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Professional Standards Manual

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5. Strata Sales

(e) Additional Issues for Buyer's Agents

(i) Generally

Licensees acting for buyers have a general duty to provide buyers with information that is current, relevant and necessary for them to decide whether to acquire a property. For information with respect to obtaining strata documents, please refer to the “Obtaining Information” section above. Licensees also have a duty to be well informed, which includes the obligation to ascertain information necessary to protect their principal’s interests, particularly when they are relying on the licensee’s skill and judgment. With respect to strata properties, this requires licensees to exercise a reasonable degree of skill and care to be informed of the unique issues that can arise.

By relying on an owner’s ability to authorize the listing licensee to obtain documents from the strata corporation, buyers can gain access to a number of documents that may have a bearing on whether buyers wish to acquire a particular strata lot, the price they are willing to pay, and the day-to-day operation of the strata development in which the strata lot is located. In providing this information to buyers, licensees should stress the importance of buyers reading the documents carefully, looking for any evidence of major repairs, continuing unresolved maintenance issues, use restrictions, or other concerns. Licensees should be aware that this process does not relieve them of the responsibility to use reasonable care and skill in the performance of their duties. Where there are matters beyond a licensee’s scope of knowledge, buyers should be referred to an appropriate expert.

**Alert**

Licensees should fully explain and confirm what services they will be performing on behalf of the buyers and what the buyers will be attending to themselves. It is in a licensee’s interest to confirm this in writing.

Licensees should always advise buyers to make their purchase “subject to” a property inspection. If buyers decline to have an inspection, licensees should confirm in writing to the buyer that they have advised the buyer to obtain an inspection and that the buyer has declined. Because such confirmation is not a term of the contract, the confirmation should not be included in the contract.

Some property inspections are restricted to the strata lot; others will include a limited investigation of the common property. Licensees should advise buyers to clarify with the inspector what services will be provided. An inspection that includes the common property is preferable, although more expensive than one that only includes the particular strata lot. An inspection of common property may also take additional time to co-ordinate access (to roofs or mechanical rooms for example) through the strata council or strata manager. Buyers may wish to confer with their property inspector about matters arising from the buyers’ review of the documentation they have received or from the inspection itself.

If there are any expert reports regarding the building (e.g., building envelope, engineer’s, etc.), licensees should make buyers aware of the existence of such reports and where they may be examined. (Refer to “Obtaining Information,” noted previously, for further information respecting accessing the records of a strata corporation.) Licensees should stress to buyers the importance of reading them. Again, buyers may wish to confer with their property inspector or lawyer regarding these reports. If a report cannot be obtained, buyers should be advised to obtain legal advice before being bound to a contract of purchase and sale.

Licensees should always refer to the source of any information they pass on regarding the building and should always avoid making any personal representations about the building or about any of the information they pass on that has not been independently confirmed.

(ii) Strata Plan not Registered at the Time the Contract is Signed

A strata lot does not exist until the strata plan is deposited at the Land Title Office. In the event that a strata plan has not been registered at the time that a sales contract is executed, licensees should include in the contract a clause such as the following:

Strata Plan not Registered at the Time Contract Signed Clause

It is a fundamental term of this contract that a strata plan for the property, in the form provided to the Buyers at the time of signing this contract and attached as addendum, is fully registered in the appropriate Land Title Office on or before the Completion Date.

If the strata plan is not filed when a licensee prepares an offer for a proposed strata lot, any deposit must be paid into trust pending the filing of the strata plan at the Land Title Office, the readiness of the unit for occupancy, and the registration of the buyer’s interest in the property. Whether the deposit is held in the licensee’s brokerage trust account, or with the developer’s lawyer or notary, section 18 of the Real Estate Development Marketing Act requires that the person holding the deposit holds it for the developer and the purchaser, and not as an agent for either of them. For details, see the section on deposits under the heading Real Estate Development Marketing Act.

(iii) Property Disclosure Statement

Often the first document that licensees working with buyers see regarding the condition of a property is the Property Disclosure Statement (PDS). This document is useful as a starting point for buyers to begin their due diligence process.

A buyer’s agent should always recommend to the buyer that the PDS be incorporated into the Contract of Purchase and Sale. A buyer’s legal remedies are severely curtailed if the buyer does NOT make the PDS part of the contract.

Merely attaching a PDS to a Contract of Purchase and Sale does NOT incorporate the PDS into the contract. Clear evidence must exist that all of the parties intend to make the PDS part of the contractual obligations between them. To clearly state that the PDS is incorporated into the Contract of Purchase and Sale, the following clause must be inserted into the contract:

Property Disclosure Statement — Strata Title Properties Clause

The attached Property Disclosure Statement — Strata Title Properties dated (date) is incorporated into and forms part of this contract.

If the Property Disclosure Statement — Strata Title Properties has not been attached to the offer at the time it was written, the licensee must use a subject clause to allow for approval of the Property Disclosure Statement — Strata Title Properties, as follows:

Buyer’s Approval of Property Disclosure Statement — Strata Title Properties Clause

Subject to the Buyer on or before (date) obtaining and approving a Property Disclosure Statement — Strata Title Properties, with respect to information that reasonably may adversely affect the use or value of the strata lot, including any bylaw, item of repair or maintenance, special levy, judgment or other liability, whether actual or potential.

This condition is for the sole benefit of the Buyer.

 

If approved such statement will be incorporated into and form part of this contract.

 

A buyer’s agent should still recommend a property inspection, even where there is a PDS that is incorporated into the Contract of Purchase and Sale. A buyer’s agent should also recommend that the buyer carefully discuss the Property Disclosure Statement with the buyer’s property inspector.

(iv) Bylaws

The bylaws of a strata corporation may contain provisions that can affect every aspect of life in the strata corporation. The bylaws may restrict the age of occupants, how strata lots may be used and whether the strata lot can be rented, who must repair and maintain strata lots and limited common property and when permission may be required to carry out alterations.

The buyer’s agent should review the bylaws with the buyer to indicate those bylaws that may affect the buyer’s ability to use the strata lot in the manner intended by the buyer. For additional information on bylaws, see the section entitled “Restriction on Use - Bylaws and Rules.”

(v) Minutes

Discipline Record — Strata Minutes

The Commercial Appeals Commission found a buyer’s agent negligent under section 9.12 of Real Estate Regulations, B.C. Reg. 75/61, in part, for failing to read the strata minutes in the 1999 sales of two Lower Mainland strata units. In this case, the buyer’s agent did not ask about any problems with the strata building during the buyers’ initial viewing or the parties’ negotiations. The buyer’s agent first raised questions about the building after the buyers had removed their subject clauses. When, under the contract of purchase and sale, the buyer’s agent obtained copies of the minutes of the previous annual general meeting and the last 12 strata council meetings, the buyer’s agent passed the documents to the buyers without reading them. Although the buyer’s agent did not read the strata minutes, she recommended to one of the buyers that he read them. During her appeal, the buyer’s agent argued, in part, that the 1995 Licensee Practice Manual, on which she apparently relied, required only that an agent provide the minutes to the buyer for review. Taking particular note of the “leaky condo” epidemic in the Lower Mainland, the Commission held the buyer’s agent negligent for failing to sufficiently inquire into the building in question and for failing to read the minutes.

The Commercial Appeals Commission did not cite any legal authority, or offer any specific reasoning, to support its conclusion that failure to read the strata minutes amounted to negligence under the Real Estate Act. Nor did the Commission say what the buyer’s agent is supposed to do with the information acquired by reading the minutes.

In view of this decision, a buyer’s agent who does not read the strata minutes can never rule out the risk that he or she may be found negligent. It appears, however, that in this case, the licensee’s duty to read the minutes emerged because she earlier failed to ask any questions about the condition of the building, which was located in an area known for leaky condos.

If a buyer’s agent elects not to read the available strata minutes, the licensee should ensure that he or she has already made all the inquiries reasonably expected of a competent licensee acting as a buyer’s agent. These inquiries include, but are not limited to, asking one or more of the sellers, the listing agent, or a strata council member about the history of any problems with the building and the strata lot, as well as reading the bylaws. The Council expects a buyer’s agent to read the bylaws for restrictions.

**Alert**

Where the buyer’s agent intends not to review certain other documents, such as minutes, as part of his or her services to the buyer, the licensee should make that very clear to the buyer to avoid any misunderstanding.

The licensee should also explain to the buyer the significance of the document in question and warn the buyer about the risks of not carefully reviewing the material himself or herself. The licensee should also warn the buyer to obtain professional advice if a document raises a question of a technical nature; for example, to get legal or engineering advice, where appropriate. Finally, it is recommended that the licensee record these communications in writing in case any dispute later occurs over the matter.

If the licensee reads the strata minutes, the licensee need only accurately pass on the relevant information in the minutes to the buyer. There is no general duty requiring the licensee to go behind the minutes to investigate matters reported in the minutes. A buyer’s agent should warn the buyer that the licensee does not take exclusive responsibility for reviewing the minutes and that the buyer should still carefully read the minutes himself or herself. The buyer’s agent should tell the buyer that the licensee reviews the minutes from a licensee’s perspective and only to check for certain information about the property. The minutes will inform the buyer about more than the property; they will also give the buyer important information about the strata community. The licensee should also warn the buyer to obtain professional advice if the minutes raise any technical question. It is recommended that the licensee record these communications in writing.

(vi) Documentation

The concerns noted in the section “Obtaining Information” noted previously apply to the duties of licensees working with buyers as well. Licensees should ensure that buyers are provided with a current Form B. The safest approach for licensees acting for buyers is to obtain the buyer’s written authorization and use it to request a current Form B at the time an offer is written. It may also be possible to avoid duplication of costs by providing a copy of that Form B to the buyer’s lawyer or notary public.

Licensees should also refer to section “Land Title Documents” noted previously for information regarding strata plans.

(vii) Buyer has Reviewed the Documentation

Licensees are encouraged to use the Receipt of Strata Corporation Documentation Form, which can be downloaded from the Council’s Forms web page, when providing copies of documents to interested buyers or their agents. For details, see Documents to Request and Their Significance.

Whether or not licensees have used the Receipt of Strata Corporation Documentation form, they are encouraged to use the following form of acknowledgement clause. Documents listed should include those documents itemized in the Receipt of Strata Corporation Documentation form.

Receipt of Strata Documentation Clause

The Buyer acknowledges having received and being satisfied with:

A Form “B” Information Certificate from the strata corporation dated (date), attaching the strata corporation’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any).

If relevant, a Form “B” Information Certificate from the section dated (date), attaching the section’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any).

A copy of the registered strata plan, any amendments to the strata plan, and any resolutions dealing with changes to common property.

The current bylaws and financial statements of the strata corporation, and any section to which the strata lot belongs.

The minutes of any meetings held between the period from (date) to (date) by the strata council, and by the members in annual or special general meetings, and by the members or the executive of any section to which the strata lot belongs.

The current insurance cover note explaining the strata corporation’s insurance coverage and deductibles.

(*)

(*)

(*) Add all other documentation actually received.

 

(viii) Buyer has not Received or Reviewed the Documentation

Sections 36(3) and 59(1) of the Strata Property Act and section 25 of the Interpretation Act effectively give the strata corporation eight days, following a request, to deliver a Form B - and up to 15 days to provide copies of the other records referred to in the following clause. Additionally, Under the Strata Property Act, unless a request for documents is personally presented to a strata council member, the strata corporation is deemed not to have received the request for 4 days. Therefore the 8 and 15 day periods do not start until 4 days after the request was faxed, mailed or emailed to the strata corporation or strata manager. Licensees should recommend a subject removal date that allows enough time for the strata corporation or strata manager to receive and respond to a request and for buyers to review the records provided by the strata corporation. Where the listing licensee has not already obtained the documents, such that the listing licensee must now request them from the strata corporation, it may take up to 18 days for subject removal. However, a prudent listing licensee will ensure that most, if not all, of the documents referred to in the clauses below are obtained at the time of taking a listing. This may enable buyers to shorten the due diligence period if there is no change in the information contained in these documents since the time of taking the listing. Licensees should add or delete documents from the list if they have already been reviewed or if they do not apply.

Strata Documentation to be Provided Clause

Subject to the Buyer, on or before (date) * receiving and approving the following documents with respect to information that reasonably may adversely affect the use or value of the strata lot, including any bylaw, item of repair or maintenance, special levy, judgment or other liability, whether actual or potential:

A Form ‘‘B’’ Information Certificate from the strata corporation, attaching the strata corporation’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any);

If relevant, a Form ‘‘B’’ Information Certificate from the section, attaching the section’s rules, current budget, the developer’s Rental Disclosure Statement (if any), and the most recent depreciation report obtained by the strata corporation (if any);

a copy of the registered strata plan, any amendments to the strata plan, and any resolutions dealing with changes to common property;

the current bylaws and financial statements of the strata corporation, and any section to which the strata corporation lot belongs;

the minutes of any meeting held between the period from (date) to (date) ** by the strata council, and by the members in annual or special general meetings, and by the members or the executive of any section to which the strata lot belongs; and

the current insurance cover note explaining the strata corporation’s insurance coverage and deductibles.

[Include any other information, document, record or report the Buyer needs before being committed to buy.]

Immediately upon acceptance of this offer or counter-offer, the Seller will authorize the (Seller’s/Buyer’s) agent, to request***, at the (Seller’s/Buyer’s)† expense, complete copies of the documents listed above from the strata corporation or other source and to immediately, upon receipt, deliver the documents to the Buyer (or the Buyer’s agent).

This condition is for the sole benefit of the Buyer.

*When an owner asks a strata corporation for one of the strata records listed here, in most cases section 36(3) of the Strata Property Act, when read together with section 25 of the Interpretation Act, and section 63(2) of the Strata Property Act, which deems that the request for documents is not received by a strata corporation until 4 days after they are received,   permits the strata corporation up to 19 days to deliver the relevant records to the owner. If the listing licensee already has all of the records listed above, choose a reasonably short subject removal date. If the records are not available, allow up to 22 days from the date the offer is accepted. The 22 days represent four days to allow the strata corporation to receive the request, 15 days for the statutory delivery period plus three days for the buyer to review the documents.

**The Council recommends two years, but cautions licensees that this is just the beginning of the investigation. Any indication of issues regarding the finances or physical condition of the strata corporation or building may necessitate the further investigation of minutes beyond the two-year requirement.

***Use an authorization form such as the “Authorization to Agent to Obtain/Deliver Documentation” for this purpose.

† The wording of this clause allows for the parties to negotiate who will pay for the cost of obtaining these documents.

(ix) Strata Fees and Related Items

In addition to collecting strata fees for a strata lot’s contribution to the operating fund and the contingency reserve fund, some strata corporations/sections charge user fees (sometimes called rent) for parking, storage facilities, or other services. In instances where there are charges in excess of the monthly strata fees, licensees should include the following clause in the Contract of Purchase and Sale:

Additional Fees Clause

The Buyer is also aware that the strata corporation (or the section if applicable) charges an additional (monthly, yearly, etc.) fee(s) for

(parking, storage, etc.) in the amount of $ (amount).

(x) Acknowledgement of Restriction on Use

The issue of restrictions on use is discussed previously in “Restrictions on Use” above. If the bylaws contain rental restrictions or there are other prohibitions, licensees should ensure that these restrictions have been disclosed to buyers.

(xi) Mixed Use

To more effectively enforce a quiet lifestyle in a mixed-use development, a strata corporation may amend its bylaws to restrict the activities of certain businesses that might operate in a non-residential strata lot. For instance, a bylaw may prohibit the owner of a non-residential strata lot from operating a nightclub or prevent operating a commercial business after 7:00 p.m.

If the strata corporation does not have a bylaw that limits the types of business or their activities that operate in the non-residential strata lots, a buyer’s agent should point this out to the buyer. It is also a good idea to obtain a copy of the relevant zoning bylaw that shows what kinds of activities are permissible in the area in question and give it to the buyer.

In situations where the buyer wishes to make an offer conditional upon receiving a copy of the zoning bylaw and being satisfied with permitted activities, the following clause should be inserted in the Contract of Purchase and Sale.

Receipt of Zoning Bylaw Clause

Subject to the Buyer receiving a copy of the relevant zoning bylaw for the property and approving the uses permitted by (date).

This condition is for the sole benefit of the Buyer.

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

Change in Bylaws

The possibility exists that changes may be made in a strata corporation’s bylaws between the date of acceptance of an offer and the completion date, particularly following annual general meetings or extraordinary meetings.

As outlined previously, licensees should obtain the minutes of the strata corporation’s last Annual General Meeting, and any strata council meetings held in the interim, and deliver them to the buyers along with the amended bylaws. These minutes may contain changes in bylaws or a notice of motion to change bylaws that would be significant to the buyers’ decision to purchase.

Notification of Changes in Bylaws or Rules Clause

The Seller will notify the Buyer before the completion date of any notice of a resolution to amend the bylaws or rules of the strata corporation, or the bylaws or rules of a section to which the strata lot belongs, or any amendment to such bylaws or rules, that the Seller has not previously disclosed to the Buyer. The Seller will promptly deliver a copy of the relevant resolution or notice of resolution to the Buyer.

Ώ Where such notification is provided to buyers, licensees should advise buyers to seek legal advice.

(xii) Special Levies

Generally

Owners are personally responsible for the contribution due from their strata lot for a special levy (formerly called a special assessment) which may be payable in one lump sum or by installments as set out in the ¾ Vote Resolution authorizing the special levy.

Before the completion date, the seller is the owner and is responsible for the contribution due from their strata lot. The buyer becomes the owner on the date the seller conveys his or her interest in the strata lot to the buyer. The conveyance marks the transition where the buyer becomes the owner who is responsible for the contribution due from the strata lot. Section 109 of the Strata Property Act states:

If a special levy is approved before a strata lot is conveyed to a purchaser,

(a) the person who is the owner of the strata lot immediately before the date the strata lot is conveyed owes the strata corporation the portion of the levy that is payable before the date the strata lot is conveyed, and

(b) the person who is the owner of the strata lot immediately after the date the strata lot is conveyed owes the strata corporation the portion of the levy that is payable on or after the date the strata lot is conveyed.

Special Levy Clauses

Sometimes the buyer may want protection against paying any portion of a special levy due after the completion date. These matters are often the subject of negotiation. Some sample clauses are shown below.

Where a special levy will likely be approved before the completion date, a licensee may use one of the following two clauses:

Seller Agrees to Hold Back to Pay for Special Levy Approved Before Completion Clause

If a special levy is approved before the completion date, the Seller shall credit the Buyer with the entire portion of the special levy that the Buyer is obligated to pay under the Strata Property Act and the Seller hereby directs the Buyer’s lawyer or notary public to hold back such credit from the sale proceeds and to remit it to the strata corporation.

Seller and Buyer Negotiate the Portion of the Special Levy Due After Completion that the Seller Will Pay Clause

If a special levy is approved before the completion date, the Seller shall credit the Buyer with __% of the portion of the special levy that the Buyer is obligated to pay under the Strata Property Act and the Seller hereby directs the Buyer’s lawyer or notary public to hold back such credit from the sale proceeds and to remit it to the strata corporation.

Where a special levy will likely be approved after the completion date or the licensee is uncertain whether the special levy will be considered for approval before or after the completion date, the licensee should use the following holdback clause:

Seller Agrees to Hold Back a Portion of the Purchase Price Where There is the Possibility of a Special Levy being Assessed in the Near Future Clause

A portion of the purchase price in the amount of $____, (the “Holdback”) will be held by the lawyer or notary public acting for the Buyer in an interest bearing account until ____, 20__ (the “End Date”). The lawyer or notary public acting for the Buyer will pay to the strata corporation out of the Holdback and accrued interest any special levies (or similar levies charged by the strata corporation) that are levied and due and payable before the End Date. On the first business day after the End Date the lawyer or notary public acting for the Buyer will pay any remaining balance of the Holdback plus accrued interest to the Seller.

Ώ NOTE: Licensees should be aware that there are situations where the potential for levies arises and should advise their clients to seek legal advice as to the possible ramifications. Sellers should consult with their lawyer should they wish the buyers to appoint them as proxy on votes relating to a special levy resolution occurring after completion.

(xiii) Property Transfer Tax

The Property Transfer Tax Act has been amended to change the application of the property transfer tax to pre- sold strata units. Previously, tax was based on the fair market value of a pre-sold strata unit on the day the transfer was registered at the Land Title Office. Because the registration could be a year or more after the purchase and because the price of the strata unit generally appreciated over that time, a buyer would not know at the time the unit was purchased what amount of property purchase tax would need to be paid at the time of transfer. As a result of the amendment, tax will now be based on the consideration paid for the unit, including upgrades, at the time of purchase.