March 2013 Special Report from Council

Over the last year or so, it has come to the Council’s attention that many strata managers and brokerages do not fully understand the legislative requirements related to the operation of sections. In order to assist those licensees providing strata management services to strata corporations that contain sections, the Council has developed this Special Report from Council newsletter. It is intended to establish a base line of knowledge about the requirements under the Real Estate Services Act (‘RESA’) and the Council Rules as they relate to the management of strata corporations that contain sections. This special report contains:

• a comparison of sections and types,
• information about how sections are treated under the Strata Property Act (‘SPA’), and
• several scenarios commonly encountered in the strata management of sections.

As a means of facilitating a better understanding of the strata management of sections, the Council has established the following phased approach to ensure licensees are given the necessary knowledge and tools to comply with legislative requirements under RESA.

1. Identify the requirements

Through consultation with its Strata Management Advisory Group, the Council has identified how a number of requirements under RESA and the Council Rules relate to the management of sections.

2. Educate licensees

The information contained in this special report was created in order to assist licensees to understand these requirements. This special report will be supplemented by seminars held in various locations throughout the province. Leading expert Adrienne Murray will present the information contained in this special report and answer questions. See the last page of this special report for locations, dates, and registration particulars regarding these seminars. In addition, new material on sections will be added to the Strata Management Licensing Course, the Legal Update course and the Professional Standards Manual.

3. Establish a ‘phase-in’ period for compliance

The Council has established an 18 month period, starting with the publication of this special report, in which brokerages and individual licensees providing strata management services related to sections will be expected to bring their business processes, to the extent they are not already, into compliance with the requirements outlined in this special report. The compliance ‘phase-in’ period ends December 31, 2014.

Licensees with questions with respect to this Special Report from Council should email their inquiry to [email protected].

Many strata corporations are faced with the problem of wanting to allocate costs to only one group of strata lots. For example, in a strata development that contains both residential and non-residential strata lots, if the non-residential strata lots are on the main floor, they usually do not want to contribute to the elevator costs and other such costs for which they receive no benefit. Although the general rule under the Strata Property Act (“SPA”) is that every strata lot contributes to the common expenses of the strata corporation on the basis of unit entitlement, SPA does contain limited exceptions to the general rule.

One exception, as permitted by section 100 of SPA, permits the owners to approve a different formula for cost allocation. Essentially, the owners can approve any type of formula they choose, including different formulas for different expenses. The challenge with section 100 of SPA, however, is that unanimous approval must be obtained. Thus, although it is worth noting, because of the requirement for unanimity, section 100 of SPA is rarely used to reallocate costs.

Two other exceptions to the general rule which are frequently used by strata corporations are the allocation of costs by type of strata lot, and the allocation of costs to the strata lots in a section.

Allocating costs by type

The ability to allocate costs on the basis of type of strata lot is not set out in the body of SPA. Rather, it is contained in the Strata Property Regulation. Regulation 6.4(2) stipulates that, provided that a strata corporation has a bylaw that identifies types of strata lots, the contribution to the operating fund relating to and benefiting only one type of strata lot can be allocated to only the owners of the strata lots of that type.

The key aspects of Regulation 6.4(2) are:

• the strata corporation must have a bylaw identifying types of strata lots;

The Strata Property Regulation does not define what constitutes a “type” of strata lot. In the context of a 1993 Condominium Act decision, the Court interpreted “type” as denoting the character or form of structure. In the 1993 decision, the Court concluded that apartment style and townhouse style strata lots were different types. The Courts have continued to rely on the meaning of “type” as set out in the 1993 decision. It is also generally accepted that residential and nonresidential strata lots would constitute different types of strata lots.

• only operating costs can be allocated on the basis of type of strata lot;

Only operating costs, which are those costs that occur annually or more often than annually, may be allocated to a type of strata lot. In other words, the costs that can be allocated by type of strata lot are those costs that are set out in the strata corporation’s annual budget. There is no ability to allocate contingency reserve fund type expenses, i.e., those expenses occurring less often than annually, on the basis of type of strata lot.

• the costs allocated to strata lots of a type must relate to and benefit only that type.

In order to allocate costs as between types of strata lots, the cost must relate to and benefit only one type of strata lot. If a cost relates to or benefits more than one type of strata lot, the cost must be allocated to all strata lots on the basis of unit entitlement. It is not possible to rely on Regulation 6.4(2) to apportion costs on the basis of relative benefit or use. Thus, even though a cost may relate to or benefit one type of strata lot significantly more than another type, the cost cannot be proportionally allocated as between types of strata lots. If a cost benefited a type of strata lot significantly more than other types, a strata corporation would have to approve a different formula for cost allocation pursuant to section 100 of SPA, which, as noted above, requires a unanimous vote. In order to comply with the requirements of Regulation 6.4(2), a cost can only be allocated to a type of strata lot if it relates to and benefits only that type of strata lot.

Where the requirements of Regulation 6.4(2) are met, a strata corporation can identify in its budget those costs which are allocated to only certain strata lots. SPA does not contain any specific requirements for approval of a budget that contains an allocation of costs by type of strata lot. Thus the budget is approved in the normal manner at an annual general meeting, by means of a majority vote of the owners.

Allocating costs by sections

SPA permits the creation of sections for the purpose of representing the different interests of:

• owners of residential strata lots and owners of non-residential strata lots,
• owners of non-residential strata lots, if they use their strata lots for significantly different purposes, or
• owners of strata lots that are apartment style, townhouse style or detached houses.

Sections are created by bylaw. The creation of sections imposes a significant administrative burden on the section that is created. Each section is a separate legal entity and has the same powers and duties of the strata corporation with respect to matters that relate solely to the section. Sections are often referred to as mini strata corporations. Notwithstanding the creation of sections, the strata corporation retains its powers and duties in matters of common interest to all the owners. Once sections are created, the strata corporation continues to exercise the duties that relate to matters of common interest, such as obtaining insurance, and the sections will be obligated to carry out the duties that relate to section matters.

SPA requires each section to elect an executive and hold an annual general meeting. Each section must establish its own operating fund and contingency reserve fund for common expenses of the section. Expenses of the strata corporation that relate solely to the strata lots in a section are shared by the owners of strata lots in the section.

The key aspects of the provisions relating to sections are:

• the strata corporation must have bylaws creating sections. Townhouse, apartment, detached and non-residential strata lots used for different purposes may each form a section;

Unless the bylaws were amended by the developer at the time the strata plan was filed, bylaws creating sections must be approved by a ¾ vote of the eligible voters in the proposed section and a ¾ vote of eligible voters in the strata corporation.

• each section is a legal entity and must elect an executive, hold general meetings and exercise the same powers and duties as the strata corporation with respect to matters relating to the section;

Each section has the same powers and duties as the strata corporation in respect of matters relating to the section. In addition to the holding of meetings, electing an executive and approving a budget, if the section is holding operating funds, contingency reserve funds or special levy funds on behalf of the section, the section must establish its own accounts and maintain books and records related to the transactions in those accounts. Where a section wishes to engage a strata manager, unless the section waives the requirement for a written agreement, the brokerage providing strata management services must enter into a separate written management agreement with the section.

• operating and contingency reserve fund costs and special levies may be allocated to the strata lots in a section;

Operating costs, and expenses that occur less often than once a year (typically paid for from the contingency reserve fund or special levy), may be allocated to strata lots within a section. A section can approve a budget for the operating costs of the section and can also allocate funds to a contingency reserve fund. The section may also approve the raising of funds by means of special levy. The withdrawal of funds from the section’s contingency reserve fund, or the raising of funds by special levy, must be approved by means of a ¾ vote of the eligible voters of the section.

• the costs allocated to strata lots in a section must relate solely to the strata lots in the section.

In order to allocate costs to a section, the cost must relate solely to the strata lots in a section. However, as noted above, the cost can be either an operating expense or an expense that occurs less often than annually which can be paid from either the contingency reserve fund or by raising funds by special levy. Once a cost is identified as being solely related to a section, the cost must be contributed to by the owners of strata lots in that section.

Types vs. Sections

The allocation of costs by type is relatively straightforward and does not impose an administrative burden on the strata lots involved. However, only operating costs can be allocated by type. On the other hand, although the allocation of costs by sections permits both operating and contingency reserve fund costs to be allocated as between sections, the creation of sections imposes a significant administrative burden on the strata lots within the section.

The following chart summarizes the key differences.

Feature	Types	Sections
Which strata lots	Different character or form of structure. Could be townhouse and apartment, or residential and non-residential, or strata lots with balconies and strata lots without balconies	Apartment, townhouse, detached, and non-residential used for various purposes
How created	Bylaw must identify the different types	Bylaws creating sections must be approved by each of the potential sections and the strata corporation
What costs can be allocated	Operating-that relate to and benefit only one type	Operating or CRF-that are solely related to strata lots in the section
Administrative burden	Different types of strata lots can be identified in the budget	Each section is a mini strata corporation and must exercise the powers and duties as applicable

When a strata corporation is considering whether to allocate costs by type or by section, or alternatively, whether to eliminate sections and allocate costs by type, the strata corporation should be urged to obtain legal advice. If sections are already created, the sections and the strata corporation should each be advised to obtain independent legal advice.

When the matter of allocating costs by type or section is considered, the allocation of costs by type may appear to be the obvious choice because it avoids the apparent duplication of administrative costs. However, the fact that only operating costs can be allocated among the types of strata lots may, in the long run, be a significant disincentive for at least one of the types. For example, in a high rise mixed use development with main floor non-residential strata lots and residential strata lots above, allocating costs by type may permit the nonresidential owners to avoid contributing to the operating expenses related to the enterphone, elevator repair, interior janitorial, window cleaning of residential strata lots and other such operating costs. However, whenever an expense arises that occurs less often than annually in respect of these items, the nonresidential owners will be required to contribute to the costs on the basis of unit entitlement. Thus, the replacement or repair of the enterphone or elevator, the replacement of the hallway or lobby carpets, the repair of the residential balconies, the repair or replacement of the windows on the residential strata lots, and other such expenses will be the responsibility of all owners, including the owners of the non-residential strata lots, as the expense will be paid by special levy, or from the joint contingency reserve fund, to which all strata lots must contribute.

Conclusion

SPA has always imposed an administrative burden on the sections within a strata corporation. A section that is unwilling to comply with SPA could be required to do so by Court order. The administrative duties of a section, as imposed by SPA, are not impacted by whether the section and/or strata corporation engage a strata manager.

The Real Estate Council, which is the licensing body for individuals and companies providing strata management services, has recently identified the duties and obligations imposed on brokerages managing strata corporations with sections. The recognition of the requirements of SPA and the identification of the obligations of brokerages providing strata management services to strata corporations with sections has resulted in many strata corporations considering whether the establishment of sections is the appropriate approach in order to allocate various costs. Although the foregoing sets out the key distinctions between allocating costs by type of strata lot and the creation of sections, before a strata corporation creates or eliminate sections, the strata corporation and the strata lots that are or could form sections should obtain legal advice that takes into account the specific expenses of that strata corporation in order that both the short and long term consequence of creating or eliminating sections can be reviewed.

The following guidelines have been prepared by the Real Estate Council to assist brokerages that are managing strata corporations with sections to comply with the requirements of the Real Estate Services Act (“RESA”) and the Council Rules.

Section 1 of RESA includes the following definition of the term “strata corporation” (emphasis added):

“strata corporation” means a strata corporation within the meaning of the Strata Property Act and includes a section within the meaning of that Act.

This means that any requirements under RESA and the Council Rules related to the provision of strata management services apply when those services are provided to either a strata corporation or a section of a strata corporation. Therefore, if a brokerage is providing strata management services to or on behalf of a section, consideration must be given to the application of RESA and the Council Rules.

If a brokerage is providing management services to a strata corporation and one or more sections of the strata corporation, each of the strata corporation and the section must be considered to be a separate client and treated accordingly.

Brokerages may experience resistance from strata corporations that believe that there is no reason to make changes (e.g. each section entering into separate written service agreements with the brokerage) from a process that appears to have worked thus far. In all cases, it is important for brokerages to realize their obligation to comply with RESA and the Council Rules.

However, if a strata corporation wishes to consider whether sections are the appropriate mechanism to allocate costs among different strata lots, the brokerage may wish to provide the strata corporation with the Real Estate Council article “Types and Sections” contained within this Special Report from Council newsletter, so that the strata council can consider an alternative approach to the allocation of only operating costs. Before creating sections, the brokerage may wish to recommend that the strata corporation obtain a legal opinion that analyzes the benefit of the section(s) and presents options other than sections, such as creating different types of strata lots, that are open to the strata corporation.

Following are the main obligations imposed on a brokerage by RESA and the Council Rules when 1) a brokerage acts on behalf of a strata corporation with sections, 2) one or more sections, or, 3) a strata corporation and one or more sections; together with the steps that a brokerage should take when the brokerage identifies that it is providing management services to a strata corporation and section(s).

I. Have sections been created?

The first thing that a brokerage should do when managing a strata corporation with sections is to review the strata corporation’s bylaws to identify whether the registered bylaws create sections and, if so, how many sections have been created. This applies with respect to existing clients and potential new clients.

The Strata Property Act (“SPA”) only permits sections to be created for the purpose of representing the different interests of:

• owners of residential and owners of non-residential strata lots;
• owners of non-residential strata lots if their lots are used for significantly different purposes; or
• owners of residential strata lots that are apartment style, townhouse style or detached houses.

Sections may only be created by bylaw. Where sections are created, SPA provides that the section is a corporation and has the same powers and duties as the strata corporation with respect to matters that relate solely to the section. The strata corporation itself retains its powers and duties regarding matters of common interest to all the owners.

SPA requires that the bylaws of the strata corporation be amended in order to create sections. If there are groups of strata lots that act as if sections have been created but the bylaws do not indicate that sections have been created, the brokerage should recommend that the strata corporation obtain legal advice.

Once sections are created, SPA requires that each section must elect an executive for the section. The executive has the same powers and duties with respect to the section as the strata council has with respect to the strata corporation. The election of the executive must occur at the annual general meeting of the section and not at the annual general meeting of the strata corporation.

If a brokerage is managing or is considering managing a strata corporation in which sections have been created but the sections have not elected an executive or have not held annual general meetings, the brokerage should point out the mandatory requirements of SPA and recommend that the strata corporation seek legal advice.

II. Who are the brokerage’s clients?

Once the sections have been identified, the brokerage must carefully consider and determine whether the brokerage is, or in the case of a new client will be, providing strata management services to the strata corporation and all sections; to the strata corporation and some of the sections; only to the strata corporation; or to one or more sections.

The strata corporation and each section is a separate legal entity. SPA permits every section to enter into contracts in the name of the section. Just as a strata corporation may choose to contract with a brokerage for the purpose of receiving strata management services, a section may choose to enter into a similar contract. There is no obligation on the section to enter into a management contract with the same brokerage that is providing services to the strata corporation. In some cases, a section may choose to self-manage.

If the section is also a client of the brokerage, it must be treated as such, and potential conflicts of interest should be considered as explained below.

III. Services to be Performed

Once the brokerage has identified its clients, the brokerage must determine what services it will provide to each client. Depending on the nature of the relationship between a section and a strata corporation, which may be set out in the bylaws creating sections or which may have been established by practice, the services that a brokerage provides to a section may be more limited than the services that are provided to the strata corporation. A review of the bylaws may assist in determining the needs of the sections. For example, the bylaws may require the strata corporation to collect strata fees on behalf of a section and to transfer the fees collected on behalf of the section to a section’s bank account. If the brokerage is only providing management services to the strata corporation, the brokerage can only transfer the funds to the section upon direction from the strata council. If the brokerage is providing management services to both the strata corporation and a section, the brokerage must transfer the funds to the various accounts in accordance with proposed section 7-9.1 of the Council Rules. However, the brokerage and the section must then determine whether the brokerage will maintain the trust accounts on behalf of the section and whether the brokerage will be an authorized signatory on those accounts.

In the same way that the brokerage and the strata council determine what services the brokerage will offer to a strata corporation, the brokerage and the executive of each section should determine what services will be offered to a section. For example, will the brokerage attend general meetings of the section and meetings of the executive, assist in preparing the budget for the section, maintain the records of the section, collect strata fees and special levies and keep the financial records, sign contracts in the name of the section or coordinate the work of contractors with respect to matters relating to the section.

Once the services to be provided have been determined, the fee for those services must then be agreed upon.

IV. Conflicts of Interest

If the brokerage is acting for a strata corporation in which sections have been created and is also acting for one or more of those sections, one of the most significant concerns should be in respect of potential conflicts of interest. Section 3-3(1)(i) of the Council Rules requires licensees to avoid conflicts of interest.

When considering work to be undertaken on behalf of the clients, the brokerage should consider the potential conflicts that could arise. For example, the strata council may direct the brokerage to engage a contractor to carry out work that, in the strata council’s view, is of benefit to all owners. The cost would, therefore, be paid from funds held by the strata corporation. One of the sections may object stating that the work benefits only the owners in one section and, therefore, the expense must be paid by that section- not the strata corporation.

If the brokerage is acting on behalf of the strata corporation and one or more sections and takes instructions from the strata council and the executives, whose instructions should the brokerage then follow? At the time that the services to be performed are negotiated, the matter of conflicts must be addressed and an agreed arrangement or dispute resolution mechanism should be put in place in advance of any such disputes occurring.

The brokerage may be unable to provide full representation to the section and the strata corporation in situations where the interests of the two are in conflict. Brokerages should review information contained in the Professional Standards Manual under the heading ‘Conflicts of Interest When Providing Property Management Services’ (page 209 of the Professional Standards Manual 7th edition) (or www.recbc.ca/licensee/psm.html) for a discussion of how brokerages can deal with these types of conflicts.

V. Separate Trust Accounts

When considering the services to be provided, consideration should be given to the handling of funds belonging to the strata corporation and sections.

In the same way that a brokerage, in advance of providing services, discusses with a strata corporation whether the brokerage will maintain the operating, contingency reserve and special levy trust accounts for the strata corporation, the brokerage must determine with each section on whose behalf management services are provided whether the brokerage will maintain the operating, contingency reserve and special levy trust accounts for the section.

Section 7(9) of the Council Rules requires that a brokerage must maintain separate trust accounts for each strata corporation on behalf of which the brokerage holds or receives money. RESA defines a strata corporation to include a section; therefore, the brokerage is required to maintain separate trust accounts in respect of the strata corporation and the sections for which the brokerage receives funds.

Because a section is a legal entity separate from the strata corporation, in addition to maintaining trust accounts for the strata corporation, if the brokerage is holding or receiving the operating fund, the contingency reserve fund and/or special levy monies for a section, the brokerage must maintain separate trust accounts for each of the sections for which the brokerage holds or receives funds as specified in the written service agreement with each section.

In addition to maintaining separate trust accounts, when strata fees that include contingency reserve funds or special levy payments of a section are received by the brokerage, the brokerage must transfer the portion of the fee that relates to the contingency reserve fund or special levy to the contingency reserve fund trust account or special levy trust account of the section, as the case may be, within the time period set out in section 7-9(4) of the Council Rules. Additionally the brokerage must ensure that the further provisions of section 7-9 of the Council Rules are satisfied, including ensuring that the appropriate signatures to withdraw funds from the trust accounts held on behalf of a section are arranged for and obtained.

The brokerage must also ensure that savings institutions provide monthly statements respecting the accounts held on behalf of a section and that the monthly reconciliation of the banking statements in relation to the section’s trust accounts are prepared and provided to the section within the time period set out in section 7-9(7) of the Council Rules.

If any of the clients wish to maintain their own accounts, they are free to do so provided that the brokerage does not have signing authority on or control of any account that belongs to the strata corporation or section client.

VI. Separate Books of Accounts

When determining the activities to be carried out on behalf of the strata corporation and/or sections, the brokerage must take into account the need to maintain separate books, accounts, financial statements and records for each client for which strata management services are provided.

The determination of whether separate books and records must be maintained will depend on whether the section requires the brokerage to provide financial management services to the section. The section has a choice whether to retain a brokerage to provide the management services or whether to self manage.

If the brokerage holds or receives funds on behalf of a section, the brokerage must also maintain books, accounts and records with respect to those funds.

Section 8-7.1 of the Council Rules provides that a brokerage must maintain separate books, accounts and other records with respect to each strata corporation to or on behalf of whom the brokerage provides strata management services. As noted above, the term “strata corporation” is defined as including sections; therefore section 8-7.1 of the Council Rules also applies to require the brokerage to maintain separate books and accounts in respect of each section for which services are provided.

Therefore, as part of the process of determining what services are to be provided, the brokerage should advise that separate books and records for each of the strata corporation and section(s) that it manages or intends to manage will be required when financial management services are provided.

VII. Separate Written Service Agreement for each Client

Once the clients are identified and the services to be performed are determined, unless waived by the client, the brokerage must have a written service agreement in accordance with section 5-1 of the Council Rules with the strata corporation and each of the sections on whose behalf the brokerage provides services. Further, it is recommended that the brokerage include in the service agreement(s) the steps that will be taken in the event a conflict or dispute arises.

Before permitting a client to waive a written service agreement, the brokerage may want to obtain its own legal advice. Additionally, although not a requirement of the RESA, the brokerage may wish to obtain a waiver(s) of a written service agreement in writing.

Notwithstanding that a section may have waived the requirement for a written service agreement, it is recommended that the brokerage identify the services to be provided and potential conflicts of interest with the section, as well as amend or add a clause to their service agreement with their strata corporation client regarding potential conflicts of interests and ways in which the conflicts will be addressed.

Conclusion

Brokerages managing strata corporations and sections should review their practices in respect of strata corporations with sections for compliance with RESA and the Council Rules. The need for separate written service agreements, separate trust accounts, separate books and records and the potential for conflicts of interest must be considered.

Where there is a failure to comply with RESA and the Council Rules, the brokerage should advise the strata corporation and/or its section clients of the matters that must be addressed in order for the brokerage to achieve compliance with RESA. However, the first step that must be taken is to have a discussion with the strata council and members of the executive(s) of the section(s) to explain the impact of the RESA on strata corporations with sections.

• Reminder Checklist

  Licensees should review the following checklist to ensure compliance when dealing with their current clients, as well as discussing the issues with prospective clients.

  • Have Sections Been Created? Review the bylaws to determine whether or not the strata corporation has sections.
  • Are the Sections Operating with a Section Executive Committee? Review the minutes of the section executive meetings.
  • Who are the Brokerage’s Clients? Identify which legal entities are receiving management services.
  • Services to be Performed Determine what management services are provided to each legal entity.
  • Conflicts of Interest Ensure that the brokerage has addressed any conflicts of interests and potential conflicts of interests when representing two or more legal entities within the same property.
  • Separate Trust Accounts Ensure that the operating, contingency reserve and special levy funds for each legal entity to which financial services are being provided, are held in separate trust accounts on behalf of those legal entities, and not commingled with the funds of other legal entities.
  • Separate Book of Accounts If it is determined that financial services are provided to the legal entity, ensure that the book of accounts only refers to that entity.
  • Separate Written Service Agreement Determine what service agreements are in place and for which legal entities, and ensure that all clients have a service agreement or an agreed waiver of service agreement.

There are various scenarios that strata managers may encounter in relation to the operation of sections which involve the application of the Strata Property Act (“SPA”), the Real Estate Services Act (“RESA”) and the Council Rules. The first part of this article identifies relevant legislative matters, while the second examines those legislative matters in the context of several scenarios.

Background Information

Although SPA contains a number of provisions relating to sections, these provisions are nonetheless open to interpretation. Additionally, there are a number of matters that are not addressed in SPA. Unfortunately, there is limited case law on the operation of sections. The leading case that considers the operation of sections is Yang v. The Owners, Strata Plan LMS 4084.

Following is a review of relevant portions of SPA and the Yang decision with respect to the operation and governance of sections for the purpose of establishing a common understanding of the principles to be applied to the scenarios. Also noted are the areas where there is little or no guidance provided by SPA.

Purpose of Sections

SPA permits the creation of sections in order that the different interests of owners of residential strata lots and owners of non-residential strata lots, owners of nonresidential strata lots used for different purposes, and owners of different types of residential strata lots may be represented. Sections are created by bylaws established by the developer at the time the strata plan is filed, or subsequently by an amendment to the bylaws approved by a ¾ vote of each of the groups of strata lots intending to form a section and a ¾ vote of the strata corporation. Once created, sections may be cancelled by a ¾ vote of each of the sections and a ¾ vote of the strata corporation. Notwithstanding the creation of sections, the strata corporation retains its powers and duties in matters of common interest to all owners.

The primary reasons why sections are created are to permit an allocation of costs in a manner other than by allocating all costs to all owners and to permit a section to take responsibility for repairs and other matters that relate solely to the section.

Powers and Duties of a Section

Section 194 of SPA provides that a section has the same powers and duties as the strata corporation in matters that relate solely to the section in respect of certain enumerated matters, including establishing an operating and contingency reserve fund for common expenses of the section. Once a section is created, a section has a duty to establish its own operating fund and contingency reserve fund.

In order to establish an operating fund and a contingency reserve fund, a section must approve a budget. Thus, a section has both the power and a duty to create a budget and require owners to pay strata fees and special levies for the expenditures the section authorizes. Unless there are no expenses that relate solely to a section (in which case there would likely be no reason for the existence of the section), a section must create a budget in order to establish the strata fees payable by the strata lots in the section and in order to determine the contribution to the section’s operating fund and the contingency reserve fund. The budget for a section must be approved at the AGM of the section.

Flowing from the duty to create an operating fund and contingency reserve fund is the duty to receive the strata fees and pay the bills as they come due, including collecting strata fees that are in arrears. The issuance of Forms F, G, and H are discussed below.

Budget Process

It is often the practice for strata corporations with sections that the strata corporation prepares a budget for the common expenses of the strata corporation and the expenses that apply to each section. The budget has one column for the common or joint expenses, and one column for each of the sections. The budget is approved at the AGM of the strata corporation. Effectively, the majority of owners present at the strata corporation’s AGM impose expenses on the owners in the sections.

Such a practice is not consistent with section 194 of SPA which requires each section to prepare a budget for the expenses of the section. In order to comply with section 194 of SPA, a section’s budget must be approved by the owners of strata lots within the section at the section’s AGM. Correspondingly, the budget for expenses that apply to all strata lots should be set out in the strata corporation’s budget and approved by the owners at the AGM of the strata corporation.

Because a section’s budget applies only to the owners of strata lots in that section, it is not necessary for the section to provide its budget to the strata corporation or to another section.

Allocation of Costs

There is no ability within a sectioned strata corporation to allocate costs other than on the basis of unit entitlement unless a unanimous resolution creating a new formula for cost allocation has been approved by the strata corporation if the expense is a strata corporation expense, or the owners in a section if the expense is a section expense.

The expenses of the strata corporation, which are set out in the strata corporation’s budget, will apply to all owners and must be allocated on the basis of unit entitlement. Similarly, the expenses of the section will be set out in the section’s budget and will be allocated to the owners within the section on the basis of unit entitlement.

Expenses of a Section

Section 194(2)(a) of SPA provides that a section must establish its own operating and contingency reserve fund for the common expenses of the section including expenses relating to limited common property designated for the exclusive use of all the strata lots in the section.

The expenses of a section will be those expenses that the section chooses to incur which will include the expenses relating to the repair and maintenance of the limited common property designated for the use of all strata lots in the section.

Section 194(2)(a) of SPA refers to limited common property designated for the exclusive use of all the strata lots in a section. It is, therefore, not clear that a section may take on responsibility for expenses related to limited common property designated for less than all strata lots in the section, such as a balcony or deck, that is designated as limited common property for the use of only one strata lot. In practice, sections that wish to take on the responsibility for the repair and maintenance of limited common property rarely distinguish whether the limited common property is designated for all strata lots or only a particular strata lot.

What is also not clear from the foregoing provision is whether a section is entitled to incur expenses for the repair and maintenance of common property.

Common expenses are defined as expenses “relating to the common property and common assets of the strata corporation or required to meet any other purpose or obligation of the strata corporation.”

In Yang, Madam Justice Wedge stated as follows:

“There is no reference in the Act to common property of a section… Reading the Act as a whole, it appears that common property of the strata corporation remains the responsibility of the strata corporation to maintain.”

Notwithstanding her prior comments, Madam Justice Wedge later stated:

“Sections may take on responsibility for common property repair and maintenance of common property appurtenant to or adjoining the strata units in sections if the bylaws permit it.”

If a section cannot repair and maintain common property, a townhouse section and an apartment section could not be responsible for the repair and maintenance of the windows, roof and exterior of the buildings in which the section’s strata lots are located.

Although arguments can be made for and against a section’s ability to carry out repair of common property, it is not possible at this time to resolve the issue without either legislative amendments or further case law that clarifies the powers of sections. For the purpose of preparing the scenarios, the uncertainty in this area has been noted.

However, what is clear is if the strata corporation’s bylaws are silent with respect to repair and maintenance, the strata corporation retains its responsibility for such repair and maintenance. What is also clear, however, is that the expenses of the section must be determined by the section, and cannot be imposed on the section by the strata corporation.

Receiving Strata Fees and Collecting Arrears

Once the budget for a section is approved, the section then has a duty to receive strata fees and pay bills. The section should, therefore, have its own bank accounts.

With respect to the actual collection of the funds, there does not appear to be any reason why a section could not delegate the responsibility to receive the section’s strata fees to the strata corporation and then require the strata corporation to transfer the funds received on behalf of the section to the section. Similarly, the section could receive the fees owing to both the section and the strata corporation and then transfer the appropriate amount to the strata corporation. For the purposes of this explanation we have considered a situation where all the fees would initially be collected by the strata corporation and then remitted to the section. However, there may be circumstances where the section initially collects all fees. If the strata corporation was made responsible to receive all strata fees, owners could issue one cheque or authorize one automatic withdrawal to pay strata fees to the strata corporation and to the section.

The delegation to the strata corporation to collect section strata fees could occur by agreement between the strata council and the executive, or it could be contained in the bylaws. If the section wishes to delegate the responsibility to receive the section’s strata fees to the strata corporation, a number of details must be considered, including whether interest can be charged on both overdue section and strata corporation fees, how payments of an amount that does not correspond with the monthly fee will be applied, when the funds will be released to the section, and what obligations the strata corporation has to notify the section of arrears.

Where the funds received by the strata corporation include section money and where the strata corporation’s funds are held by a brokerage, the brokerage is receiving and holding funds that belong to two separate entities. Although a brokerage providing strata management services is generally not permitted to commingle funds from more than one client, the Council Rules contain limited exceptions. Section 7-9(2.1) of the Council Rules permits a brokerage to receive, in one pooled brokerage trust account, funds by electronic payment from more than one client provided that the funds are transferred to the applicable trust account within three days after the day on which the funds were received. Further, proposed section 7-9.1 of the Council Rules allows a brokerage to receive a blended payment (where perhaps there is a single instrument of payment from an owner for both strata fees and section strata fees) provided that the funds are transferred to the correct party within seven days of the date of receipt of the funds.

What this means is that the brokerage could receive section strata fee/special levy/ contingency reserve fund payments into the related strata corporation trust account, and then transfer the section’s strata fee/ special levy/contingency reserve fund monies into the specific section trust account(s) within seven days of the receipt of those funds. See the flow chart found on page 19 this special report.

The collection of arrears creates additional difficulties. Section 115 (Form F) and section 116 (Forms G and H) of SPA refer only to the strata corporation. However, section 194(2) of SPA provides that, with respect to a matter that relates solely to the section, the section has the same powers and duties as the strata corporation. Section 194(2)(b) of SPA obligates a section to require owners to pay strata fees and special levies. It would, therefore, follow from section 194(2)(b) that a section has the power and a duty to issue a Form F and to register and release liens.

Thus, where sections have been created, the strata corporation and each of the sections has the power and duty to issue a Form F. At this time, the practice of the Land Title Office in respect of strata corporations with sections is not to look for or expect a Form F from a section.

In some cases, the matter of the Form F is addressed in the bylaws creating sections by providing that, at the request of a section, the strata corporation will not issue a Form F if an owner owes money to the section. The money could be owing to the section for various reasons, including for section strata fees, special levies approved by the owners in the section, or fines. If, however, the section requested that the strata corporation not issue a Form F but the owner does not owe money to the strata corporation, the legal ability of the strata corporation to withhold the Form F is questionable. In any event, at this time, such a process is the only mechanism available to a section to attempt to collect arrears when a strata lot is sold. Strata corporations that are asked by a section to withhold a Form F should seek legal advice, particularly if the section is requesting that the Form F be withheld on the basis that the owner owes fines to the section, since there could be a concern whether the fines were levied in accordance with SPA.

Where an owner is in arrears of section strata fees, a section has the authority under SPA to issue a Form G to register a lien and a Form H to release it. The Deputy Registrar of the Land Title Office has advised that, as long as the forms are completed as set out in the Strata Property Regulation, i.e. signed by two council members or a strata manager, the Land Title Office will accept the form. Thus, either the section executive could direct its strata manager to sign the forms to register and release liens, or two members of a section executive could sign the forms, notwithstanding that the members of the section’s executive are not members of the strata council. It is important to note that each legal entity, i.e. section or strata corporation, is responsible for registering a lien which reflects the money owed to that legal entity.

Paying Bills

As discussed above, the strata corporation could receive the strata fees owing to both the strata corporation and the section and then transfer the amount owed to the section to the section’s bank account.

The further question that arises is whether, after receiving the funds, the strata corporation could continue to hold the funds for the section and pay the section’s bills. There does not appear to be any provision in SPA that would prohibit a section and strata corporation from entering into such an agreement. If a brokerage is providing strata management services to the strata corporation, provided that the brokerage was not also providing strata management services to the section, the brokerage could pay the section’s bills at the direction of the strata corporation, the brokerage’s client.

If, however, the brokerage provided strata management services to both the strata corporation and a section on whose behalf a blended payment was received, both the strata corporation and the section are clients of the brokerage. In such circumstances, proposed section 7-9.1 of the Council Rules, as discussed above, would permit the brokerage to receive the funds. Proposed section 7-9.1 of the Council Rules would then also require that the payment be transferred to the trust accounts of each client. The funds could not remain in the strata corporation’s trust account. Because the funds must be transferred to each client’s respective trust accounts, it would not be possible for the brokerage to pay the section’s bills from the strata corporation’s trust account.

If the strata corporation wished to hold funds on behalf of a section and disburse funds at the section’s instructions, the brokerage could not maintain a brokerage trust account on behalf of those funds.

Form B

The issuance of a Form B for a strata lot in a section poses additional issues. The Form B requires disclosure of matters that apply to each of the strata corporation and a section. For example, the monthly strata fees payable by the owner of the strata lot, the amount owing to the strata corporation, the amount of future special levies, agreements to take responsibility for alterations to a strata lot, and whether any notices have been given for a resolution requiring a ¾ vote, are only some of the questions that must be answered by each of the strata corporation and a section.

Although common sense suggests that a section should issue a Form B, there is no clear requirement under SPA for a section to do so. The recent changes to SPA regarding the obligation to prepare a depreciation report would apply to a section. The obligation to attach the depreciation report to the Form B further supports the view that sections should prepare a Form B.

The concern for a strata corporation is the legal liability that may flow from issuing a Form B that does not contain information in respect of a section. The obvious problem is that the strata corporation may not have all the relevant information that needs to be included on the Form B. Although the Form B does not contain any place to indicate that the strata lot is part of a section, it would be prudent for strata corporations with sections to indicate on the Form B that the strata lot is part of a section and that the Form B only includes information that relates to the affairs of the strata corporation in order to alert purchasers to the need to obtain additional information.

Sections should then be encouraged to prepare a Form B in respect of matters that relate to the section.

Section Bylaws

The bylaws creating sections can be very useful in establishing obligations and responsibilities that are not addressed in SPA. As indicated above, if the bylaws are silent on the matter of repair, all common property will be the responsibility of the strata corporation to repair and maintain. Thus, a section that wishes to be responsible to repair and maintain common property should clearly establish that obligation in the bylaws. Although there may be doubt as to whether sections can be responsible for common property repair, if the obligation has been set out in the bylaws and approved by a ¾ vote of each of the sections and the strata corporation and the owners have governed their affairs according to such bylaws for a period of time, case law suggests that it is very unlikely that, if challenged, a Court would overturn such an arrangement. In Chow v. The Owners, Strata Plan LMS 1277, the Court ordered the creation of sections in order to permit the townhouse and apartment owners to continue to take responsibility for the repair of the exterior of the buildings in which their strata lots were located, in part, because the owners had been doing so for in excess of 10 years.

A further issue relating to bylaws is whether the bylaws creating sections must indicate which costs are attributable to a section. Under SPA, the expenses that are the responsibility of a section can only be the expenses that relate solely to the section. These expenses are determined by the section and are based on whether the section has limited common property that it must repair, taken on responsibility for the repair of common property, what contracts the section has entered into, and what services the section utilizes. The ability of a section to budget for expenses is not dependent on the wording of a bylaw. Thus, other than addressing the responsibility for the repair of common property, there appears to be no requirement in SPA that would require that the various expenses of a section be set out in the bylaws.

Conclusion

There are many more issues that impact or relate to the operation of sections. The ability of a section to create its own bylaws, acquire and dispose of land, sue or arbitrate, and purchase insurance (this is discussed above) are only some of the issues that have not been addressed as part of the background information for the reason that such issues do not directly relate to or impact the responses to the following scenarios.

Scenarios

The following scenarios represent objections a strata manager may face when discussing with their strata corporation/section clients what RESA and the Council Rules requires them to do in the course of providing strata management services.

1. No desire to prepare separate budgets and financial statements.

Section 194(2)(a) of SPA requires a section to establish an operating fund and contingency reserve fund. Section 194(2) (b) of SPA requires the section to prepare a budget for the expenditures of the section. If there are expenses that are solely attributable to a section, the section is obligated to prepare a budget in order to collect the funds from the owners of strata lots in the section. Once the section collects fees, financial statements must be prepared.

If a section has no desire to prepare a separate budget, it may be that there are no expenses that relate only to the section. In such a case, it may be there is no need for sections within the strata corporation.

If there is a cost that only applies to a section, the section should be responsible for incurring the cost and the bill should be in the name of the section. For example, if there is gas or hydro that only services a section, the account should not be in the name of the strata corporation nor should it appear in the strata corporation’s budget by being shown as being applicable to the section. Rather, the gas or hydro should be in the name of the section and the section should be responsible to pay the account. In this way, if a section does not prepare a budget and collect fees, the section will not be able to pay the utility expense. This will impact only the owners within the section and not impact the other owners.

Ultimately, if a section refuses to comply with SPA, as with all cases where a strata corporation is unwilling to follow SPA or any other legislation, the strata manager should advise the section owners to obtain legal advice. Such advice from the strata manager should be confirmed in writing.

2. No desire to hold a separate AGM for the strata corporation and each section.

A section must have a budget. Section 196(2) of SPA provides that a section must elect an executive. As a result, the section must hold an AGM. However, in sections with only a very limited number of strata lots, the calling and holding of an AGM may appear unnecessary.

An AGM is not required to be held if, pursuant to section 41 of SPA, all eligible voters provide written consent to waive the holding of the AGM and agree to the resolutions approving the budget, electing the council, and approving any other business. A section would elect an executive rather than a council.

For sections with a limited number of strata lots, the strata manager may wish to seek instructions from its client to prepare a waiver of meeting to include a resolution to approve the budget and a resolution electing an executive. Strata managers should be aware that, to comply with section 41 of SPA, if two or more persons share the vote in respect of a strata lot, all owners must consent to waiving the meeting.

It is common practice for strata corporations and sections to hold their annual general meetings consecutively. In this way owners do not have to attend on multiple occasions in order to participate in the strata corporation’s and the section’s annual general meetings.

3. No desire to amend bylaws to accurately identify and address cost allocation.

Costs attributable to all strata lots must appear in the strata corporation’s budget and be allocated to all owners on the basis of unit entitlement. Costs that are solely related to the strata lots in a section or which relate to the limited common property designated for strata lots within the section are allocated to the strata lots in the section on the basis of unit entitlement. A cost is either allocated to all owners or it is allocated to the strata lots in a section. In all cases, it will be allocated on the basis of unit entitlement unless a unanimous resolution pursuant to section 100 of SPA has been approved by the owners and registered in the Land Title Office. In the absence of such a resolution, there is no “cost allocation” other than on the basis of unit entitlement.

Although bylaws often identify which costs are solely related to a section and which are the responsibility of the strata corporation, a failure to have a bylaw that identifies such costs is not fatal to the ability of the section to incur costs that are solely attributable to the strata lots in the section.

The one area that the bylaws should absolutely address, however, is the matter of responsibility for repairs if a section wishes to take on the responsibility for the repair of limited common property or common property. Although the ability of a section to take on responsibility for the repair of common property continues to foster debate, based on the statement by Madam Justice Wedge in Yang, if a section wishes to make any argument that it is entitled to take on the responsibility for the repair of common property, such as the exterior of buildings, windows, HVAC and other such items, the responsibility should be set out in the bylaws. However, where a warranty is in effect, the parties must be aware of the terms of the warranty, since the strata corporation may be obligated under the warranty to carry out the repairs.

Section 194(2)(a) of SPA refers to limited common property designated for the exclusive use of all the strata lots in a section. It is, therefore, not clear that a section may be responsible for expenses related to limited common property designated for less than all strata lots in the section, such as a balcony or deck, that is designated as limited common property for the use of only one strata lot.

In practice, sections that wish to take on the responsibility for the repair and maintenance of limited common property rarely distinguish whether the limited common property is designated for all strata lots or only a particular strata lot.

If a section intends to take on the responsibility for any limited common property designated to strata lots within the section, the bylaws should clearly indicate what repairs are to be the responsibility of the section.

4. No desire for separate service agreements.

Section 1 of RESA includes the following definition of the term “strata corporation” (emphasis added):

“strata corporation” means a strata corporation within the meaning of the Strata Property Act and includes a section within the meaning of that Act.

This means that any requirements under RESA related to the provision of strata management services apply when those services are provided to either a strata corporation or a section within a strata corporation.

If a brokerage is providing management services to a strata corporation and one or more sections within the strata corporation, each of the strata corporation and the section(s) must be considered to be a separate client and treated accordingly.

Section 5-1 of the Council Rules requires that a brokerage have a written service agreement with a prospective client unless the client has waived the requirement for a written agreement. Thus, a section may elect to have a brokerage provide services to it without having a written agreement.

One of the main problems with operating without a service agreement, however, is that issues, such as the brokerage’s scope of authority to act on behalf of the section, the extent of services to be provided, the remuneration to be paid and the question of who is the “primary client” (where both the section and the strata corporation are managed), may not have been formalized. Such uncertainty can result in misunderstandings; the Council, therefore, is of the view that it is in the best interests of both the client and the brokerage to enter into a written service agreement.

Before a brokerage agrees to act for a section without the benefit of written agreement, the brokerage should obtain legal advice.

5. No desire to have section money held in a separate trust account.

The unwillingness to have section money held in a separate trust account suggests that the section is content to let the strata corporation hold the funds on the section’s behalf. If the funds were held by the strata corporation, the strata corporation would be the only party that could direct the payout of the funds. There is no prohibition on such an arrangement in SPA. A brokerage providing strata management services to the strata corporation could, provided that the section was not also a client of the brokerage, take instructions from the strata corporation to pay out the funds in any manner as directed by the strata corporation, including for the payment of the section’s bills.

If the brokerage provides strata management services to both the strata corporation and the section, it would not be possible for the brokerage to hold section funds in the strata corporation’s account and pay out the funds at the direction of the strata corporation. Proposed section 7-9.1 of the Council Rules requires a brokerage to transfer any blended payment received by one client to the trust accounts of each of the clients on whose behalf the funds were received.

If a brokerage does not provide strata management services to the section, there is no requirement for the brokerage to create trust accounts for the section.

6. No desire for separate executive.

Section 196(2) of SPA requires each section to have an executive.

The lack of desire for a separate executive may be based on the view that a significant amount of additional work will be required of the owners, or it may be based on the belief that there is nothing that needs to be done that is unique to the section and, thus, there is no need for an executive.

If owners believe that attending executive meetings will require a significant additional time commitment, it will be up to the strata manager to explain that the total number of decisions that must be made is likely not going to increase, but that, to operate properly, some decisions should be made by the strata council and others should be made by the executive of a section. An executive meeting can immediately follow the council meeting and both can be held by teleconference, if the bylaws permit, to reduce the time commitment of strata council and executive members.

If the objection to establishing a separate executive is the belief that there are no decisions that must be made by the section, an understanding of the budgeting process and the fact that the section is responsible for all decisions relating to the items identified in the budget, which may include repair and maintenance of common property, may assist in helping the owners understand what decisions an executive of a section must make. In some cases, there may be very few matters and decisions that relate solely to the strata lots in the section. However, even if the number of matters that the section must address is limited, the election of an executive is still necessary in order to make the decisions that must be made in relation to the section.

If there is no executive, the obvious questions that arise are who will instruct the strata manager with respect to the approval of invoices, who will make any repair and maintenance decisions that must be made, and who will have signing authority over the section’s accounts. A brokerage may be unable to manage a section that refuses to elect an executive.

7. No desire from the non-residential section to attend meetings.

As noted in scenario 2, sections are able to waive the holding of AGMs as long as there is compliance with section 41 of SPA. Section 44 of SPA sets out the process that can be used to waive a special general meeting.

There is no requirement for the non-residential section to attend the strata corporation’s general meetings. Approval of the budget and other matters considered at a general meeting of the strata corporation, other than bylaw amendments, do not require the separate approval of both residential and non-residential strata lot owners. A budget for the strata corporation only needs to be approved by a majority vote of those present at the meeting at the time the vote is taken. Thus, the failure of the non-residential owners to attend a strata corporation’s general meeting will not impact or disrupt proceedings other than when the strata corporation is proposing to amend the strata corporation’s bylaws.

Although sections can amend bylaws, they may only do so if the bylaw amendment is in respect of a matter that relates solely to the section. Such bylaw amendments must occur at a general meeting of the section. In cases where a bylaw amendment relates to strata lots other than those in one section, and where sections are established on the basis of residential versus non-residential, section 128(1)(c) of SPA requires that the bylaw amendment be passed by a ¾ vote of each of the residential and non-residential strata lots at an annual or special general meeting of the strata corporation. If non-residential approval for a bylaw amendment is required and the nonresidential strata lot owners are unwilling to attend the meeting, obtaining the owners’ proxy is one means of achieving the approval of the bylaw amendments. However, if the non-residential owners are unwilling to cooperate with the strata corporation, bylaw amendments that do not relate solely to the residential section cannot be approved. Bylaw amendments and resolutions requiring a unanimous vote would again require the attendance and support of the non-residential owners at a general meeting of the strata corporation.

8. Refusal by a section to issue a Form B or F within the time frame.

As identified above, it is unlikely that the Land Title Office would expect (or accept) a Form F from a section. As a consequence, bylaws that require the strata corporation to obtain the written approval of the executive of a section before issuing a Form F may be the only means by which a section can influence the issuance of a Form F. Before a strata corporation withholds a Form F at the request of a section, however, the strata corporation should be encouraged to obtain legal advice in respect of the specific circumstances.

Although there is no clear obligation on a section to issue a Form B, it would make sense for the section to do so. In a strata corporation with sections, the Form B issued by the strata corporation should clearly indicate that the Form B does not relate to any matters involving the section. This should prompt a purchaser to make additional enquiries of the seller. If sellers are having difficulty selling strata lots because section information is not being provided, the owners within a section may ultimately demand that the section executive prepare a Form B.

Whenever a section or strata corporation refuses to comply with SPA or other legislation, the role of the strata manager is to point out the requirements of the legislation and recommend legal advice. Such recommendations and advice from the strata manager should always be confirmed in writing.

In order to facilitate the ability for brokerages to collect monies on behalf of a strata corporation client and a section client, where the owners may have sent in a single instrument of payment (bank draft, cheque, etc.) made payable to either the strata corporation or the section, it is necessary to define a new term (blended payment), identify when the brokerage can receive this blended payment, and what they must do with the payment when received. Below is the current wording of section 7-9 of the Council Rules, and the proposed sections 7-9.1 and 7-9.2 of the Council Rules.

Current section 7-9 of the Council Rules

Additional rules for strata management trust accounts and investments

7-9

(1) This section applies to a brokerage that provides strata management services.

(2) A brokerage must, for each strata corporation on behalf of which the brokerage holds or receives money, maintain the following brokerage trust accounts:

(a) at least one separate trust account in the name of the strata corporation;

(b) if the brokerage is to hold contingency reserve fund money, at least one separate trust account in the name of the strata corporation for the contingency reserve fund money;

(c) if the brokerage is to hold special levy money, at least one separate trust account in the name of the strata corporation for the special levy money.

[06/20/2007 subsection (2) repealed and the above subsection (2) substituted effective 07/01/2007]

[03/13/2012 subsection (2) repealed and the above subsection (2) substituted effective 07/01/2012]

(2.1) If a brokerage receives money that is subject to subsection (2) by means of direct electronic deposit into a brokerage trust account that receives funds on behalf of more than one strata corporation, the money must be transferred to the applicable trust account under subsection (2) no later than 3 days after the day on which it was received.

[08/01/2006 amended by adding subsection (2.1) effective 09/01/2006]

(3) Amounts received by the brokerage on behalf of a strata corporation must be paid into the trust accounts under subsection (2) as follows:

(a) if the amount received does not include contingency reserve fund or special levy money, it must be paid into an applicable trust account under subsection (2) (a);

(b) if the amount received is only contingency reserve fund money it must be paid into an applicable trust account under subsection (2) (b);

(c) if the amount received is only special levy money it must be paid into an applicable trust account under subsection (2) (c);

(d) if the amount received consists of amounts under 2 or more of (a), (b), or (c),

(i) it must be paid into an applicable trust account under subsection (2) (a), and

(ii) the amount received in respect of contingency reserve fund money or special levy money must then be dealt with in accordance with subsection (4).

[03/13/2012 subsection (3) repealed and the above subsection (3) substituted effective 07/01/2012]

(4) If subsection (3) (d) applies, within 7 days after the end of the month in which the contingency reserve fund money or special levy money was received, the brokerage must either

(a) if the brokerage is to hold the money on behalf of the strata corporation, transfer it to an applicable trust account under subsection (2) (b) or (c), or

(b) pay the money over to the strata corporation.

[03/13/2012 subsection (4) repealed and the above subsection (4) substituted effective 07/01/2012]

(5) If money in a trust account under subsection (2) (a) is transferred to a pooled trust account for one or more strata corporations, the brokerage must promptly

(a) pay the money on behalf of the strata corporation, or

(b) transfer it to an applicable trust account under subsection (2) (a).

(6) In the case of a trust account under subsection (2) (b) or (c), the brokerage must arrange for the trust account to be set up so that the signatures of at least two of the following are required in order for money to be withdrawn from the account:

(a) a related managing broker;

(b) a member of the council of the strata corporation or a member of the section executive;

(c) another related licensee of the brokerage;

(d) a director or officer of the brokerage;

(e) a person employed or engaged by the brokerage who is authorized to practice as

(i) a lawyer under the Legal Profession Act,

(ii) a certified general accountant under the Accountants (Certified General) Act,

(iii) a chartered accountant under the Accountants (Chartered) Act, or

(iv) a certified management accountant under the Accountants (Management) Act.

[11/26/2005 subsection (6) repealed and the above subsection (6) substituted effective 01/01/06]

[03/13/2012 subsection (6) repealed and the above subsection (6) substituted effective 07/01/2012]

(7) For each trust account under subsection (2), the brokerage must

(a) arrange for the savings institution to provide monthly statements respecting the account, and

(b) provide to the strata corporation, no later than 6 weeks after the end of the month for which a statement under this subsection was issued,

(i) a copy of that statement,

(ii) a copy of the monthly reconciliation referred to in section 8-2(c) [monthly reconciliations of bank statements] of these rules in relation to that statement, and

(iii) if requested by the client, a copy of those records referred to in section 8-2(a) [banking records] and 8-2(b) [records of amounts received and disbursed] of these rules related to the monthly reconciliation referred to in section 8-2(c) [monthly reconciliation of bank statements] for the month in question.

[09/09/2008 subsection (7) repealed and the above subsection (7) substituted effective 01/01/2009]

[03/13/2012 subsection (7) repealed and the above subsection (7) substituted effective 07/01/2012]

[03/21/2012 subsection (7) amended to incorporate correct numbering convention effective 07/01/2012]

(8) When making investments on behalf of a strata corporation, a licensee providing strata management services is subject to the same restrictions, if any, that apply under the Strata Property Act to the strata corporation in relation to its investments.

(9) After the termination of a strata management service agreement, the brokerage must promptly transfer control of the strata corporation’s money to the strata corporation or, if the strata corporation engages another brokerage to provide strata management services, to the other brokerage.

(10) Despite subsection (9), the brokerage may retain sufficient funds to pay outstanding and anticipated invoices related to expenses incurred on behalf of the strata corporation before the termination of the service agreement.

[04/26/2005 section 7-9 added effective 01/01/2006]

[06/20/2007 subsections (9) and (10) added effective 07/01/2007]

Proposed sections 7-9.1 and 7-9.2 of the Council Rules

• 7-9.1 Blended Payments in strata corporations with sections

  1. In this section, “blended payment” means money subject to section 7-9 (2), that is received by the brokerage by means of a single instrument or direct electronic deposit, a portion of which is received on behalf of a strata corporation that is a client of the brokerage and a portion of which is received on behalf of one or more sections of that strata corporation that are clients of the brokerage.
  2. If a brokerage receives a blended payment, the brokerage must deposit the money in the brokerage trust account maintained under section 7-9 (2) (a) in the name of the strata corporation or the section, as the case may be, in accordance with the instrument by which the blended payment is made.
  3. No later than 7 days after the day on which a blended payment was received, the brokerage must
     1. if the brokerage is to hold any portion of money received on behalf of the strata corporation, transfer, in accordance with section 7-9 (3) and (4), that portion to an applicable trust account maintained in the name of the strata corporation under section 7-9 (2), and
     2. if the brokerage is to hold any portion of money received on behalf of a section of the strata corporation, transfer, in accordance with section 7-9 (3) and (4), that portion to an applicable trust account maintained in the name of that section under section 7-9 (2).

  7-9.2 Transitional implementation in relation to blended payments in strata corporations with sections

  As an exception to the immediate application of section 7-9.1 [blended payments in strata corporations with sections], a licensee must comply with that section as soon as reasonably practicable, but is not otherwise required to comply with it until December 31, 2014.

The Council has proposed amendments to the Council Rules to allow brokerages to receive blended money on behalf of more than one client (i.e. strata corporation fees and section fees in the same payment). The flowchart below assists licensees with how to ensure compliance with the Council Rules when receiving money on behalf of multiple clients in the same payment.

To assist licensees in understanding the requirements of the Real Estate Services Act and the Council Rules when managing strata corporations which include sections, the Council has engaged leading expert Adrienne Murray to provide a number of free training seminars throughout the province.

Date	Venue	Date	Venue
Monday, May 13	Burnaby	Wednesday, June 5	Langley
Wednesday, May 22	Kelowna	Monday, June 10	Vancouver
Thursday, May 23	Kamloops	Wednesday, June 12	Prince George
Monday, May 27	Victoria	Thursday, June 20	Cranbrook
Tuesday, May 28	Nanaimo	Tuesday, June 25	Vancouver

To register for a seminar, please email [email protected] and indicate the date and location of the seminar that you would like to attend.

• Adrienne Murray

  B.Comm., LL.B., LL.M. RI (BC)

  Adrienne Murray is a lawyer who practices exclusively in the area of strata law. Prior to starting her law practice in 2002, Adrienne worked for the provincial government for fourteen years, the last eight as the Deputy Superintendent of Real Estate. While with the government, Adrienne worked with the drafters of the Strata Property Act.

  Adrienne has been actively involved in the development and presentation of seminars to the legal community, real estate industry, strata management industry, and strata owners.

  Adrienne co-chaired the Strata Property update courses for the Continuing Legal Education society in 2006, 2011, and 2013 and assisted with the development and updating of two courses related to the Strata Property Act offered by the British Columbia Real Estate Association. Adrienne prepared and presented a Legal Update course for PAMA and is a regular presenter for the Condominium Homeowners Association.

  Adrienne is a Director of the Condominium Homeowners Association and is a member of the Strata Management Advisory Group to the Real Estate Council of B.C.