III. Trading Services
[04/01/2015 Content revised]
NOTE: Licensees who have a limited experience in strata property transactions should seek guidance from their managing brokers. This is a complex area of real estate where unforeseen hurdles can cause serious problems for licensees and the public. Licensees may also learn more about strata sales by participating in continuing professional education courses about condominium law, such as those offered from time to time by the Real Estate Boards and by the Real Estate Institute of British Columbia.
(a) Strata Developments – The Basics
Licensees must exercise reasonable care and skill in the performance of their duties. They should take special precautions in the sale of any strata property to ensure that they are not involved in any misrepresentation, either by omission or by incorrect statements.
In the sale of strata properties, exercising reasonable skill and care includes the obligation to ascertain and provide buyers with current information respecting strata corporation bylaws, rules, finances, and restrictions or prohibitions relating to the use of the strata lot, and other matters that may affect the strata lot’s value or use. The Strata Property Act assists in this process by providing a mechanism for access to a great deal of information concerning a strata corporation. It requires that much of this information be certified by the strata corporation. While the process may be time consuming and complex, it should be followed rigorously.
These guidelines are intended to assist licensees in the performance of their duties. They explain various situations licensees may encounter and must be able to handle on behalf of clients.
(ii) Governing Legislation
The Strata Property Act, as amended by the Strata Property Amendment Act and including the Strata Property Regulation (the ‘‘Regulation’’), came into force July 1, 2000. The Strata Property Act replaced the Condominium Act. Since July 1, 2000, the provincial government has further amended both the Strata Property Act and the Regulation. Licensees can obtain a consolidated version of the Strata Property Act, together with the Regulation, on the Provincial Government’s Strata Property website www.gov.bc.ca/strata. This site contains helpful advice on numerous matters relating to the operation of the Strata Property Act and other pertinent information affecting strata corporations. A consolidated version of the Strata Property Act and the Regulation can also be ordered for a fee from BC Laws at www.bclaws.ca.
Licensees should ensure they reference the most current version of the Strata Property Act and Regulation as amendments occur regularly.
(iii) Strata Governance and Compliance
The Strata Property Act regulates the creation and operation of strata corporations. A strata corporation is a unique form of real estate development that permits multi-unit developments, each with an individual title, to be created on a single parcel of land. Strata plans may be filed to create multi-unit developments ranging in size from two to hundreds of units. The units may be for residential, commercial, industrial, or recreational use or some combination of these various uses. When a strata plan is filed in the Land Title Office, a strata corporation is created. Thus, a two unit duplex may be a strata corporation.
The Strata Property Act and Regulation govern the operation of all strata corporations created in British Columbia. Some of the operational requirements are that every strata corporation must have bylaws, it must hold annual general meetings and keep minutes of the meetings, it must retain records relating to the strata corporation, the owners must approve a budget annually and the strata corporation must maintain operating and contingency reserve funds.
Regardless of the size or way in which the units are to be used, the Strata Property Act and the Regulation apply to govern the strata corporation’s operation. Although provincial legislation applies to all strata corporations, there is no government body that enforces the legislation to ensure that strata corporations comply with the legislative requirements. As a result, some strata corporations will comply diligently with the governance requirements, while others will consider the legislation as a noncompulsory guide and others, particularly smaller strata corporations, may ignore the legislative requirements completely.
A strata corporation that retains a third party management company to assist in the management is more likely to comply with the legislative requirements, however there are many self-managed strata corporations that are well informed regarding the requirements of the legislation and are diligent in their efforts to comply. Small strata corporations tend to be less familiar with the requirements of the legislation, and in some cases may deny that the legislative provisions are applicable. It is not uncommon, for example, for duplex owners to deny that they are part of a strata corporation and thus fail to hold general meetings, approve budgets and maintain operating and contingency reserve funds. Some owners even believe that the legislation exempts smaller strata corporations from the need to comply with the legislation. Others believe that the Strata Property Act does not apply to strata developments used for commercial or industrial purposes. Such beliefs are incorrect. Neither the Strata Property Act nor the Regulation contains exemptions from the governance requirements for any strata corporation.
Some licensees refer to strata corporations that do not hold meetings, or maintain the necessary operating and contingency reserve funds as “non-compliant.” In such strata corporations, meeting minutes, budgets, and/or financial statements may not exist. To ensure that sellers will not be held liable by buyers for the strata corporation’s failure to comply with the legislation and will not be liable to produce documentation that does not exist, listing licensees should insure that any subject clauses requiring the production of documents (other than the request for insurance documents which is discussed below) are deleted. Additionally, listing licensees may wish to include the following clause in the Contract of Purchase and Sale when selling these properties but care must be taken to ensure the strata corporation is “non-compliant” prior to using the following clauses or some variation thereof.
Properties without a Strata Council Clause
The Buyer acknowledges that this strata corporation has not been run in compliance with the Strata Property Act and, in particular, there is no active strata council, there have been no strata meetings, there is no budget, no strata fees have been collected, and there is no operating or contingency reserve fund or financial records.
In such cases, buyer’s agents should recommend that buyers obtain legal advice before becoming committed to buy and may wish to include the following clause making the contract subject to obtaining legal advice.
Subject to Legal Advice
Subject to the (select either Buyer or Seller) obtaining legal advice satisfactory to the Buyer or Seller concerning (select easement, builders’ lien, financing or define applicable issue) _________ 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” ….
However, notwithstanding general non-compliance by the strata corporation with the legislative requirements, a buyer’s agent should obtain a copy of the strata plan and related schedules (if any) from the land title office and the agent should insist on obtaining a copy of the strata corporation insurance documents. The Strata Property Act requires every strata corporation to maintain property insurance on the buildings on a strata plan and to maintain liability insurance. This means that the insurance policy should be in the strata corporation’s name, i.e., The Owners Strata Plan (alpha/numeric sequence identifying the strata corporation). Owners in smaller strata corporations and particularly duplex owners may believe that obtaining personal insurance is sufficient; however, such insurance does not meet the requirements of the Strata Property Act and may mean that the property is NOT insured.
(iv) Types of Strata Plans
The Strata Property Act permits either building strata plans or bare land strata plans. The floors, walls and ceilings of the unit define the boundaries of strata lots in a building strata plan, which is the most common form of strata plan. Unless something different is shown on the strata plan, the boundary of a building strata lot is midway between the surface of the structural portion of the wall, floor, or ceiling that faces the strata lot and the surface of the structural portion of the wall, floor or ceiling that faces the other strata lot, the common property or the other parcel of land. In other words, an owner’s strata lot extends to the center of the structural portion of walls, floors and ceilings.
In a bare land strata development, the boundaries of the strata lot are defined on the horizontal plane by reference to survey markers. In other words, the strata lot is the land. A bare land strata lot appears similar to a lot in a typical single family subdivision; however, the bare land strata lot is part of a strata corporation whereas the lot in a non-strata subdivision is not legally connected to any other lot.
(v) Forms of Ownership
Strata lots may be owned in fee simple or by leasehold where they are created on leased land. A review of the strata lot’s title will reveal whether the development is a freehold or leasehold strata development.
In the majority of strata developments, the developer owns the land being developed in fee simple. After completing the building, or the services if the development is a bare land development, a strata plan is prepared and filed in the Land Title Office. A title is created for each strata lot and the developer is shown as the registered owner in fee simple of each strata lot. Each purchaser acquires a fee simple title to the strata lot purchased. Such developments are referred to as freehold strata developments.
In some cases however, the developer does not own the land being developed but instead wishes to file a strata plan over land that the developer has leased. Only land that has been leased from a public authority that is identified in the Regulation may be subdivided by the filing of a strata plan. Following are the public authorities identified in the Regulation:
- Government of British Columbia
- Government of Canada;
- a municipality;
- a regional district;
- a Nisga’a Village or the Nisga’a Nation;
- a university as defined in the University Act;
- the Sechelt Indian Band established under section 5(1) of the Sechelt Indian Band Self Government Act (Canada);
- the Provincial Rental Housing Cooperation; and
- a board as defined in section 1 of the School Act.
The owner of the land is referred to as the leasehold landlord and the developer is the leasehold tenant. The developer leases the land under a document called a ground lease (sometimes called a head lease). The lease is usually for 50 years or more. After construction of the building, a strata plan is prepared and filed in the Land Title Office. The strata plan is subject to the ground lease. Such a strata plan is referred to as a leasehold strata plan. The Land Title Office creates a fee simple title for each strata lot in the name of the leasehold landlord. The ground lease is then converted to a lease of each strata lot. The developer, as leasehold tenant, is the tenant of each strata lot. The developer sells the developer’s interest as leasehold tenant to a buyer. The buyer obtains the interest of a tenant for the remaining term of the ground lease. The term of the lease diminishes each year. The buyer effectively takes an assignment of the developer’s interest as tenant.
Licensees must obtain a copy of the ground lease/head lease in order to identify the remaining term of the lease and to discover whether the ground lease/head lease is prepaid or whether the lease requires periodic payments.
Listing licensees must identify whether the development is a freehold or a leasehold strata development in order to properly identify the interest being offered for sale and in order to accurately value the strata lot. In all cases where a buyer is considering purchasing a leasehold strata lot, the buyer’s agents should recommend that a buyer obtain legal advice with respect to the terms of the lease and the implications of buying a leasehold strata lot.
(vi) Designation of Property on a Strata Plan
Regardless whether the strata plan is a building strata plan or a bare land strata plan, the strata plan will contain two designations of property, namely strata lots and common property.
The strata lot is identified on the strata plan and, if it is building strata lot, it may include balconies, patios, decks, garages, and in rare cases parking spaces or storage lockers. The strata lot on a bare land strata plan will appear as a plot of land.
Common property is defined, in part, as that part of the land or buildings shown on a strata plan that is not part of a strata lot. In other words, everything that is not part of a strata lot is, by definition, common property.
Every owner owns their strata lot (or owns the leasehold interest) and all owners also own an interest in the common property as tenants in common. Even though every owner can claim an ownership interest in the common property, the owner’s ability to use the common property may be restricted by bylaws, lease arrangements, or other agreements entered into by the developer or strata council. Licensees should not make assumptions about a purchaser’s ability to use common property and should confirm the use of common property with the strata council. Specifically, the use of parking and storage lockers is discussed more fully below.
The Strata Property Act permits common property to be designated on the strata plan for the exclusive use of an owner or multiple owners. Common property designated in this manner is referred to as limited common property. If property is designated as limited common property, although it continues to be owned by all owners within the strata corporation as tenants in common, it may be used exclusively by the owner whose strata lot is identified on the strata plan as being entitled to use the limited common property.
(vii) Strata Corporation Finances
(1) Operating Fund, Contingency Reserve Fund and Special Levy
Every strata corporation is required to have two funds, namely an operating fund and a contingency reserve fund. The operating fund is used to pay for common expenses that occur annually or more often than annually. The contingency reserve fund is used for the common expenses that occur less often than annually or that do not usually occur.
A strata corporation is required to approve a budget at each annual general meeting. The budget sets out the annual operating expenses for the strata corporation and will typically include expenses for insurance, utilities, service contracts such as janitorial, elevator servicing, garbage removal, and repair and maintenance. The budget is approved by a majority vote of the owners at the annual general meeting. Once approved, the operating expenses as set out in the budget are allocated to all owners in proportion to the unit entitlement of each owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation, unless a different formula has been approved by unanimous vote. The contribution by the owners to the budgeted expenses forms a portion of the strata fees paid by each owner. The portion required to be paid to fund the budgeted expenses is deposited into the operating fund.
The budget permits the strata council, on behalf of the strata corporation, to spend the money in the operating fund, on those expenses that have been set out in the budget. There is very limited authority in the Strata Property Act or the strata corporation’s bylaws for spending that has not been authorized by the budget.
Every strata corporation is also required to maintain a contingency reserve fund (the “CRF”). If the amount in the CRF is less than 25% of the total contribution to the operating fund in the prior fiscal year, the strata corporation must contribute the lesser of 10% of the contribution to the operating fund for the current year or an amount that will bring the CRF to 25% of the contribution to the operating fund for the current year. Once the CRF reaches an amount equal to or more than 25% of the total amount budgeted for the contribution to the operating fund for the last fiscal year, additional contributions are determined by the budget process at each year's annual general meeting. In other words, the amount to be contributed to the CRF, once the amount in the CRF reaches an amount equal to or more than 25% of the previous fiscal years contribution to the operating fund, is determined as part of the budget process which is approved by a majority vote. The contribution to the CRF, as set out in the budget is allocated to all owners in proportion to the unit entitlement of each owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation. The amount determined by the budget to be deposited to the CRF is included in the strata fees paid by each owner and is transferred from the operating fund to the CRF. Except in limited circumstances, funds may only be withdrawn from the CRF by means of a ¾ vote of the owners at a general meeting.
The Strata Property Act permits strata corporations to also raise money by special levy. A special levy is sometimes referred to as a special assessment, although the term special levy and not special assessment is used in the Strata Property Act. A special levy may be used to raise funds for expenses that occur annually or less often than annually, however, most strata corporations raise funds by special levy for those expenses that occur less often than annually. Often funds are raised by special levy to pay for all or part of a major repair or refurbishment when there are funds in the CRF are insufficient to pay for the work. Each owner's contribution to a special levy is usually in proportion to the unit entitlement of the owner's strata lot relative to the total unit entitlement of all strata lots in the strata corporation. Unless the special levy is to be allocated other than in proportion to the unit entitlement of a strata lot, the special levy must be approved by a 3/4 vote of the owners at a general meeting.
(2) Expense Allocation
The general rule contained in the Strata Property Act regarding the allocation of expenses is that all owners must contribute to all expenses in proportion to the unit entitlement of the owner’s strata lot relative to the total unit entitlement of all strata lots in the strata corporation.
The Strata Property Act or the Regulation contains limited exceptions to the general rule. If certain conditions are met, some expenses may be allocated to fewer than all owners. In other words, some owners may not be required to contribute to the expense. In addition, the Strata Property Act permits the owners to allocate costs in a manner other than on the basis of unit entitlement if the owners have first approved the new formula by unanimous vote.
The Regulation permits operating expenses that relate to and benefit limited common property to be allocated to the owners of the strata lots entitled to use the limited common property. The exception is restricted to only operating expenses (those expenses that occur annually or more often than annually). The operating expenses relating to the limited common property must be shared by the owners entitled to use the limited common property on the basis of unit entitlement unless a different formula was approved. If a strata corporation intends to allocate expenses relating to limited common property to a limited number of owners, a separate column should be created in the strata corporation’s budget to identify the expenses. Thus, a review of the strata corporation's budget should identify the expenses that are allocated to only a limited number of owners. However, generally speaking, there are very few operating expenses related to limited common property that are of significance. As a consequence, few strata corporations take advantage of this exception.
If a strata corporation has identified “types” of strata lots in a bylaw, the Regulation permits the strata corporation to allocate operating costs that relate to and benefit only that type of strata lot to the owners of those strata lots. As with the expenses related to limited common property, the exception is restricted to only operating expenses. The expenses must be allocated among the owners of that type of strata lot on the basis of unit entitlement unless a different formula was approved. The Strata Property Act does not define what constitutes a “type" of strata lot. However, an example commonly used is that of an apartment style strata complex in which only certain strata lot have a gas fireplace. If the bylaws identify strata lots with gas fireplaces as a type of strata lot, the operating costs related to the gas fireplaces can be allocated to the owners of such strata lots. The annual fireplace inspection, if the strata corporation carries it out, would be one operating cost that could be allocated to such owners. Additionally, if the gas expense only related to the fireplaces, the gas expense could also be allocated to the owners of the strata lots with gas fireplaces. A further example of different types of strata lots may be residential/commercial strata lots, or apartment/townhouse strata lots.
A review of the strata corporation’s budget should identify any expenses that are allocated on the basis of type of strata lot. Additionally, a buyer’s agent should review the strata corporation’s bylaws closely to determine if the bylaws contain a bylaw amendment that identifies types of strata lots. If the bylaws have been amended to identify types of strata lots, further enquiries should be made to identify all operating expenses that will be are allocated to the type of strata lots that includes the strata lot that is listed for sale.
Strata corporations that have taken on, by bylaw, responsibility for the repair and maintenance of specified portions of some but not all strata lots may allocate contributions to the operating fund or a special levy only to the owners of strata lots benefiting from the repair. The contribution to the operating fund or the special levy must be by unit entitlement unless a different formula was approved. A review of the strata corporation’s budget should identify operating expenses allocated to only certain strata lots. A review of any special levy resolutions should clearly indicate whether the levy is to be allocated to only certain strata lots.
In addition to the exceptions identified in the Regulation, the Strata Property Act permits a strata corporation to create sections. Owners within a section may incur expenses that are solely related to the strata lots in the section. Expenses incurred by a section are allocated only to the owners of strata lots within the section. All other owners are not required to contribute to the expense. Expenses allocated to strata lots in a section must be allocated on the basis of unit entitlement unless the owners within the section have approved a new formula by unanimous vote as discussed below. See section (viii) for an explanation of sections.
The Strata Property Act also permits an expense to be allocated other than on the basis of unit entitlement. Section 100 permits the owners to allocate a contribution to the operating fund or the CRF by one or more different formulas if the formula is first approved by a unanimous vote of the owners. Additionally, section 108 of the Strata Property Act permits a special levy to be allocated other than on the basis of unit entitlement if the resolution authorizing the special levy is approved by a unanimous vote. A unanimous vote is defined in the Strata Property Act as “a vote in favour of a resolution by all the votes of all the eligible voters.”
(viii) Strata Corporations with Sections
The Strata Property Act permits “sections” to be created for the purpose of representing the different interests of:
- owners of residential strata lots and owners of nonresidential strata lots,
- owners of nonresidential strata lots, if they use their strata lots for significantly different purposes, or
- owners of different types of residential strata lots.
The bylaws of a strata corporation identify whether sections have been created. Each section is a separate legal entity and has the same powers and duties as the strata corporation with respect to matters that relate solely to the section. Sections are often referred to as mini strata corporations.
If the section and strata corporation are in compliance with the Strata Property Act, the section and the strata corporation will each have its own minutes of meetings, budget, strata fees, operating and contingency reserve funds and the section may even have its own bylaws.
When listing a strata lot that is part of a section the listing licensee must determine whether the section has maintained separate documents, and if so, must advise prospective purchasers of this fact. Additionally, the listing licensee may be required to obtain a separate Form B from the section executive in addition to obtaining the Form B from the strata corporation. The Form B is discussed more fully below. If a strata lot is part of a section, a buyer’s agent should ensure that they request copies of both strata corporation documents and section documents.
For the purposes of the following text, when referring to a strata corporation, a licensee should also be aware that they may also require information about the section in which the strata lot is located, if sections have been created.
(ix) Phased Strata Developments
A developer who wants to build a large number of strata lots but does not wish to build all of them at one time can deposit the strata plan in phases over a period of time. Licensees who engage in the sale of strata properties must be aware of the legal meaning and implications of phased developments and what impact this may have on their client purchasers.
When the strata plan for the first phase is deposited, the strata corporation is created. The developer will then proceed to develop the next phase, and, once completed, will file the strata plan for that phase. The strata plan is assigned the same strata plan number as the first phase and the owners in that phase become part of the original strata corporation.
Before a developer can build a development in phases, the developer must prepare a Form P, which is approved by an approving officer and registered against the land to be developed in phases. The Form P sets out the information relevant to the phased development. The Form P contains a schedule of construction, the number of phases and the number of strata lots to be constructed in each phase, the sizes and unit entitlement of the strata lots and the common facilities to be built. The developer is permitted to amend the Form P and can delay the completion of the future phases as well as amend the number of phases, the number of strata lots to be constructed, and the sizes of the units, which impacts the unit entitlement to be assigned to those strata lots. Additionally, developers can elect not to proceed with future phases. Buyers purchasing in early phases of a development should be advised that there can be no assurance that the future development will proceed as planned, or at all and should be advised to obtain legal advice on the implications of buying into a phased strata development.
Buyers of units in subsequent phases should be advised that once they become a member of the strata corporation, they become liable for the expenses that are incurred in any phase of the strata development. Where a phased development has been constructed over a period of time that spans the introduction of the Homeowner Protection Act, strata lots within that phased strata plan may be affected by a variety of warranties. Even if the earlier phases have adequate warranties, buyers in later phases will still be required to contribute to the ongoing repair and maintenance of the earlier phases.
When writing offers for units in new phases of an existing strata corporation, licensees should include the usual new construction clauses as well as clauses that are normally used for resale units. This would include clauses related to receiving the Form B Information Certificate, meeting minutes from all meetings during the past two years (minimum), as well as the other critical documents listed in the ‘‘Additional Strata Corporation Documents’’ section. It is important to note that not all of the information identified on a Form B will be applicable to the purchase of a brand new or preconstruction phased strata unit. However, the Form B remains of material importance because, among other things, the liabilities, contingency reserves and any pending litigation or pending or passed resolutions of the strata corporation, of which the new phase is a part, are disclosed on the form.
Selling strata lots in a phased development, whether the strata lot is in the first phase or a subsequent phase, involves a number of complex issues. The Council recommends that, when assisting buyers with the purchase of a strata lot within a phased strata plan, licensees should advise buyers to seek legal advice.
(x) Strata Developments in Air Space Parcels
The owner of a parcel of land owns not only the surface of the land, but also what exists above and below the surface. The land together with the air space above the land can be subdivided to create separate parcels of land (referred to as the air space parcel(s) and the remainder parcel). Although there will be only one remainder parcel, the subdivision may result in multiple air space parcels. The relationship among the various parcels will be governed by one or more air space parcel agreements. Each of the air space parcels and the remainder parcel may be further subdivided by the filing of a strata plan.
As subdivisions creating air space parcels are occurring with greater frequency, the possibility that a strata development exists within an air space plan is increasing. Licensees should therefore be familiar with the concept of air space plans and be able to advise buyers of the existence of the air space parcel agreement.
Although there are likely many reasons why a developer may choose to develop a parcel of land as an air space parcel development, one of the main reasons is the independent operation of each parcel. Other than the need to interact and cooperate with the owners of the other parcels regarding shared costs and other matters addressed in the air space parcel agreement, decisions regarding the operation of each parcel can be made without regard to the other parcels. A simple example of an air space parcel development is the subdivision of a high rise building into a commercial parcel and a residential parcel. Each parcel is subdivided by its own strata plan. The two strata corporations are separate entities and operate independently from each other. Each strata corporation will have its own bylaws, budget and contingency reserve fund. Each strata corporation will be required to contribute to the shared costs to repair and maintain the structure, elevator, building exterior, roof, and various mechanical and systems that the two parcels share.
Because an air space parcel development is divided into a number of different parcels, it is not necessarily possible to visually identify what physical areas are part of each parcel without reviewing the subdivision plans and the strata plans. For example, the lobby of a building may not be part of the residential strata development located above the lobby. The lobby may be part of another parcel and the residential owners may be permitted to access the lobby to enter the elevator as a consequence of an easement. Because the lobby is not the common property of the residential strata corporation, the residential owners will likely not have any input in how the lobby is decorated or maintained. Some buyers may find such restrictions surprising, and in some cases frustrating.
Although each strata corporation may operate independently of the other, each strata corporation must include in its budget the additional shared costs as required by the air space parcel agreement(s). A review of a strata corporation’s budget should identify the contribution to shared costs that the strata corporation must make and any revenue that the strata corporation is expected to receive from the other parcel(s).
Whether a strata corporation is part of an air space plan can be determined by reviewing the first page of the strata plan for the strata corporation. The description of the land being subdivided, which is set out on the top left corner of the strata plan, will indicate the existence of a subdivision plan. For example:
STRATA PLAN OF LOT X EXCEPT PART SUBDIVIDED BY AIR SPACE PLAN BCP 11111 …
Buyer’s agents should review the strata plan and advise buyers if the strata corporation is part of an air space plan. Being part of an air space plan may have implications in respect of the use and appearance of certain areas of the development. Additionally, being part of an air space plan will have cost implications for the strata corporation. As air space parcel agreements are often complex, buyer’s agents should recommend that the buyer obtain legal advice regarding the implications of the air space parcel agreement.
(b) Obtaining Information
Both listing and selling licensees have a general duty to be familiar with property they are intending to market. The ability for the strata corporation to control both the use of the common property and the use of the strata lots, and the need for owners to contribute to repairs of common property are two very significant differences when selling strata lots as compared to single family homes. It is therefore necessary for licensees to be familiar with the strata lot and matters relating to the strata corporation and to obtain as much information as may be necessary to assist the buyer. The process and cost of obtaining the necessary information does not relieve a licensee from this responsibility.
Strata corporations (including strata councils), strata managers, owners who sell their strata lots, and licensees frequently give information about strata matters to others. These parties must ensure that their information is accurate when they know that the recipient will reasonably rely on it. If the recipient suffers a loss because the information is inaccurate or misleading, the person providing the information may be liable for misrepresentation. Even if the information is accurate on its face, but reasonably leads the person to whom it is given to misinterpret it, the person providing the information may be liable.
Following is an explanation of the various documents that may be available when a strata lot is offered for sale.
(ii) Strata Documents
(1) Form B Information Certificate
Under the Strata Property Act, a buyer is entitled to obtain an Information Certificate (known as a Form B). The Form B contains information about the strata lot including the monthly strata fees, whether the owner has entered into an agreement with the strata corporation regarding alterations, and what the owner owes to the strata corporation. The Form B also provides information about the strata corporation such as the amount in the contingency reserve fund, whether the strata corporation is involved in litigation or arbitration and information about the use of parking spaces and storage lockers.
Attached to the Form B must be the strata corporation’s rules, the current budget, the owner developer’s Rental Disclosure Statement, if any, and the most recent depreciation report, if obtained.
Where a strata lot is part of a section, as discussed above, if the section is in compliance with the Strata Property Act the section will have its own strata fees, its own operating and contingency reserve fund, and possibly, its own depreciation report. Thus, a Form B will be required for the section as well as for the strata corporation.
The Strata Property Act references a “current” Form B. Many licensees mistakenly believe that a Form B that is dated within the past 30 or 60 days is current. In fact, a Form B is a snapshot of the current state of affairs in respect of information relating to both the strata lot and the strata corporation. Information such as the amount that the strata lot must pay in strata fees can change if a new budget is approved at an annual general meeting. Thus, if an annual general meeting was held after the Form B was prepared, although the Form B may be less than 30 days old, it may nonetheless be out of date. Similarly, the answer to the question respecting whether the strata corporation has been sued or is subject to arbitration can change in a day.
Because the listing licensee may have obtained the Form B when the licensee listed the strata lot, when providing the Form B to the buyer’s agent, if the listing licensee provides the Form B obtained at the time the strata lot was listed, the listing licensee may be providing a Form B that is not current even though it is less than 30 days old. As there is no way to know whether any of the information on the Form B has changed, the listing licensee should provide a new Form B, or confirmation from the strata corporation that the Form B being provided is current.
Although the Form B is generally of interest to the buyer, the listing licensee should use the Form B as a guide in determining with the seller how parking stalls and storage lockers are to be recorded on the listing. Thus, to ensure they are providing accurate and complete information, it is advisable for the listing licensee to obtain the Form B before they begin marketing a strata lot.
Additionally, the listing licensee should review, with the seller, the portion of the Form B that indicates how much the seller owes the strata corporation to ensure that the seller agrees with the amount and that the seller understands that in most cases the amount will need to be paid to the strata corporation, or arrangements that are satisfactory to the strata corporation must be made, before the strata corporation will issue a Form F. The Form F must be provided to the Land Title Office in order for the sale to complete in most cases. If the seller disputes some of the charges, such as fines, chargebacks for damage, or insurance deductibles, the listing licensee should advise the seller to immediately seek legal advice in order that the matter can be resolved. Waiting until a few days before the completion date to dispute the amount owing is not generally an effective strategy.
In the case where the strata lot is within a section of the strata corporation, a licensee should ensure that a Form B is requested from the strata corporation and the section.
Licensees should note that in some cases, the section and the strata corporation may be managed by different strata management companies.
Licensees should be aware that the terms “engineering report” and “depreciation report” reference two entirely different documents.
Over the years, many strata corporations have obtained engineering reports to identify structural, envelope or other building components deficiencies requiring repair. The report was specific to the problem areas and usually provided options for repair. The means by which a licensee can access an engineering report is discussed below under “Additional Strata Corporation Documents.”
In 2011 the Strata Property Act was amended to require strata corporations to obtain a depreciation report no later than December 13, 2013 unless the strata corporation has fewer than 5 strata lots, or the owners by 3/4 vote, agreed to waive the report. The Strata Property Act requires that a depreciation report contain an inventory of the physical components of the development, a summary of the repairs and maintenance work that occurs less often than annually, and a financial forecast that sets out the anticipated maintenance, repair and replacement costs projected over 30 years. The report must include a description of how the contingency reserve fund is currently being funded and it must contain at least three cash flow funding models to pay for the repairs. The report must include the name of the person preparing the report, a description of the person’s qualifications, whether the person carries errors and omissions insurance and it must set out the relationship between the person and the strata corporation.
The Rules require licensees to advise their client to seek independent professional advice on matters that are outside the expertise of the licensee. Licensees should therefore refrain from expressing an opinion on either an engineer’s report or a deprecation report. Buyer’s agents should recommend that their buyer obtain professional advice if the buyer has questions or concerns relating to the report.
It is important to remember that, the use of parking stalls or storage lockers by the seller does not necessarily mean that they will be available for the purchaser. Unless it is clear that the parking stall/storage locker will be available to be used by the purchaser, the parking stall /storage locker should not be included on the listing.
Effective January 1, 2014, the Form B is required to indicate the designation of parking stalls and storage lockers and must indicate whether they are part of a strata lot, a separate strata lot, limited common property or common property. If the designation is common property, the Form B must also identify how the use is administered. The Form B must indicate whether the Strata Council has given approval for the use, whether the parking stall or storage locker is rented on a monthly basis and if so, the amount of the rent or alternatively, whether the parking stall or storage locker has been allocated by an assignment from the owner developer.
Following is an explanation of the various designations that may be identified on a Form B, and the significance to the seller and buyer.
- Strata Lot or Part of a Strata Lot
Some strata plans designate parking stalls/storage lockers as part of a strata lot or, in some very rare cases, as a separate strata lot. Although such designations are rare, the Form B will indicate the designation. If the parking stall/storage locker is part of a strata lot, the new purchaser will automatically own and therefore have the use of the area when the strata lot is purchased. The listing for the strata lot can identify the parking stall/storage locker by reference to its stall or locker number. It is not necessary to list the parking stall/storage locker separately. No further action is required by the buyer to ensure that the buyer will have the use of the parking stall/storage locker.
In some cases, parking spaces may be designated as a separate strata lot. If the seller is selling both the residential/commercial strata lot and the parking strata lot, both must be listed for sale and separately transferred to the buyer.
- Limited Common Property (LCP)
If a parking stall/storage locker is designated as LCP, whether by the developer, or by the owners at a later time, the parking stall/storage locker is automatically available for use by the owner of the strata lot to which the parking stall/storage locker is designated.
When listing a strata lot to which the exclusive use of a LCP parking stall/storage locker is designated the listing should indicate that the parking stall/storage locker is LCP. The numbers of the parking stall(s)/storage locker(s) can be shown on the listing as being the parking space(s)/storage locker(s) number that the buyer will be entitled to use. No further action is required by the buyer to ensure that the buyer will have the use of the parking stall/storage locker.
- Common Property
If the parking stall/storage locker is designated on the strata plan as common property, it is within the control of the Strata Council, except in cases where there is a developer’s lease, which is discussed below.
Common property is owned by all owners as tenants in common. The Strata Council has the authority under the Strata Property Act to permit an owner or a tenant to use common property. If the parking stalls/storage lockers are common property, owners or tenants are entitled to use a particular area as a result of the Strata Council’s grant of exclusive use to that owner or tenant. The Form B will indicate whether the parking stall/storage locker is available for use as a consequence of an allocation of use by the Strata Council. In some cases, the permission to use the parking stall/storage locker may have been given many years ago. Some owners may not even realize that they are using their parking stall/storage locker as a result of the permission granted by the Strata Council. It may even be that the permission to use the parking stall/storage locker was originally given by the developer during the time the developer was acting as the strata council.
The provision of the Strata Property Act that authorizes the Strata Council to grant permission to an owner or tenant to use common property limits the period of time for which permission can be given to one year. The permission may be subject to conditions. The permission may be renewed and may be made subject to the same or different conditions. Additionally, the permission for the exclusive use of common property may be cancelled on reasonable notice.
Because the allocation of the use of common property is within the control of the Strata Council and can change, when listing a strata lot where the parking stall/storage locker is common property, the seller should not promise a buyer that the buyer will be entitled to use any of the common property. Rather, the seller should refer the buyer to the information on the Form B.
The buyer can rely on the Form B to indicate which parking stall/storage locker is allocated to the strata lot being purchased, however the buyer’s agent should clearly point out the statement on the Form B that indicates that where the designation of the parking stall/storage locker is common property, the allocation is subject to section 76 of the Strata Property Act and may be subject to change in the future. If the Form B is incomplete, or the information conflicts with the information provided by the vendor, the licensee should recommend that their client seek legal advice.
- Developer’s Leases
In a number of developments the developer has entered into a lease of the common property parking stalls/storage lockers to itself or to a company related to the developer. After leasing the common property, the developer then enters into agreements with purchasers in which the developer subleases and assigns one or more parking stalls/storage lockers to a purchaser. The developer may charge for all subleases, or it may charge for only additional parking stalls/storage lockers.
Although the lease and sublease agreements vary, generally, the sublease provides that the owner must assign the sublease to a new purchaser at the time the strata lot is sold.
Leases of common property parking and storage areas are seldom registered on title, however, the Form B is required to indicate whether such a lease is likely in place.
Although the seller may not recall whether there was a sublease agreement, the information about the sublease may be contained on the contract of purchase and sale that was prepared when the seller bought the strata lot. If the information about the lease and sublease is not available, the seller should rely on the Form B as the indication that a lease/sublease arrangement is likely to exist. However, without specific information about the sublease, and particularly which parking stall/storage locker was leased, the seller is unable to provide the purchaser with any definitive information regarding the purchaser’s ability to use the parking stall/storage locker other than the information contained on the Form B. If the seller requires more information on the parking stall/storage locker that was assigned as part of the sublease, the seller may need to obtain legal advice. If the seller has a copy of the sublease of a parking stall/storage locker from the developer, the listing licensee can include reference to the parking stall/storage locker when listing the strata lot for sale. The listing should indicate that the area in question is common property and that the seller has a sublease to a specific parking stall/storage locker. The number of the parking stall/storage locker can be shown on the listing. Without a copy of the sublease, the listing should only indicate the information contained on the Form B. A reference to a specific parking stall/storage locker should not be included on the listing agreement.
If the seller has a copy of the sublease, the buyer’s agent should obtain a copy and advise the buyer to read the sublease, or obtain legal advice, to ensure that the sublease can be assigned to the buyer. If the seller does not have a copy of the sublease, the buyer’s agent should recommend that the buyer obtain legal advice to ensure that the buyer will be entitled to the use of the parking stall(s)/storage locker(s) that are used by the seller. In such cases, a buyer’s agent should insert the following clause
Nature of the Parking Stall(s)/Storage Locker needs to be Verified Clause
Subject to the Buyer verifying on or before (date) that the parking stall(s)/storage locker. associated with the strata lot, which are # ____ is (are) designated under a lease between ____, as landlord, and ____, as tenant, or under a licence agreement between ____, as licensor [the person who gives the licence] and ____, as licensee [the person who takes the benefit of the licence], etc.).
This condition is for the sole benefit of the Buyer.
- Claims the Parking Stall/Storage Locker was Purchased
In a number of cases, sellers of strata lots insist that the listing should include the parking stall/storage locker because the seller believes they bought the parking stall/storage locker from the developer. The payment may have occurred in conjunction with a sublease of the parking area, or it may have been required by the developer in order to permit the allocation of common property. Notwithstanding any claims by sellers that they paid for a parking stall/storage locker and thus own the parking stall/storage locker, the designations as set out on the Form B are the designations that must be considered when determining how to represent parking stalls/storage lockers on the listing and when considering what a purchaser will be entitled to use after the strata lot is purchased.
(2) Form F Certificate of Payment
The Strata Property Act entitles a purchaser, or a person authorized by a purchaser, to obtain a Certificate of Payment (Form F), which must be provided if
(a) the owner does not owe money to the strata corporation; or
(b) the owner does owe money but
(i) the money claimed by the strata corporation has been paid into court, or to the strata corporation in trust, or
(ii) arrangements satisfactory to the strata corporation have been made to pay the money owing.
The Form F is typically requested from the strata corporation, or the brokerage providing strata management services to the strata corporation, by a lawyer or notary public acting on behalf of either the buyer or seller with respect to the conveyance.
A Form F will not be provided if the owner owes money and has not paid it into court/trust or has not made arrangements satisfactory to the strata corporation to pay the money owing. It would be beneficial for a licensee to determine if there is money owing by the seller to the strata corporation as early as possible to avoid the Form F being withheld.
(3) Additional Strata Corporation Documents
It has long been recognized that the information on the Form B is far from sufficient for a buyer. The Form B does not attach minutes, financial statements, bylaws and other documents that a buyer wishes to review. However, the only documents that a buyer is entitled to obtain are the Form B and Form F. As a result, the right of an owner, the seller, to obtain documents from a strata corporation has often been used to obtain the documents such as minutes and financial statements for the benefit of the buyer.
The Strata Property Act requires strata corporations to maintain and retain certain documents including minutes of annual and special general meeting and council meetings, a list of council members, books of account showing money received and spent, budgets and financial statements, correspondence received and sent, written contracts including insurance policies, warranties, the registered strata plan, court and arbitrator’s decisions, engineering and depreciation reports. Many of these documents will be relevant to a prospective purchaser. The length of time that the various documents must be retained is set out in the Strata Property Regulation.
The Strata Property Act permits owners, certain tenants, or any person authorized in writing by an owner, access to all of the records and documents that the strata corporation must prepare and keep under the Strata Property Act that relate to the period during which the owner or tenant was an owner or tenant.
The common practice for listing licensees to obtain strata corporation documents that are available only to an owner is to be authorized by the owner in order to obtain them from the strata corporation.
The Council has provided licensees with an authorization form entitled “Authorization to Agent to Obtain Strata Documentation” to be signed by an owner that a licensee may present to the strata corporation as evidence of their authorization to obtain the strata corporation’s documents. Additionally, clause 1(B)(i) of the Multiple Listing Contract also contains authority for the listing licensee to obtain information about the listed property from other sources, including a strata corporation. A buyer can then request that copies of the documents be provided as a condition of the contract of purchase and sale. To enable buyers to receive and review the strata corporation documents, selling licensees generally include a subject clause in the contract of purchase and sale requiring the production of various strata documents such as the Form B, current bylaws, registered strata plan, minutes of general and strata council meetings, financial statements, and engineering reports, if any. The buyer can receive only those documents that an owner is entitled to receive. Unless a buyer is specifically authorized by the owner to obtain documents from the strata corporation, a buyer cannot request these documents other than a Form B or Form F directly.
The selling licensee should ensure that all documents that were requested have been made available and that, if some of the documents are not included, an explanation that is acceptable to the buyer has been provided as to why a particular document has not been supplied.
Of particular concern will be the failure to produce engineering or depreciation reports that the strata corporation has obtained. In some cases, a strata council may be unwilling to release a depreciation or an engineering report because it has not had an opportunity to fully consider the report or alternatively because it believes a second opinion should be obtained. Whether such reasons are valid and properly justify the withholding of the report will not be known. In practical terms however, if a strata council is not willing to release the report, the only means for a buyer to obtain the depreciation report or an owner to obtain a depreciation or engineering report is to apply to the Court for an order that the report be released and provided to the buyer or owner. In the case of a buyer seeking this information, such a solution is impractical and unlikely.
Buyer’s agents who are advised that the strata corporation’s reports will not be provided, should warn their buyers in writing of the risks of proceeding with the purchase of a strata lot when such information is not available and should encourage the buyer to obtain legal advice.
Licensees should obtain a copy of the following documents, in addition to the Form B that is discussed above, at the time of listing a strata lot. This can be achieved by obtaining written authority from the seller as discussed above.
(This is an opportunity for licensees to negotiate who will be responsible for the cost of obtaining these documents.)
- minutes — 24 months’ minimum — strata council meetings, annual general meeting(s), special general meeting(s), and meetings of the executive or the members of any section to which the strata lot belongs. Request written verification from the strata property manager, the strata council or, if a section exists, the executive of the section, that the information received represents complete copies of minutes requested;
- current bylaws of the strata corporation and any section to which the strata lot belongs;
- current financial statements of the strata corporation and any section to which the strata lot belongs;
- the registered strata plan, any amendments, and any resolutions dealing with changes to common property. It is recommended that the listing licensee obtain the strata plan from the Land Title Office prior to listing the strata lot. The strata plan is necessary to identify the features associated with the strata lot, such as balconies and decks, and their designation. The strata plan also indicates the area of the strata lot and the designation of parking and storage. The strata plan can then be provided to the buyer with the other documents requested. If the licensee choses to obtain a copy of the strata plan from the strata corporation, the licensee should ensure that the strata plan obtained is a copy of the registered strata plan and not a copy of the unregistered strata plan that was included in the developer’s disclosure statement;
- information about any additional fees charged by the strata corporation, over and above the monthly strata fee, for parking, storage or other features;
- information regarding any building warranty that may be applicable;
- municipal occupancy permits and/or final inspection permit;
- correspondence to owners from the strata council over the last 12 months;
- copy of the strata corporation’s insurance cover note. The insurance cover note should be used to identify the insurance deductible that the strata corporation must pay in the event of various losses caused by events such as fire or water escape. If a deductible is high, particularly for water escape, a buyer should be encouraged to make further inquiries of the seller as to the number of claims that have been made and the reason for the claims;
- building envelope inspection reports, engineering reports or remediation reports, if any; and
- legal opinions, if any.
Licensees should use a checklist coversheet, in duplicate, when providing a copy of the above-noted documents to interested buyers or their agents. The checklist coversheet should include the following information:
- a description of each document included (e.g., minutes of the meetings of the strata council with meeting dates noted);
- the dates the documents were received by the listing agent (to confirm the point in time at which the information is current);
- the source of each document (e.g., the strata corporation, its strata manager, the Land Title Office, etc.);
- a statement that if the person to whom the documents are provided is concerned about the currency of the information provided, or any matters contained within the information provided, they should seek independent verification and/or advice.
A sample checklist coversheet, called the “Receipt of Strata Corporation Documentation Form” can be downloaded from the Council’s Forms webpage. With this checklist coversheet in duplicate, licensees should have the person receiving the information acknowledge receipt in writing on the top copy, including the date the information is received. The top copy can then be retained by the licensee as a record of what information was provided to whom on what date. The second copy should be provided, along with the documents, to the person who has requested the information.
As set out above, generally, an owner authorizes the listing licensee to obtain strata corporation documents either by using the authorization form provided by the Council entitled Authorization To Licensee to Obtain Strata Documentation or by relying on clause 1(B)(i) of the Multiple Listing Contract which contains authority for the listing licensee to obtain information about the listed property from other sources, including a strata corporation.
Once a licensee has obtained the documents from the strata corporation, how a licensee uses or distributes the documents is determined by the instructions provided to the licensee by the owner of the strata lot.
The Council has also provided licensees with a form entitled Authorization to Licensee to Deliver Strata Documents. The form sets out the owner’s instructions to the licensee regarding the use and distribution of the documents obtained from a strata corporation. The authorization provides the licensee with the permission to deliver the strata documents and records to “a prospective buyer or buyer’s agent.”
The Council has interpreted the phrase “a prospective buyer or buyer’s agent” to mean purchasers or their agents who are specifically interested in purchasing the seller’s strata lot. The phrase cannot be interpreted to mean the “world at large” or, put another way, anyone who is surfing the internet and clicks on the licensee’s website.
The Multiple Listing Contract contains an authorization in clause 9(A) in which the seller agrees that the documents obtained by the listing licensee can be disclosed to, among others, persons interested in the property, including prospective buyers and their agents. The authorization contained in the Multiple Listing Contract is significantly broader than the authorization contained in the Council’s authorization form.
The authorization being relied on will determine how the licensee may distribute the strata corporation documents.
If a licensee wishes to post the documents on a website in order to make the documents available to any person who may wish to view them, the licensee should ensure that they have the appropriate authorization, such as that contained in clause 9(A) of the Multiple Listing Contract, from the owner. A licensee who makes strata corporation minutes and documents available on a website based only on the authorization form available from the Council could be found to have failed to follow their client’s instructions if their client complains to the Council about too broad a circulation of the documents.
The further question that arises is whether an owner is entitled to authorize a licensee to make strata documents available to the public at large. Some licensees have argued that the Strata Property Act does not contain any restrictions on the use of the documents once they have been provided by the strata corporation. This view is correct. The Strata Property Act does not contain restrictions on how the documents can be used. However, the strata corporation may choose to impose such restrictions.
Licensees have also suggested that the documents obtained from the strata corporation belong to the owner and the owner is entitled to authorize their release. In fact, the documents, such as minutes, budgets, financial statements, engineering reports and legal opinions, belong to the strata corporation, not an owner. The strata corporation may wish to restrict how its documents could be used and disseminated.
For this reason, a licensee who wishes to rely on the authorization to distribute documents as set out in the Multiple Listing Contract should point out clause 9(A) to the owner and advise how the licensee intends to distribute the information. Before agreeing to such distribution, the owner or, if directed to do so by the owner, the licensee should confirm that the strata corporation has not imposed any restrictions on the manner in which strata documents can be distributed.
Licensees should recognize that simply being provided with strata corporation documents does not entitle the licensee to distribute the documents in a manner other than as directed by their client.
If documents are requested to be provided in accordance with the timeframe set by the Strata Property Act, the Regulation establishes the maximum amount that can be charged.
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 receipt of a request, to deliver a Form B, the bylaws and rules and up to 15 days following receipt of a request to provide copies of the other records maintained by the strata corporation. 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.
The Regulation sets the maximum fee that a strata corporation may charge for providing a copy of a record or document and the fees for providing a Form B and a Form F.
The maximum fee that a strata corporation may charge for providing a copy of a record or document prescribed under section 35 of the Strata Property Act is 25¢ per page. The maximum fee for a Form B including the required attachments is $35, plus the cost of photocopying, or other means of reproduction, at no more than 25¢ per page and the maximum fee for a Form F is $15. (These rates are subject to change by regulation.) The fees are applicable if the documents are requested to be provided in the time frames as set out above. The Regulation prohibits any charge to an owner, or his or her authorized delegate, for inspecting the strata corporation’s records.
While the Strata Property Act and the Regulation establish both maximum time frames and maximum fees to be charged for providing copies of a strata corporation’s records, the legislation is silent on whether additional fees may be charged for providing these records in a shorter time period than the maximum allowed.
When strata corporations, or strata managers acting on their behalf, are requested to provide documents sooner than stipulated by the legislation, licensees should be aware that some may charge additional fees.
When drafting offers that include obtaining documents for review by a prospective buyer, licensees should recommend a subject removal date that allows enough time for the strata corporation or strata manager to respond to a request and for buyers to review those documents.
Often buyers will request copies of reports not knowing whether the report exists. If no report is then provided the buyer believes that no report was ever commissioned or obtained.
It is important for a seller to recognize that the request for documentation in the contract of purchase and sale obligates the seller to produce the documents requested. A request for all reports is simply that, all reports. If the seller is aware that certain reports exist, but does not ensure that they are provided to the buyer as part of the buyer’s request for documentation, the seller may be liable to the buyer for failing to provide the requested documents. Notwithstanding that the documents are generally provided by the strata corporation, the seller and seller’s agent should ensure that the documents provided to the buyer fully satisfy the buyer’s request.
It is obvious that a seller cannot be held liable for the reports if the strata council has failed to advise owners that a report has been commissioned or received. In those cases, the strata council may have failed in its duties to act honestly, in good faith and in the best interests of the strata corporation, and may be liable to the owners including the buyer.
Listing and selling agents sometimes seek information about a strata lot or a strata development from a strata manager. Licensees should keep in mind that a strata manager is not the agent of the seller but is an agent of the strata corporation. The strata manager’s duties are set out in the contract between the brokerage and the strata corporation and, generally, include carrying out many of the strata corporation’s duties such as maintaining the books and records and managing the day to day activities of the strata corporation.
When documents are requested from the strata corporation they are often requested from the strata manager. It is important for licensees to appreciate that the strata manager is merely stepping into the shoes of the strata corporation and has no separate duties to make disclosure other than assisting the strata corporation in fulfilling its obligations. Licensees should appreciate that in carrying out their duties to the strata corporation, a strata manager may only act within the scope of authority as set out in the contract between the strata corporation and the brokerage providing strata management services. In other words, when obtaining documents from the strata corporation, the strata corporation must comply with the Strata Property Act and the strata manager has no ability to act in a manner other than as permitted by the Strata Property Act and as directed by the strata council. The strata manager, for example, cannot release documents such as meeting minutes or financial statements to a party other than an owner, certain tenants or person authorized in writing by an owner or certain tenants. Additionally, the strata manager cannot provide his or her opinion on the likelihood of a future special levy or the need for repairs. Such information is only available to owners and prospective buyers through the minutes and other records of the strata corporation. If, for example, a buyer wishes to determine what the bylaws contain, it is appropriate to obtain and review a copy of the bylaws. Asking the strata manager for information about what is contained in the bylaws is inappropriate and may result in misinformation to a buyer if the strata manager provides information that is incorrect. Additionally, asking the strata manager for his or her opinion on the state of repair of the building, the competency of its strata council, or any other such matter is also inappropriate.
(iii) Land Title Documents
(1) Title Search
A title is issued for every strata lot created by a strata plan. As with any other property, it is essential that a search be conducted to ascertain who owns the property, the status of the property (i.e., fee simple or leasehold) and the nature of encumbrances against the property.
Under the Strata Property Act, an owner exercises many important rights, including access to a strata corporation’s records. In the case of a freehold strata lot, section 1 of the Strata Property Act defines the term ‘‘owner’’ as a registered owner. For example, if a husband and wife buy a freehold strata lot, but only the wife is registered on title as the fee simple owner, the wife is the only person who is an owner for the purposes of the Strata Property Act. In the case of a leasehold strata plan, the Strata Property Act defines the word ‘‘owner’’ to mean the leasehold tenant. Note that in a leasehold strata plan, a leasehold tenant is not the same as a tenant under the Residential Tenancy Act, S.B.C. 2002, c.78. If there is a registered agreement for sale of the strata lot, an owner is the registered holder of the last registered agreement for sale. If there is a registered life estate, an owner is the tenant for life.
(2) Strata Plan and Schedules
The Strata Property Act requires a strata corporation to keep permanently, among other documents, copies of the registered strata plan and any registered amendments. Even though a strata corporation must keep on hand its own copy of the registered strata plan as amended, a licensee should not rely on the strata corporation’s copy of the strata plan. A licensee should look to the Land Title Office for the most reliable and up to date copies of the registered strata plan and any amendments to it. These are important documents to review, regardless whether they are provided by the strata corporation, the sellers, or are obtained from the Land Title Office. If a listing brokerage does not obtain a copy of the entire registered strata plan and any amendments, at a minimum, the listing brokerage should obtain a copy of those portions of the strata plan that show:
- the page showing the registered strata plan number (or phase) of the strata corporation
- the overall site plan showing the location of the buildings, etc.;
- the portion of the site plan showing the particular strata lot and any designation of limited common property in respect of that strata lot;
- information respecting parking, storage and other amenities that are for the use of the particular strata lot;
Strata plans filed prior to July 1, 2000 contain schedules setting out the unit entitlement of each strata lot, the voting schedule, and the schedule of interest on destruction. After July 1, 2000 the schedule of unit entitlement and the voting schedule are filed separately and must be specifically requested. For strata plans filed after July 1, 2000, there is no longer a schedule of interest on destruction. Following is an explanation of each schedule and its significance to a buyer.
A strata lot’s unit entitlement relative to the total unit entitlement for all strata lots determines the proportion of common expenses that a strata lot must pay. For residential strata lots, the Strata Property Act requires the unit entitlement to be either the habitable area of the strata lot, a whole number that is the same for all strata lots, or a number approved by the Superintendent of Real Estate. For non-residential strata lots, the unit entitlement is either the total area in square meters of the strata lot, a whole number that is the same for all strata lots or a number that is approved by the Superintendent of Real Estate. Although most buyers are only interested in the strata lot’s monthly strata fees, a buyer’s agent should point out the unit entitlement for the strata lot in question so that the buyer understands the basis on which the strata fees are determined. This is particularly significant for larger strata lots. Buyers should be advised that the unit entitlement will determine not only monthly strata fees but also the strata lot’s contribution to any special levies that the strata corporation approves.
All residential strata lots have one vote. Thus, for a development that is entirely residential, a voting schedule included on a strata plan may be blank and a voting schedule will not be filed for strata plans filed after July 1, 2000.
For non-residential strata developments or developments containing both residential and non-residential strata lots a voting schedule may be filed in the Land Title Office. In a non-residential development, each strata lot’s vote is determined by the unit entitlement of the strata lot divided by the total unit entitlement of all strata lots. In a development containing both residential and non-residential strata lots, each residential strata lot will have one vote and each non-residential strata lot will have a vote based on the unit entitlement of the strata lot relative to the average unit entitlement of all residential strata lots. For example, if the average unit entitlement of the residential strata lots is 100, a non-residential strata lot with a unit entitlement of 50 will have a vote of .5 and a non-residential strata lot with a unit entitlement of 400 will have four votes. In such cases it is possible for the non-residential strata lots to have a fractional vote or more than one vote. In developments that are non-residential or developments that contain both residential and non-residential strata lots, a buyer`s agent should explain the significance of the voting schedule to the buyer.
For strata developments created prior to July 1, 2000, the strata plan will contain a Schedule of Interest On Destruction. This schedule is to be used to determine an owner’s interest in the land and personal property of the strata corporation when the strata corporation is wound up. The Strata Property Act no longer requires a Schedule of Interest On Destruction. Rather, at the time the strata corporation is wound up, the current assessed or appraised value is to be used.
(3) Other Land Title Documents
In addition to the strata plan, the Land Title Office maintains a Common Property Record and a Strata Plan General Index. These documents must be obtained separately from the strata plan and contain the following information.
The strata plan general index lists all documents filed in respect of the strata corporation, the date the document was filed and the document filing number in order to permit retrieval of a particular document from the land title filing system. The index lists all bylaw amendments, and, for strata plans filed after July 1, 2000, the voting schedule for developments that contain non-residential strata lots or a combination of residential and non-residential strata lots (if one was filed) and the schedule of unit entitlement. Additionally, any amendments to the voting schedule or schedule of unit entitlement will also be listed on the strata plan general index.
The common property record lists all of the charges and other interests that separately charge the common property including any filings that create limited common property that was created by means of a 3/4 vote and the filing of a sketch plan.
In addition to the availability of Land Title Office search facilities through a real estate board or one of the private title search services, in most cases a licensee may carry out a search through the Land Titles Survey Authority website at MyLTSA.ca. MyLTSA permits a licensee to search certain government information, including the Land Title Office and the Corporate Registry, via the Internet. A licensee may use MyLTSA to search the title of a single strata lot or to obtain a copy of an entire strata plan, together with related documents, such as amended bylaws. Charges vary depending on the nature and extent of a search. In general, a MyLTSA search tends to be very cost effective.
When using MyLTSA to order a copy of a strata plan, a licensee should always also check the Strata Plan General Index and the Common Property Record.
(c) Restrictions on Use – Bylaws and Rules
In addition to the need to comply with the Strata Property Act, every owner must also comply with the strata corporation’s bylaws and rules.
Every strata corporation must have bylaws. The bylaws serve as the constitution of the strata corporation. The bylaws may provide for the control, management, maintenance, use and enjoyment of strata lots or common property and the administration of the strata corporation. The ability of a strata corporation to regulate the conduct of owners and their ability to use a strata lot is very broad.
When a strata plan is deposited at the Land Title Office, the strata corporation acquires, by default, the Schedule of Standard Bylaws. All strata corporations that were created prior to the coming into force of the Strata Property Act that were relying on the Part 5 bylaws of the Condominium Act also acquired the Schedule of Standard Bylaws. Regulation 17.11 of the Strata Property Regulation provided that the Standard Bylaws are deemed to be the bylaws for all strata corporations created under the Condominium Act except to the extent that conflicting bylaws are filed in the land title office.
The developer, when depositing the strata plan, or later, the eligible voters of the strata corporation in a general meeting, may amend or repeal the Standard Bylaws and may create new bylaws. An amendment to the bylaws is not enforceable until it is filed at the Land Title Office. Bylaw amendments filed at the Land Title Office can subsequently be amended. This means that the bylaws of a strata corporation may consist of the Schedule of Standard Bylaws, or the Schedule of Standard bylaws plus any amendments filed in the Land Title Office, or only the amendments as filed in the Land Title Office, if the Standard Bylaws have been amended or disapplied.
Bylaw amendments must be approved by the owners at a general meeting by 3/4 vote.
It is useful to know that only bylaw amendments need be filed at the Land Title Office so in order to determine the current bylaws of the strata corporation it may be necessary to obtain all filed bylaw amendments, as well as the Schedule of Standard Bylaws. Also, sections may have their own bylaws that are separate from the strata corporation bylaws.
Rules are optional. The term rules replaces the phrase rules and regulations used under the former Condominium Act. A rule may only govern the use, safety and condition of common property and common assets. If a rule conflicts with a bylaw, the bylaw prevails.
When a strata council creates a rule, the rule is automatically subject to a sunset provision that may limit its life span. Although the rule comes into force immediately, the rule ceases to have effect at the first annual general meeting held after council made the rule unless the eligible voters at a general meeting ratify the rule by a majority vote. Once ratified, the rule remains in force until it is later repealed or altered.
(iv) Bylaws vs. Rules
Bylaws are different from rules in three important respects:
Source — Bylaws must be approved by a ¾ vote of the owners at a duly convened annual or special general meeting; rules are created by the strata council and take effect immediately upon being approved by the strata council. Rules must subsequently be ratified by the owners by means of a majority vote at the next general meeting after the rules were created.
Scope — A strata corporation at an annual or special general meeting is empowered to make bylaws covering not only the common property, but also the use and enjoyment of strata lots. By contrast, a strata council can only make rules affecting the use, safety and condition of common property and common assets.
Formality — Before it can be effective, a bylaw must be filed in the Land Title Office. Rules, however, do not need to be registered in the Land Title Office in order to be effective. Rules must, however, be in writing and must be capable of being photocopied.
Bylaws and rules are not enforceable to the extent that they contravene the Strata Property Act, the Regulation, the Human Rights Code, or any other law. The Strata Property Act limits the enforceability of some bylaws and rules made before it came into force. Bylaws and rules of existing strata corporations ceased to have effect January 1, 2002 to the extent they conflicted with the Strata Property Act or the Regulation. Although this may appear confusing, it is important for licensees to understand that, notwithstanding an owner’s or licensee’s view, or legal opinion that a bylaw may be unenforceable for any of the reasons noted above, only a judge, an arbitrator or an adjudicator can determine that a bylaw is unenforceable. Licensees should therefore refrain from expressing any opinion on the enforceability of any bylaw or rule. Instead, licensees should explain to their clients that a question about the enforceability of a bylaw or rule is a legal matter about which the clients should seek advice from their lawyer.
A common misconception is that a developer or a strata council can waive the application of a bylaw or rule. Buyers will therefore attempt to obtain the permission of the developer or strata council which authorizes a breach of a bylaw. Some bylaws specifically require that the strata council grant permission before an event may occur, such as an alteration to common property. However, where a bylaw prohibits or restricts an activity, such as prohibiting pets, children, hardwood floors or hot tubs, etc., neither the strata council nor the developer has the authority to grant permission for an owner to act in contravention of the bylaw subject to any duty to accommodate an owner as required by the Human Rights Code. In certain circumstances it may be necessary for buyers or owners to seek the relaxation of a bylaw or rule if the bylaw or rule results in discrimination contrary to the Human Rights Code. Buyers seeking such an accommodation may wish to obtain legal advice.
(vi) Disclosure of Restrictions on Use
The Council has disciplined listing and selling licensees for failing to properly check the bylaws for restrictions. If a restriction exists in the bylaws, selling licensees must inform a buyer before he or she buys the strata lot. For example, typical restrictions include: a bylaw that prevents rentals; an age restriction; a prohibition against pets; a limitation on the size of vehicles; or on the number of occupants per strata lot.
Licensees should never assume anything about issues that could affect buyers. For instance, in many strata plans deposited before July 1, 2000, when the Strata Property Act came into force, licensees will find a declaration on or about page 2 of the strata plan, to the effect that the plan is, “entirely for residential use.” In the 2002 case of Winchester Resorts Inc. v. The Owners, Strata Plan VAS2188, a declaration on the strata plan said it was ‘‘entirely for residential use’’. At the same time, a zoning bylaw and a building scheme registered against title to an owner’s strata lot, permitted certain commercial activities. The court found that a declaration of this type had virtually no legal effect. In the Winchester case, the owner of a strata lot was permitted to carry on a fishing lodge business in accordance with the zoning bylaw and the terms of the building scheme, despite the ‘‘residential use’’ declaration on the strata plan.
It is essential that the most current information, including bylaws, be obtained and, if there is an upcoming meeting regarding any change in bylaws and rules, that these changes be monitored and conveyed to the buyer. The following are common restrictions on an owner’s ability to use a strata lot.
(1) Age Restrictions
When considering age restrictions, licensees should be careful to determine whether the strata corporation has passed and registered an age restriction bylaw. In some cases, developments are advertised as adult oriented or adult only; however the developer or the strata corporation has never passed and registered a bylaw that restricts age. If there is no age restriction bylaw, an advertisement that the development is adult oriented is not enforceable.
Licensees should always review the bylaws to determine whether the strata corporation has passed an age restriction bylaw. Licensees should not rely on the lack of ‘‘adult only’’ signage or the presence of children to determine whether the strata development restricts the age of occupants.
The Strata Property Act specifically permits strata corporations to restrict the age of occupants of a strata lot notwithstanding the Human Rights Code. A bylaw restricting the age of persons who may reside in a strata lot does not apply to someone residing there when the bylaw is passed.
Discipline Record — Age Restriction Bylaw
The Council received a complaint that a buyer’s agent had failed to advise buyers of an age restriction bylaw in a strata development that prohibited children under the age of 19. The buyers had a young daughter and became aware of the bylaw after they purchased a strata lot. As a result of the bylaw, the buyers were forced to sell the strata lot and could no longer afford to purchase another home.
At the time the buyer’s agent showed the strata lot to the buyers, a sign at the entrance stated that the complex was adult oriented. When the buyer enquired, the buyer’s agent explained that “although the complex was geared toward adults, there were probably a few children.” The evidence established that, although the buyer’s agent provided the bylaws to the buyer, the buyer’s agent had overlooked the bylaw restricting the age of the residents. At the conclusion of the hearing, the Council found that the buyer’s agent was negligent in failing to ascertain and disclose that there was an age restriction bylaw prohibiting children.
The Council suspended the licence of the buyer’s agent for 14 days and ordered the buyer’s agent to successfully complete the portion of the licensing course regarding Condominiums and Agency.
(2) Rental Restrictions
A bylaw may either prohibit rentals of residential strata units or limit the number or percentage of residential strata units that may be rented or limit the period of time for which they may be rented.
If a strata corporation passes a bylaw restricting rentals under the Strata Property Act, the date the rental restriction applies may vary from strata lot to strata lot. Where a strata corporation passes a rental restriction bylaw, there is a grace period of one year before the bylaw applies to any of the residential strata lots in the strata plan. If a tenant occupies a strata lot on the day that the bylaw is passed, the one year grace period for that strata lot starts to run when the tenant vacates the unit. Rental restriction bylaws do not apply to family members, who are defined to include a spouse, a spouse arising from a marriage-like relationship that has lasted at least two years, a parent or child of the owner, or a parent or child of the spouse. Additionally, if the developer filed a Rental Disclosure Statement that applies to the residential strata lot under consideration, depending on the year that the Rental Disclosure Statement was filed, the rental restriction bylaw may not apply to that strata lot if the Rental Disclosure Statement continues to be valid. A Rental Disclosure Statement is filed by a developer before any strata lots are offered for sale and indicates which strata lots are designated as rental strata lots and the rental period. In most cases the developer will identify all strata lots in the development as rental strata lots on the Rental Disclosure Statement.
For all developments for which the Rental Disclosure Statement was filed on or after January 1, 2010, a rental bylaw passed by a strata corporation does not apply to a strata lot identified in the Rental Disclosure Statement until the expiry of the Rental Disclosure Statement.
The ability to rent a strata lot can be of great importance to a buyer so licensees need to understand the change and alert buyers to it.
Whether they act for a seller, a buyer, or both, licensees are accountable for any information they provide regarding the real estate or a trade in real estate. Therefore, if a licensee is uncertain about the answer to any question a seller or buyer may have regarding the rental of a strata lot they should advise that person to obtain independent legal advice.
A Rental Disclosure Statement filed before January 1, 2010 will protect the Developer and first buyers from the application of any rental bylaw passed by the strata corporation until the Rental Disclosure Statement expires. A buyer who purchases from a first or subsequent buyer does not have the benefit of a Rental Disclosure Statement.
Therefore, although buyers who purchase from the Developer will be protected from a rental bylaw if the Rental Disclosure Statement has not expired, future buyers will be subject to any rental bylaw that a strata corporation passes. The future buyers are not protected even though the Rental Disclosure Statement has not expired.
Buyers from developers who wish to take advantage of their right to rent should confirm that the rental period in the Rental Disclosure Statement is far enough into the future so that the first buyer’s right to rent will not be terminated by the expiry of the Rental Disclosure Statement. In many cases, the rental period for Rental Disclosure Statements filed before January 1, 2010 is at least 99 years, or is for an indefinite or unlimited period.
A Rental Disclosure Statement filed on or after January 1, 2010 will protect the Developer and all buyers from the application of a rental bylaw until the expiry of the Rental Disclosure Statement.
The amendment to the Strata Property Act has extended the benefit of the Rental Disclosure Statement from just the first buyer to all buyers until the expiry of the Rental Disclosure Statement. In other words, second, third, fourth, etc. buyers will be able to rent their strata lot as long as the Rental Disclosure Statement has not expired providing that the Rental Disclosure Statement was filed with the Superintendent of Real Estate on or after January 1, 2010.
Essentially, the strata corporation is not able to restrict rentals during the term of the Rental Disclosure Statement. If the buyer sells the strata lot while the Rental Disclosure Statement is in effect, the subsequent buyer would also be permitted to rent the strata lot. This effectively broadens the potential market for the strata lot and may be viewed by the buyer as an advantage. However, for a buyer hoping to see rental restrictions in place in order to create an owner occupied community, the fact that the strata corporation would be unable to restrict rentals may be viewed by a buyer in such a circumstance as a disadvantage.
All buyers, including buyers from developers should confirm the rental period on the Rental Disclosure Statement. Although, in the past, most Rental Disclosure Statements did not expire for significant periods of time, since January 1, 2010 some developers have filed Rental Disclosure Statements for a very short period such as five years. In such cases, the protection from a Rental Disclosure Statement ends for all owners, including the first buyer, when the Rental Disclosure Statement expires. Most first buyers believe that they will always be able to rent because they purchased from the developer. This is not the case. Developments with very short rental periods would therefore not be attractive to buyers who wish to rent the strata lot for an extended period.
Because a Rental Disclosure Statement is generally filed in the pre-marketing period, any building that was built by January 1, 2010 would most likely have a Rental Disclosure Statement that was filed prior to January 1, 2010. For those buildings, only the first buyer would have the benefit of the Rental Disclosure Statement until the Rental Disclosure Statement expired.
If the building is clearly a building where the Rental Disclosure Statement was filed before January 1, 2010, (i.e. built in the 80s, 90s or early 2000s) the general rule will apply. Buyers of resale strata lots should be advised that they have no protection from a rental bylaw and that a rental bylaw (either existing or one passed in the future) will apply to them.
Because the Rental Disclosure Statement did not apply to anyone other than the Developer and first buyer, even though the Rental Disclosure Statement is required to be attached to the Form B very few strata corporations bothered to do so. However, the amendment to the Strata Property Act relating to the application of the Rental Disclosure Statement has now made it necessary for the Rental Disclosure Statement to be attached so that buyers and licensees acting on their behalf can determine whether the resale has a pre January 2010 Rental Disclosure Statement, in which case the new buyer would not benefit from the Rental Disclosure Statement or, whether the resale has a post January 2010 Rental Disclosure Statement, in which case the new buyer will have the benefit of the Rental Disclosure Statement until it expires.
It will therefore be necessary for buyers and licensees acting on their behalf to determine the expiry date of the Rental Disclosure Statement for the resale of strata lots in the future. As noted above, unless the building is clearly one for which the Rental Disclosure Statement was filed before January 1, 2010, licensees acting on behalf of buyers should insist that the Rental Disclosure Statement be attached to the Form B particularly where the licensee has any doubt or uncertainty about the date the Rental Disclosure Statement was filed.
- If the Rental Disclosure Statement was filed before January 1, 2010, buyers of resale properties should be informed that a rental bylaw would apply to them.
- If the Rental Disclosure Statement was filed on or after January 1, 2010, the licensee should check the expiry date and if the date has not expired, advise resale buyers that they will be protected from a rental bylaw until the Rental Disclosure Statement expires.
(3) Pet Restrictions
Section 3(4) of the Schedule of Standard Bylaws in the Strata Property Act prohibits pets, other than one dog or cat, up to two caged birds, and a reasonable number of small caged mammals, fish or other aquarium animals. This bylaw can be amended by the owners to prohibit all or certain types of pets or to create further restrictions regarding the keeping of pets, or alternatively, to expand the numbers or types of pets that may be kept in a strata lot. A bylaw prohibiting or restricting pets does not apply to a pet living with owners, tenants, or occupants at the time when the bylaw is passed.
(4) Sales Restrictions
Section 122 of the Strata Property Act allows a strata corporation to pass a bylaw governing activities relating to the sale of a strata lot, including locations for the posting of signs and times for the showing of common property and holding of open houses, but the bylaw may not prohibit or unreasonably restrict those activities.
(5) Miscellaneous Restrictions
Many strata corporations restrict:
- use of a strata lot, in regard to what cannot take place (such as running a business or an illegal activity);
- colour of window coverings — to allow for uniformity of window covering colour;
- waterbeds — often an outright prohibition, insistence on proof of insurance, or restriction on location within building;
- hot tubs — often a prohibition especially on roof decks due to concerns with leaks or weight;
- hardwood floors — may be prohibited or certain standards for underlay and noise abatement may be imposed especially in frame buildings
- barbeques – may be prohibited on balconies, or the type of barbeque may be restricted; and
- smoking – may be prohibited on common property, and possibly on balconies, decks and in some cases in strata lots.
(d) Additional Issues for Listing Licensees
(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.
(ii) Disclosure Issues
(1) Latent Defects
Listing licensees should explain the concept of latent defects to sellers at the time a listing is taken. A material latent defect is one that is not visible upon ordinary inspection, but which materially affects a strata lot’s use or value. If sellers know about a material latent defect, they must fully inform potential buyers about it. Additionally, section 5-13 of the Rules requires that if a licensee knows about a material latent defect, the licensee must disclose the material latent defect to all other parties to the trade. The disclosure must be before any agreement for the purchase and sale of the real estate is entered into and the disclosure must be in writing. Additionally, section 5-8 of the Rules requires that the disclosure be separate from any agreement giving effect to a trade in real estate.
In strata developments, a latent defect can occur inside or outside an owner’s strata lot. Significant building deficiencies anywhere in the strata corporation’s property can materially affect the value of each strata lot because of the potential for special levies. If sellers know about significant building deficiencies, whether confirmed or under investigation, they must disclose the problems to buyers in writing. If sellers know that other strata lots in other parts of the strata development have been subjected to water leakage through the building envelope and that the strata council has asked an engineering firm to investigate and report on the matter, the sellers must disclose the problem to buyers or risk a lawsuit. This is a latent defect. The presence of problems serious enough to warrant professional investigation elsewhere in the development is not something that buyers would necessarily discover upon ordinary inquiry, and these problems can certainly affect the value of a strata lot.
(2) Property Disclosure Statement
In listing a strata property for sale, the Council recommends that licensees have the sellers complete a Property Disclosure Statement — Strata Title Properties. This document should be provided to all prospective buyers. Refer to the comments regarding Property Disclosure Statements below.
In the past, the Council has taken disciplinary action against both listing and selling licensees for failing to properly check the strata bylaws for restrictions.
The Council expects that the seller’s agent will review the current bylaws in order to advise the buyer or buyer’s agent of any significant restrictions that the bylaws may contain, and provide this in the listing documentation.
(e) Additional Issues for Buyer's Agents
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.
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.
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.”
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.
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.
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
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.