Using strata lot for short-term accommodation wasn’t a breach of strata’s residential-use, rental bylaws: BC Supreme Court
November 28, 2018
BY Kevin Zakreski
In Semmler v The Owners, Strata Plan NES3039, 2018 BCSC 2064, the Supreme Court of British Columbia found that a strata-lot owner’s use of her strata lot for short-term accommodation didn’t violate two strata-corporation bylaws, one of which forbade the use of a strata lot for “any business purpose” and the other of which stated “No strata lot may be rented for term of less than thirty (30) consecutive days.” The case turned largely on the wording of the two bylaws at issue. It illustrates the importance of taking care in drafting such bylaws.
Semmler concerned a strata property that was “comprised of recreational lots and is known as Valley’s Edge Resort,” located in Edgewater, British Columbia. There were “201 recreational lots in the Strata, made up of 94 cottage lots, 6 park model lots, and 101 recreational vehicle lots.”
The owner purchased her strata lot in 2008, two years after the owner-developer began selling strata lots. The strata’s bylaws were deposited in the land-title office in 2006. They “contained Bylaw 4(11) which restricted the use of strata lots for any business purpose.” Bylaw 4(47) “was passed after [the owner] purchased her lot.”
As the court noted, the owner and her spouse entered into an arrangement regarding short-term accommodation at the strata lot:
[The owner and her spouse] are directors of Cobblestone. Cobblestone is a company which manages vacation properties for homeowners in a number of locations, including three lots which form part of the Strata. Strata lots 12, 19 and 21 in the Resort are managed by Cobblestone.
The [owner and her spouse] use strata lot 21 for their own purposes and, since June 2010, they have licensed the use of their property to guests on a short-term basis through Cobblestone.
Ultimately, the strata corporation levied fines against the owner for breach of these bylaws. The owner commenced proceedings in court seeking, among other remedies, an order “that the bylaws are inapplicable to the short term licences they grant to people to use their property.”
The court rejected the strata corporation’s argument that the owner was in breach of its bylaw prohibiting the use of a strata lot for business purposes:
The Strata relies on certain tax law to argue that any income earned from rentals greater than 30 days would be passive investment income from property, rather than income from a business, and therefore such rentals would not violate the business purpose restriction in Bylaw 4(11). I cannot accept this argument. Bylaw 4(47) would clearly permit [the owner] to enter into an arrangement with a renter to live in strata lot 21 for a period of 31 days, and such an arrangement would not be prohibited by Bylaw 4(11). I do not agree that a 31 day rental equates to passive investment income, whereas a 30 day rental equates to business income.
The Strata in its argument confuses the role of [the owner] as strata owner with her role in the business of Cobblestone. While it may be Cobblestone’s business to manage vacation properties on behalf of owners, such as the owners of strata lots 12, 19 and 21, there is no evidence that [the owner] in her personal capacity is anything other than an owner receiving passive income on her investment.
It makes no difference to the analysis if [the owner] offered her strata lot for rent directly or through a management company. [The owner] is not renting her strata lot to Cobblestone as a location from which Cobblestone may conduct its business; rather, she is hiring Cobblestone to manage her strata lot. There is nothing in the Bylaws which states an owner cannot hire a third party to assist with their strata lot.
The second sentence of Bylaw 4(11) [“No inventory for the purpose of a business shall be visibly stored upon any strata lot.”] also assists in understanding the meaning of Bylaw 4(11). It prohibits the display of business inventory on a strata lot. Business inventory suggests materials created through or on behalf of a business being operated out of a strata lot. I find that Bylaw 4(11) is intended to prohibit the use of a strata lot as the location of a business, meaning the strata lot cannot be used for such things as a business office, a retail outlet, or a production facility for a business.
For the reasons stated above, I find that the rental of a strata lot is not a business purpose prohibited by Bylaw 4(11).
The court also found that the owner wasn’t in breach of the strata corporation’s bylaw prohibiting short-term rentals. This finding turned on a distinction between renting a strata lot and allowing its occupation under a license:
I find that the agreements Cobblestone entries into with guests are license agreements. The agreements permit guests to use the property on a short-term basis, and do not purport to convey an interest of any kind in the property to the guests. I find there is no intention to create a tenancy in the license agreements.
The main thrust of the [owner] and Cobblestone’ argument is that Bylaw 4(47) uses the word “rent” and “rent” must mean tenancy. The [owner] and Cobblestone argue that the Strata could have restricted short-term occupancies of any kind but instead they used the word “rent.”
The Strata argues that the Bylaw is intended to limit all short-term rentals, regardless of whether they are tenancies or licenses. The Strata also argues that the scheme of the Strata Property Act is that rentals include all occupancies and not just tenancies.
Part 8 of the Strata Property Act deals with rentals. Contrary to the position taken by the Strata, Part 8 consistently uses the word “rental” in conjunction with the word “tenancy.”
I find that the words rent or rental as used in Part 8 of the Strata Property Act must have a consistent meaning within that Part. Given that the sections of the Act which I have identified above clearly use the words “rent” and “rental” in the context of the creation of a tenancy, I find that, within the meaning of the Strata Property Act, the words “rent” and “rental” do not apply to licenses. Rather, the word rental must be read as describing an intention to create a tenancy.
I further find that the terms used in the bylaws of the Strata must carry the same meaning those words have in the Strata Property Act. Unlike the strata in [the] HighStreet case, the Strata did not restrict the length of occupancies under any commercial agreement other than a rental. Bylaw 4(47) only restricts short-term rentals of less than 30 days.
Because Cobblestone enters into license agreements, and not tenancy agreements, those license agreements are unaffected by Bylaw 4(47).
In the result, I find that the [owner] and Cobblestone are not in breach of Bylaw 4(47).
Finally, the court concluded that enforcement of the short-term-rental bylaw would be significantly unfair to the owner:
I am satisfied that the passage of Bylaw 4(47) is significantly unfair to [the owner]. The bylaw was passed with a majority provided by VEP [the strata’s owner-developer], which itself is exempt from the operation of the bylaw. I am not satisfied that the interests of all owners are fairly met by the bylaw. Cobblestone, on behalf of [the owner] and the owners of units 12 and 19, has acted responsibly to manage its guests within the bylaws of the Strata. The disturbances originating with the guests have been exaggerated and the effect of the bylaw is to take a sledgehammer to kill a fly.
[The owner] had a reasonable expectation that she could obtain investment income from her strata lot. If Bylaw 4(47) applies to licencing of her strata lot, the effect of the bylaw is significantly unfair in its violation of her reasonable expectation.
In the event I am wrong in my construction of Bylaw 4(47), I would suspend the operation of Bylaw 4(47) against [the owner] permanently.
In the result, the court dismissed the strata corporation’s petition and ordered the strata corporation to return all fines collected from the owner for purported breaches of the bylaws to the owner.