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5. Strata Sales

(d) Additional Issues for Listing Licensees - View Entire Section

(I) Recovery of Special Levies or Proceeds Payable to the Strata Corporation

Where a strata corporation has passed a special levy and the amount collected exceeds the amount required, the Strata Property Act requires that the strata corporation return the excess funds to the owners. Because “owner” is defined as the person shown on the title, if the seller has sold the strata lot prior to the repayment of the excess special levy, the funds will be repaid to the buyer who is the “owner” of the strata lot at the time the refund is paid.

In addition, in some circumstances, strata corporations are receiving funds to offset costs they have incurred in relation to defective construction and/or water penetration. These funds might be the result of judgments, insurance/warranty claims, or settlements. When such funds are received a strata corporation may decide that some or all of these funds are to be returned to the owners. By the time the recovery is realized, the owner who paid the special levy to repair the building or fund the litigation may no longer be the registered owner. Although the Strata Property Act does not address the repayment of such funds, many strata corporations will pay out the funds to the current owner as if the funds were a repayment of an excess special levy. In other cases, a strata corporation may require the consent of the former owner and the current owner before funds are paid out.

When licensees list strata units for sale, they should determine from the seller whether there have been any special levies for which there may be an excess. Additionally, licensees should determine whether insurance or warranty claims have been filed. Licensees should also know whether there is any litigation under way or pending that may result in a financial recovery.

As with all real estate transactions, licensees must be careful in conducting transactions involving strata properties located in market areas that are unfamiliar to them. Information regarding particular strata properties that may be known to licensees working in a particular area may not be common knowledge outside that area.

Where there is an indication of the possible future recovery of funds, the seller should be made aware that typically the assets and liabilities of the strata corporation flow with the registered owners as shown on title at the time of disbursement and proportionate to their unit entitlement. If the seller expresses a desire to retain certain rights or benefits (e.g., the right to recover funds payable after completion of a sale, the right to vote on future decisions with respect to the possible recovery, etc.), the seller should be made aware that retaining these rights or benefits should be negotiated with a prospective buyer. As a result, the seller should seek legal advice from a lawyer familiar with strata property issues prior to entertaining offers.

In situations where the possibility of future recovery of funds is uncertain, the least complicated approach may be to ensure that both the seller and buyer are aware of the current status of any anticipated recovery and related expenses. With that knowledge the end price negotiated will reflect how the parties have valued the possibility and uncertainty of future recovery and related expenses, knowing that if there is a recovery, any funds disbursed will be payable to the registered owner at the time of disbursement.

If the seller and/or buyer wish to negotiate an agreement that involves the seller receiving the repayment of funds in the future, each should be advised to seek independent legal advice, prior to entering into an unconditional contract of purchase and sale, from a lawyer who is familiar with strata property matters. Licensees should be cautious about drafting clauses in these circumstances, given the uncertainty of future events and the difficulty in identifying issues that may or may not be readily apparent or foreseeable.

If a seller or buyer asks to make the contract subject to entering such an agreement, the contract of purchase and sale should include a subject clause, as follows:

Recovery of Proceeds Payable to Strata Corporation Clause

Subject to the Buyer and Seller entering into a written contract prepared by the Seller’s lawyer on or before (date) that provides for the assignment from the Buyer to the Seller for nominal consideration of all the Buyer’s right, title and interest in any funds payable by the strata corporation to the Buyer as a result of (Enter the reason for the payment such as the return of money assessed by a special levy between _________certain dates).

This condition is for the sole benefit of the Seller. (Buyer)

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

Discipline Record — Failure to Advise Sellers

Sellers of a strata lot complained to the Council that the listing representative did not advise them that they would not be entitled to the recovery of litigation proceeds and other such funds and that such funds would be paid to the buyer.

The Consent Order entered into between the Council and the licensee provided that the licensee

  • failed to inform the sellers that recovery is expected to flow to the owners as shown on the title at the time of recovery;
  • failed to advise the sellers to negotiate with the buyers the right to share in the recovery; and
  • failed to advise the sellers to obtain independent legal advice before entering into the Contract of Purchase and Sale.

The Council suspended the licensee for 30 days and ordered the licensee to enroll in and attend Condo 202 Advanced Strata Law for Realtors, and Legal Update. The licensee was also required to pay costs.