

This proposed reform could also provide some encouragement for stratas to think about decisions on sections and cost sharing holistically. Even when these decisions seem only to affect one group of owners they may have consequences that can ripple across the whole strata corporation.

There are some disadvantages to this proposed amendment. It would likely increase the time and cost associated with cancelling a section. And other downsides flow naturally into what may be considered strengths of the other option to consider, retaining the status quo.

In examining the advantages of the current rules on cancellation, it’s important to note that cancelling a section entails “a resolution to amend the bylaws.” As a result, it engages section 128, which provides that “amendments to bylaws must be approved at an annual or special general meeting” and “in the case of a strata plan composed of both residential and nonresidential strata lots, by both a resolution passed by a 3/4 vote of the residential strata lots and a resolution passed by a 3/4 vote of the nonresidential strata lots, or as otherwise provided in the bylaws for the nonresidential strata lots.”

So section 128 already provides some protection against abuse of imbalances in voting power. If the example discussed earlier had featured a residential section and a commercial section, then section 128 would have applied and would have given both sections a say in the decision to cancel. As a result, section 128 lowers the potential for abuse.

The committee’s tentative recommendation for reform

The committee is concerned about possible abuses of voting power in cancelling a section. Section 128 provides some protection, but it doesn’t cover the field.

The committee also considered whether the act’s provision on preventing or remedying unfair acts could address concerns about abuse of voting power in cancelling a section. The first thing to note about this provision is that it can only be invoked on “application of an owner or tenant.” In other words, a section itself can’t bring a court application seeking a remedy under this provision. An owner (or tenant) has to bear the cost and burden of applying to court, something which is likely to prove to be a disincentive to using section 164 to remedy a complaint for the group of owners in the section. Section 164 could be amended to allow for a section to apply to court. The committee considered this possibility. It decided that a provision directly addressing this issue for reform would be superior than attempting to extend section 164 to cover it.

The committee tentatively recommends:

The Strata Property Act should require that a resolution to cancel a section must be approved by sectional 3/4 votes in each other existing section of the strata corporation.

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 sections: Should all sections have a say in whether a section is cancelled? 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

The Strata Property Act enables strata corporations to adopt “resolutions to designate limited common property . . . for the exclusive use of all the strata lots in a section” [emphasis added]. In contrast, a strata corporation has authority over common property, common assets, and strata lots. The limitations on sections’ authority has led to some operational confusion, particularly in connection with the duty to repair and maintain common property. Should sections’ authority be expanded?

Discussion of options for reform

One option would be to amend the Strata Property Act and give sections authority that corresponds to that of a strata corporation. Legislation in force elsewhere takes this more-liberal approach in granting section equivalents authority over common property. For example, section 47.1 of Saskatchewan’s act allows a bylaw respecting sectors (Saskatchewan’s equivalent to sections) to

• provide for the management, control, administration, use and enjoyment of the units, common property and common facilities in the sector;
• provide for the maintenance of the common property, common facilities and services units in the sector.

Tasmania’s legislation provides an example of another approach. Under the Tasmania act, a body corporate (the equivalent of a strata corporation) “may be divided into 2 or more separate bodies corporate” and, when this division occurs, the constituent documents for the bodies corporate “must define the functions and responsibilities of each body corporate and, in doing so, may create an administrative hierarchy with one or more bodies corporate at each level of the hierarchy.”

The potential problem with British Columbia’s comparatively narrow approach comes to light when it’s recalled that many of the operational conflicts involving sections arise from, as one judge put it, “the division of powers between the strata corporation and the section.” This division of powers has proved to be particularly contentious in relation to responsibility for repairs and maintenance of common property. In many cases, sections are created “in recognition of architectural differences between strata lots, calling for, for example, different sections for townhouses and apartment buildings. If the roofs, hallways, elevators, and other common areas of these buildings aren’t designated as limited common property for the use of the section then they don’t fall within the relevant provision of the act.

A recent case has considered the authority of a section to carry out repairs to common property. The court concluded that the “Act does not refer to the obligation of a section to repair and maintain common property as distinct from limited common property,” so “it appears that common property of the strata corporation remains the responsibility of the strata corporation to maintain.” The court went on to speculate that “[s]ections may take on responsibility for common property repair and maintenance of common property appurtenant to or adjoining the strata units in section if the bylaws permit it,” but since the bylaws at issue in the case did not take this step, it wasn’t necessary to form any conclusions on this issue. The issue does remain very much a live one, as many strata corporations have apparently created bylaws assigning to sections “responsibility for common property repair and maintenance of common property appurtenant to or adjoining the strata units in section.” But the act doesn’t provide explicit support for this practice. So the question arises whether it should, like the acts in other jurisdictions, expressly recognize that sections may have authority over common property.

There are several reasons for amending the act to allow for sections to be given authority over common property. Such an amendment would support the legislative goal of sections, which is to provide flexible governance models for complex stratas. There are many reasons for a strata corporation to want to adopt sections. In some cases, designating limited common property in favour of a section may be enough to meet the needs of the strata corporation. But in other cases this might not go far enough. Strata corporations appear to be filling in the gaps by adopting bylaws that, in one way or another, assign responsibility for repair and maintenance of common property to sections. Amending the act to make it clear that sections can have authority over common property would put these arrangements on firmer ground. It may also reduce operational conflicts and disputes between sections and strata corporations, by allowing a strata to work out a clearer division of powers between the strata corporation and its sections.

But there are also reasons to oppose allowing sections to have authority over common property. Such an amendment would further entrench sections in the legislation. It would also enhance their power within a strata development, while it chips away at the broader authority of the strata corporation. At least one commentator has wondered whether the existing list of corporate powers expressly assigned to sections goes too far and ends up being undermining the rationale of sections as representatives of different interests within the strata corporation. This proposed reform would be another large step in what could be seen as the balkanization of strata corporations that have sections. It also may be telling that, although many critics have identified this issue as a problem, no one has come out and directly said that the Strata Property Act should be amended to give sections authority over common property.

The committee’s tentative recommendation for reform

The committee had many concerns about extending the authority of sections to common property. There was a sense that such a reform could lead to confusion. For example, if a strata property suffered building-envelope failures and it was subject to four or five sections, then it could be difficult to determine which section is responsible for which portion of the needed repairs. Such confusion could end up breeding litigation.

The proposal could also have a detrimental aspect on the communal nature of strata-property living and cost sharing. It could serve to further entrench the tendency to use sections promiscuously, as a means to sever certain uses from the broader strata corporation. Finally, the committee took notice of the fact that there didn’t appear to be any vocal public support for reforming the law in this way.

The committee tentatively recommends:

The Strata Property Act should provide that bylaws respecting sections cannot provide for the control, management, maintenance, use, and enjoyment of common property.

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 sections: Should sections have authority over common property? 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

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.

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 sections: Qualifying conditions to create a section first appeared on British Columbia Law Institute.