Of particular importance to those licensed to provide rental property management services are the following Rules.
Section 5-1 of the Rules requires that a brokerage must enter into a written service agreement prior to providing strata management services to a strata corporation.
Section 5-1(4) of the Rules requires that the written service agreement contain various information, including the duration of the agreement, a general description of services to be provided by the brokerage, the remuneration to be paid under the agreement and the circumstances under which the remuneration will be payable. In addition, section 5-1(5.1) of the Rules requires that the service agreement also contain the following information:
- an indication whether the brokerage will hold any funds on behalf of the strata corporation;
- any authority that permits the brokerage to transfer funds between trust accounts;
- the scope of authority of the brokerage to spend funds, enter into contracts, or to invest money held by the brokerage on the strata corporation’s behalf;
- the timing, nature and frequency of accounting statements and other records to be provided to the strata corporation;
- a description of the strata corporation’s records to be kept by the brokerage; and
- provisions regarding the use and disclosure of personal and strata corporation information.
Any amendments or changes to the agreement must be made in writing and the amendment must be signed by the client and an authorized signatory of the brokerage.
Licensees who provide strata management services to strata corporations should be aware that a contract for the provision of strata management services entered into before the first Annual General Meeting by or on behalf of the strata corporation, regardless of any provision in the contract to the contrary, ends on the earlier of:
- four weeks after the date of the second Annual General Meeting;
- the termination date contained in the contract or agreed to by the parties; or
- the cancellation date determined in accordance with section 39 of the Strata Property Act.
[06/15/2010 The following information added to Professional Standards Manual]
Those who provide strata management services for a fee, unless they are exempt, must be licensed under the Real Estate Services Act (RESA). “Strata management services” is defined in section 1 of RESA as follows:
“Strata management services” means any of the following services provided to or on behalf of a strata corporation:
(a) collecting or holding strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act;
(b) exercising delegated powers and duties of a strata corporation or strata council, including
(i) making payments to third parties on behalf of the strata corporation,
(ii) negotiating or entering into contracts on behalf of the strata corporation, or
(iii) supervising employees or contractors hired or engaged by the strata corporation
but does not include an activity excluded by regulation;”
Strata management services are not restricted to those being performed within “regular business hours”; the definition also applies to services being provided “after hours”, including on-call and/or emergency services. A brokerage cannot “contract out” or “source out” services for which a licence is required under RESA.
Collecting strata fees, contributions, or levies
Section 2.18 of the Real Estate Services Regulation provides the following exemption from the requirement to be licensed for strata caretakers employed by a strata corporation or brokerage:
Exemptions for Caretakers or Managers Employed by Brokerages or Strata Corporations
“Exemption for strata caretakers employed by strata corporation or brokerage
2.18 (1) Subject to subsection (2), an individual who is employed as a caretaker or manager by a strata corporation, or by a brokerage that provides strata management services to or on behalf of a strata corporation, is exempt from the requirement to be licensed under Part 2 of the Act in respect of collecting strata fees, contributions, levies or other amounts levied by, or due to, the strata corporation under the Strata Property Act.
(2) On receipt of money referred to in subsection (1), the exempt caretaker or manager must promptly deliver the money to the strata corporation or brokerage, as applicable.”
The exemption requires the relationship between the brokerage and the unlicensed individual to be that of ‘employer-employee’. Therefore, in order for an independent contractor to collect strata fees, contributions, levies or other amounts on behalf of the brokerage, the contractor must be licensed. If in doubt, brokerages may want to seek independent accounting or legal advice to ensure that their relationship with an unlicensed individual providing these services is structured as an employer-employee relationship according to the Canada Revenue Agency guidelines.
The Real Estate Council has developed the following lists of additional activities which may and may not be performed by an unlicensed person employed or contracted by a brokerage licensed to provide strata management services. This includes strata caretakers acting under the section 2.18 exemption. The ‘may’ list is divided into three parts.
The first part sets out the duties an unlicensed person may perform, subject to the general direction and supervision of the brokerage or a related licensee, on an ongoing basis. The second part requires the brokerage or a related licensee to provide instructions to the unlicensed person on a specific situation or event before any action is taken. The third part provides that an unlicensed person may, in accordance with the brokerage’s standard processes and procedures, prepare documents but that the documents produced must be approved by the brokerage or a related licensee before they are considered complete.
An unlicensed assistant may:
1. Under the general direction and supervision of the brokerage or a licensee engaged by that brokerage:
answer the telephone and take messages;
schedule appointments for a licensee (this does not include making telephone calls, telemarketing, or performing other activities to solicit business on behalf of the licensee);
maintain strata and brokerage records;
supervise the inspection of strata records;
act as a courier to deliver strata forms and records, pick up keys, and other similar items;
coordinate and distribute keys and other building security devices;
assemble strata notices and agenda packages;
assist a licensee at a strata council or general meeting provided that the unlicensed assistant does not advise the strata council or strata corporation;
obtain public information from a courthouse, municipality, regional district, etc;
perform bookkeeping or office functions, including:
record and deposit trust funds,
record third party charges and payments, and
record charges and payments of strata fees, liens and fines;
contact trades to assess the need for repairs.
2. As authorized on a case by case basis by the brokerage or a licensee engaged by that brokerage:
arrange for approved repairs, services and purchases;*
arrange access to common property.
* Brokerages and their related licensees must ensure that an unlicensed assistant obtains direction from a licensee or the strata corporation client before a decision on expenditures is made which would bind the strata corporation client to costs or liabilities that are not covered under a maintenance contract. Making these decisions involves exercising the delegated powers of a strata corporation or strata council and, therefore, these decisions should only be made by a licensee or the strata corporation client.
3. For the approval of the brokerage or a licensee engaged by that brokerage:
prepare strata notices and agenda packages;
prepare minutes of annual and special general meetings and strata council meetings;
draft correspondence for signing by a licensee;
prepare financial statements and reconciliations;
prepare cheques for signature by a licensee or strata council member(s);
prepare Strata Property Act forms.
An unlicensed assistant may not:
exercise delegated powers of a strata corporation or strata council, including:
making payments to third parties on behalf of the strata corporation,
negotiating or entering into contracts on behalf of the strata corporation, and
supervising employees or contractors hired or engaged by the strata corporation;
present, negotiate or explain any service agreement;
negotiate or agree to any management fee on behalf of a licensee.
Advising Sellers with Respect to What Parking Stalls and/or Storage Lockers a Buyer Will Be Entitled To Use
The Role of the Strata Corporation
The strata corporation has a significant role to play in advising sellers with respect to what parking stalls and/or storage lockers the buyer will be entitled to use. However, some strata corporations do not retain parking stall or storage locker information or are unwilling to advise the seller of what parking space or storage locker will be assigned to the buyer.
Strata corporations that do not maintain this information may be unaware of section 35(1)(c) — will open in a new tab of the Strata Property Act. Section 35(1)(c) requires a strata corporation to prepare and retain a list of owners which contains, among other things, the owners’ parking stall numbers. Thus, a strata corporation must know what stall is currently assigned to each owner and the strata corporation must also update the list after the sale of a strata lot to show what stall is assigned to the buyer.
From January 1, 2014, all strata corporations are required to identify on the Form B (Information Certificate) the allocation of storage lockers and parking stalls to a strata lot. The Form B has been revised to take these changes into account.
In order to ensure that the strata corporation’s records are correct, licensees who are contracted to sign and provide Form B’s on behalf of their strata corporation clients should bring this to their client’s attention.
Maintaining a list of parking stalls or storage lockers assigned to owners does not necessarily mean, however, that the same parking stall/storage locker or the same number of parking stalls/storage lockers will be assigned to a buyer. As noted above, under section 76 — will open in a new tab of the Strata Property Act, it is within the discretion of the strata council, which is fulfilling the duties of the strata corporation, to allocate common property. Although buyers will often be assigned the same parking stall or storage locker as the seller, there is no guarantee that this will occur. If a strata council is going to make a change in respect of the allocation of parking or storage, such a change will often occur at the time of a sale. Thus, simply knowing what parking stall or storage locker is assigned to a seller is not sufficient to assure a buyer of the parking stall or storage locker that they will be entitled to use. It is also necessary that the strata council confirm what parking stall or storage locker will be assigned to the buyer.
Because section 35 of the Strata Property Act requires the strata corporation to update the owners’ list with the buyer’s parking stall allocation, a strata corporation should not refuse to advise sellers of what parking stalls would be assigned to the new buyer. Since the strata corporation will have to make the decision with respect to the allocation of common property parking stalls/storage lockers at some point, a strata corporation could be encouraged to make the decision in advance of the sale of any given unit, given the time-sensitive nature of selling a unit and, in some cases, the infrequency of strata meetings.
Further information is provided below as to the different designations that a parking stall and a storage locker may have, that may need to be identified correctly to report this information on a Form B.
Common Property: This designation for parking stalls and storage lockers may require updating far more often than the other designations. There are three variations to consider:
- Non-Exclusive Use: This may be evident in a strata corporation parking lot, parkade or storage room, where an owner, resident, tenant or visitor may park anywhere or use a storage locker on a first come basis.
- Short-Term Exclusive Use Common Property: Section 76 of the Strata Property Act (the “SPA”) allows a strata council to designate common property for the exclusive use of a tenant or owner. It is important to note that this permission or privilege may only be given for a period of not more than one year*, and may be renewed or cancelled subject to the provisions described in that section. Strata Corporations need to be sure to keep their records up to date and ensure that designations of short-term exclusive use are renewed at least on an annual basis or cancelled if appropriate, to ensure accuracy of the records
*Exclusive Use Common Property that was allocated for use under the Condominium Act continues to be enforceable according to the terms under which the permission was given, but the use may only be renewed in accordance with the provisions of section 76 of the SPA.
Leased or Licensed Use: The owner developer, subject to certain terms as may be set out in the Disclosure Statement, may have granted an entity (such as a parking garage operator) a lease for an area of common property (typically a parking stall or number of parking stalls) for a period of time. This entity may be under the control of the owner developer. As each individual purchases their strata lot, they may have negotiated and possibly purchased a sub-lease or licence for the exclusive use of a parking stall (or stalls) or storage locker(s).
There is no requirement for these leases or licence agreements to be registered at the Land Titles Office (the “LTO”); and neither is the owner developer obligated to provide the strata corporation copies of these sub-agreements, as they are agreements between 2 parties and not a record of the strata corporation. Notwithstanding this, the owner developer is obligated (and may need to be reminded) to provide all records required to be prepared or retained by the strata corporation under section 35 of the SPA, which includes parking stall and storage locker allocations. However, without this information, there may be some difficulty for the strata corporation to identify which areas of the common property are subject to a long term usage agreement with an individual owner.
Limited Common Property (shown on strata plan): If the parking stall or storage locker has been designated as Limited Common Property, it is likely to be identified as such on the strata plan registered at the LTO.Note that the proposed strata plan provided in the Disclosure Statement or the originally filed strata plan may not necessarily suffice; as under Section 258 of the SPA, an owner developer may, at any time prior to the first Annual General Meeting amend the strata plan to designate parking stalls as limited common property. There are two other variations to consider:
- Limited Common Property designated to specific strata lots (Non-Exclusive Use): The strata plan may identify an area of the common property (such as a parkade or parking area) as Limited Common Property for a limited number of strata lots. In this situation only those owners, residents, tenants or visitors of the strata lots as shown on the strata plan may park in this area.
- Limited Common Property designated to specific strata lots (Short-Term Exclusive Use): Where Limited Common Property is designated for a limited number of strata lots, the strata corporation (or possibly a section) may allocate short term exclusive use of the Limited Common Property to specific strata lots. The same caveats that apply to Short-Term Exclusive Use Common Property, apply in this situation.
Limited Common Property (not shown on strata plan): There may be instances where the limited common property has been designated by way of a ¾ Vote (section 74 of the SPA), where the strata plan has not been amended. In this instance, the ¾ Vote resolution(s) along with a sketch plan or diagram will be registered at the LTO.
Part of a Strata Lot: In some instances, the parking stall and/or the storage locker has been designated as part of a strata lot. This can be identified by reviewing the registered strata plan, and obtaining the General Index or the Common Property Folio to identify the ¾ Vote resolution.
- Separate Strata Lot: In some strata corporations, parking stalls may have been registered as a separate strata lot, and thus may be purchased or sold separately. These strata lots might be owned privately, or by the Strata Corporation. The owners of these strata lots may choose to provide a lease or licence to another party.
Section 35(1)(c)(i) — will open in a new tab of the SPA requires that strata corporations prepare and retain a list of owners. This list must also include the owner’s parking stall number(s). Due to the new requirements of the Form B, it would be wise for a strata corporation to ensure that not only the ownership and parking stall lists are updated, but also that the storage locker lists are recorded correctly and updated whenever there is a change of ownership, or parking stall/storage locker allocation.
While typically the allocation of parking and storage lockers tends to be associated with apartment/high rise strata corporations, the legislation also relates to townhouse and bare-land strata corporations. Examples where this may be pertinent include;
- a parking pad/parking area that may be in front of, or near a townhouse, or a bare land strata lot, and
- a separate storage locker that the strata corporation may own (either as a free standing building, or maybe within an amenity building).
The Role of the Strata Manager
The strata manager is obligated to carry out the duties of the strata corporation which have been delegated to the strata manager by way of a strata management service agreement.
If the strata manager has taken on the responsibility for maintaining the documents required by section 35 of the Strata Property Act, the strata manager would be responsible for preparing and retaining the parking stall list.
In practice, many strata corporations have not prepared a parking stall or storage locker list or, if one was initially prepared, it has not been kept up-to-date.
If the strata manager’s service agreement includes maintaining the documents required by section 35 and if a current parking stall list does not exist, not only is the strata corporation not in compliance with the Strata Property Act, but the strata manager may be in breach of contractual obligations to the strata corporation.
To ensure that the strata corporations are in compliance with section 35, strata managers should advise their clients of the obligation to prepare and retain parking stall lists.
If the strata management contract obligates the strata manager to maintain the documents as set out in section 35, the strata manager should ensure that the parking stall list is prepared and maintained. Alternatively, if the brokerage does not wish to assume the responsibility to prepare and maintain the parking stall list required by section 35 of the Strata Property Act, the brokerage should amend its contract with the strata corporation to delete this obligation. The responsibility would then rest with the strata corporation.
Assuming that the strata corporation has maintained an up-to-date list of parking stall/storage locker numbers and will advise sellers of which parking stalls/storage locker will be assigned to the buyers, when such advice is being given to the seller, the strata manager should ensure that:
the strata corporation has authorized the exclusive use of the parking stall/storage locker for the buyer and that the strata manager is not making the decision without the direction of the strata council;
the strata council has authorized the strata manager to release the information; and
the information provided to the seller includes the advice that the parking stall/storage locker assignment is based on section 76 — will open in a new tab of the Strata Property Act, and that it can be changed as permitted by that section.
If the strata corporation refuses to maintain, or refuses to advise a seller what parking stalls/storage locker will be assigned to the buyer, the strata manager has no choice but to advise the seller that such information is not available. As indicated above, if the strata corporation has refused to maintain this information, the strata manager may want to amend the contract to ensure that it is not obligated to maintain these documents. If the strata corporation refuses to provide this information, it would then be up to the buyer to determine whether he or she wishes to proceed with the sale.
Where the brokerage has been designated the responsibility for the record keeping of the strata corporation and/or the completion of a Form B; licensees should bring this requirement to their client’s attention. Where the records are not complete and the Form B cannot be completed accurately or with surety, the licensee may wish to recommend that their client seek legal advice.
Please see the article in the rental property management section.
Strata Management Conflict of Interest Scenarios
Occasionally, strata management licensees and their related brokerage may provide strata management services for a strata corporation in which they are an owner or in which another employee of the brokerage is an owner, or there may be some other association between the brokerage and the strata corporation.
In some instances, these brokerages or these licensees may be in a conflict of interest. However, it’s not always the case — even if on first glance it appears that there is a conflict of interest. The following scenarios are intended to assist licensees to understand where there is or isn’t a conflict of interest, to assess their current or future actions when providing strata management services, and to take appropriate steps to ensure they are in compliance with the Real Estate Services Act.
Section 3-3 of the Rules states the following:
Subject to sections 3-3.1 and 3-3.2, if a client engages a brokerage to provide real estate services to or on behalf of the client, the brokerage and its related licensees must do all of the following:
(i) take reasonable steps to avoid any conflict of interest;
(j) without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], if a conflict of interest does exist, promptly and fully disclose the conflict to the client.
Within these scenarios, there are some references to section 32 of the Strata Property Act, which applies to all strata council members:
32 A council member who has a direct or indirect interest in
(a) a contract or transaction with the strata corporation, or
(b) a matter that is or is to be the subject of consideration by the council, if that interest could result in the creation of a duty or interest that materially conflicts with that council member’s duty or interest as a council member,
(c) disclose fully and promptly to the council the nature and extent of the interest,
(d) abstain from voting on the contract, transaction or matter, and
(e) leave the council meeting
(i) while the contract, transaction or matter is discussed, unless asked by council to be present to provide information, and
(ii) while the council votes on the contract, transaction or matter.
Li Qiang is a licensee with XYZ Brokerage Ltd. Li Qiang owns a strata lot in EPS9999 and he’s recently been elected to the strata council (subject to the provisions of section 9-3 of the Rules exemption that allows a licensee to provide real estate services to their own strata corporation). Brokerage XYZ provides strata management services to EPS9999 through strata manager Richard Steven Timmins, licensed with XYZ.
- Although it might appear to a third party that the brokerage XYZ and the Richard Steven Timmins are in a conflict of interest because one of their licensees is on the strata council, because Li Qiang is under the section 9-3 exemption, he does not represent the brokerage. So neither Richard nor the brokerage XYZ have a conflict of interest.
- However, Li Qiang may have a conflict of interest. He should review section 32 of the Strata Property Act to ensure that he acts appropriately.
Sandeep Singh is a bookkeeper employed by XYZ Brokerage Ltd. She owns a strata lot in EPS9999 and she currently sits on the strata council. Brokerage XYZ provides strata management services to EPS9999 through strata manager Richard Steven Timmins, licensed with XYZ.
- It might appear to a third party that the brokerage XYZ and the licensee Richard Steven Timmins are in a conflict of interest because one of the brokerage employees is on the strata council. However, since Sandeep Singh is unlicensed and does not represent the brokerage, neither Richard nor the brokerage XYZ have a conflict of interest.
- However, Sandeep may have a conflict of interest. She should review section 32 of the Strata Property Act to ensure that she acts appropriately.
Andrew Brian Coot is a licensee for XYZ Brokerage Ltd. Andrew owns a strata lot in EPS9999. Brokerage XYZ provides strata management services to EPS9999. Andrew’s brokerage has recently appointed him as the strata manager for EPS9999.
- Both the brokerage XYZ and the licensee, Andrew Brian Coot, have a conflict of interest.
Maria M. Martínez is the owner of a strata lot in EPS9999 and she’s on the strata council. Her spouse, Miguel M. Martinez, is a licensee with XYZ Brokerage Ltd, which provides strata management services to EPS9999. Miguel is the strata manager.
- Both the brokerage XYZ and Miguel, the licensee, are in a conflict of interest.
- Maria may also have a conflict of interest.She should review section 32 of the Strata Property Act to ensure that she acts appropriately.
123 Brokerage Ltd. provides strata management services to BCS9999. 123 Brokerage is also licensed to provide rental property management (and/or trading) services and has contracted to provide rental management (or trading) services to an owner in BCS9999.
- Unless the brokerage has taken steps in the service agreements as identified in this article, the brokerage and the individual licensees providing the management services would be in a conflict of interest.
VIS9999 pays strata agent, John J. John, who is an owner in the complex, to provide strata management services. John is a real estate licensee licensed only to provide trading services and rental property management. Can John be paid by VIS9999?
- If he were not a licensee, JJJ could be paid for providing strata management services to VIS9999 under the exemption found in section 2.17 of the Real Estate Services Regulation. Licensees, however, cannot rely on this exemption.
With regard to strata management services, there is only one exemption from the licensing and other requirements of RESA. That exemption, found in section 9-3 of the Rules, states that licensees may not provide strata management services ‘‘for or in expectation of remuneration.’’
The Law Society of British Columbia, upon being made aware of the issue by a member of the public, has advised RECBC that strata managers cannot charge a separate fee for the preparation of a Form G-Certificate of Lien and a Form H-Acknowledgment of Payment, as it considers that to be providing legal services. Section 116 of the Strata Property Act gives a strata corporation the authority to register a lien against an owner’s strata lot under certain circumstances in a prescribed form — Form G-Certificate of Lien. To remove a lien, the prescribed Form H-Acknowledgement of Payment, is required.
Strata managers, who prepare the above forms, often do so for a fee, which is charged back to the strata corporation or owner’s strata fee account, against whose strata lot the lien is registered. Often times, this fee is described as a lien fee or lien preparation fee. The Unauthorized Practice Committee of the Law Society considered the issue and has taken the view that preparing Forms G and H for a fee, pursuant to the Strata Property Act and Regulation, falls within the ‘‘practice of law’’ as defined in the Legal Profession Act. The Law Society has, however, advised that as the prescribed Forms G and H of the Strata Property Act allow for a strata manager to sign such forms, the Society will not object to managers preparing these forms, with the proviso that the strata manager does not charge a separate fee for preparing them. Accordingly, the Law Society has indicated that as long as the preparation of these forms is part of a strata manager’s general duties, and is not a service that is provided and billed for separately, it will not consider this matter to warrant its intervention. In summary, it is important that strata managers do not charge a fee for the preparation of the lien certificates. Fees may be charged for the administration and enforcement of the debt, including work performed prior to the issuance of a lien certificate, such as letter writing, telephone calls, meetings, etc., and for the recovery of the cost for filing and releasing the lien at the applicable Land Title Office, as these activities would not fall within the definition of the ‘‘practice of law’’. It is important that licensees appropriately define the services covered by the fees that are charged.
Licensees must not engage in the unauthorized practice of law. Licensees should familiarize themselves with the definition in sections 1(1) and 15(1) (Authority to practice law) of the Legal Profession Act. Licensees may find a copy of the Legal Profession Act by accessing www.bclaws.ca — will open in a new tab.
RECBC frequently receives telephone calls regarding Form B-Information Certificates, a prescribed form under the Strata Property Act. These calls often involve a complaint against a strata manager, indicating that a Form B has been altered and/or that the documents that must be attached to the Form are missing. RECBC reminds licensees engaged in providing strata management services that Form B is a very important document that buyers of a strata lot rely upon. Strata management licensees should be aware that the Form B is a prescribed form under the Strata Property Act and is binding on the strata corporation in its dealings with a person who relied on the certificate and acted reasonably in doing so. Section 59 of the Strata Property Act dictates which items must be disclosed in the Certificate and which documents must be attached to it. Licensees are reminded that prescribed forms must not be altered in a way that affects the substance or is calculated to mislead. In addition, licensees must ensure that all required documents are, in fact, attached. The most common missing attachment, based on the calls received by RECBC, is the owner-developer’s rental disclosure statement. If the strata manager does not have a copy of the rental disclosure statement on file, the strata manager may wish to contact the Office of the Superintendent of Real Estate at 604-660-3450 to determine whether a rental disclosure statement was filed with that office and obtain a copy of any such rental disclosure statement. Licensees are reminded that incorrect or missing information on an Information Certificate could potentially cause harm to the buyers of a strata lot and, accordingly, may result in disciplinary action by RECBC against the licensee who prepared the Certificate.
[06/15/2010 The following information added to Professional Standards Manual]
A strata corporation may own common property, or one or more strata lots which the corporation allows people to use, for a fee, in a variety of ways. These strata lots are typically used in one of the following ways:
Short term vacation rentals – strata lots are available to the general public for vacation rental;
Guest suites – the strata lot is available for the use of family and/or friends of strata lot owners for short term stays while they visit people who reside in the complex;
Rental real estate – the strata lot is rented in the open market by way of a tenancy agreement; and
Resident manager suites – the strata lot is rented to an employee of the strata corporation. The value of the rent is often deducted from the employee’s pay.
Whether, and if so how, the Real Estate Services Act (RESA) applies to the management of these rentals is dependent on the nature of the use.
Rental real estate
A strata lot that is used for market rental is considered rental real estate under RESA, and the strata corporation is the landlord in relation to its rental. A strata corporation landlord may:
manage its own rental unit,
have an unlicensed employee of the strata corporation, acting either under the ‘Exemption for employees of principals’ in section 2.1 of the Real Estate Services Regulation (the ‘Regulation’) or under the ‘Exemption for caretakers providing services to different owners’ in section 2.13 of the Regulation, manage the unit, or
contract with a brokerage licensed to provide rental property management services to manage the unit on behalf of the strata corporation.
Know your Limit: Email Money Transfers A Potential Problem for Brokerages
The definition of “rental property management services” under section 1 of RESA includes showing rental real estate to prospective tenants, negotiating the terms of the tenancy, and collecting rent. Therefore, a brokerage engaged to provide strata management services by a strata corporation client that wishes to rent a strata lot as rental real estate requires a licence to provide rental property management services in order to assist the client in this way. A brokerage licensed to provide strata management services and/or trading services only is not licensed to assist with these rental property management activities.
Any individual who provides rental property management services to a strata corporation client on behalf of a brokerage must also either be licensed to provide rental property management services or be an unlicensed employee of a brokerage that is licensed to provide rental property management services, where the employee is acting under the ‘Exemption for caretakers employed by brokerages’ in section 2.14 of the Regulation. Section 2 of RESA does not allow a licensee to also act under one of the exemptions; therefore, a person licensed to provide strata management services and/or trading services only may not also act under this exemption.
A brokerage providing only strata management services to a strata corporation client should not be directly involved in collecting rents, security deposits or pet damage deposits for the use of that client’s rental real estate.
A brokerage that is providing strata management and rental property management services to the same strata corporation must ensure that the requirements of section 5-1 of the Real Estate Rules with respect to a written strata management service agreement, as well as a written rental property management service agreement, have been satisfied. Section 5-1 may be satisfied through one service agreement which addresses both the strata management services and the rental management services, or it may be satisfied by way of two separate service agreements – one for the strata management services and one for the rental property management services.
Resident manager suites
Where a strata lot owned by a strata corporation is rented to an employee of the strata corporation, the Real Estate Council would not require a brokerage that provides strata management services to the strata corporation to also be licensed to provide rental property management services with respect to the management of this strata lot so long as the brokerage does not:
negotiate or enter into a contract with the employee (tenant) on behalf of the strata corporation (landlord) with respect to the use of the strata lot (e.g. tenancy agreement);
collect rent or security/pet damage deposits for the use of the strata lot (i.e. either the rent and/or security/pet damage deposit are collected by the strata corporation or the value of the rent is deducted from the employee’s pay); and
manage landlord and tenant matters between the strata corporation (landlord) and the employee (tenant).
* A strata corporation may want to use rent it has collected for the use of a strata lot it owns to offset common expenses. To this end, a strata corporation may forward some or all of this rent to its strata management brokerage with instructions to use the money to offset common expenses. Based on the instructions of the strata corporation client, typically included in the written service agreement, the funds should be deposited into the appropriate trust account maintained in the name of the strata corporation.
[12/03/2010 The following information added to the Professional Standards Manual]
The BC Office of the Information and Privacy Commissioner has developed privacy guidelines for strata corporations/strata managers. Licensees engaged in providing strata management services should familiarize themselves with Privacy Guidelines for Strata Corporations and Strata Agents — will open in a new tab to ensure they comply with requirements of the Personal Information Protection Act.
A Warning About Providing Access to Strata Documents
Real estate licensees should be aware that the Financial Institutions Act requires insurance to be placed only with insurers authorized to do business in BC. Strata managers and rental property managers, in particular, need to ensure that they and their clients are aware of this requirement.
Insurance agents have a duty to their client to use due diligence in selecting an insurer that will not place the client unduly at risk. Where an insurer is not authorized to do business in BC, the client loses the benefit of the consumer protection provided through licensing and regulation of insurers under the Financial Institutions Act. As a result, the client can be placed at undue risk.
The Financial Institutions Act includes a very limited exception to permit insurance to be placed with insurers who are not authorized to do business in BC. The position of the Superintendent of Financial Institutions is that this exception will be applicable only in exceptional circumstances. Those circumstances may occur where a client is unable to obtain insurance from an authorized insurer. They would not occur where the client is unhappy with the quote from an authorized insurer.
Even where a client is unable to obtain insurance from an authorized insurer, an insurance agent is not permitted to offer to place insurance with an unauthorized insurer. The insurance agent can be subject to enforcement action if the agent does so. A client must initiate the idea of looking for insurance through an unauthorized insurer without any prompting by the insurance agent, and must give the insurance agent instructions to obtain quotes from an unauthorized insurer, also without prompting by the insurance agent.
Before giving those instructions, the client would need to be aware of the potential risks of doing business with an insurer not authorized to do business in BC. Those risks include issues such as:
Is the unauthorized insurer subject to a regulatory framework in its home jurisdiction, which ensures consumer protection through standards for minimum capital reserves, solvency requirements, requirements for financial statements prepared in accordance with accepted standards, independent audits, and regular actuarial reviews?
- Is there a regulator empowered to conduct periodic inspections and reviews to identify compliance with regulatory standards and to identify adequate financial strength?
- Do the governance standards for the unauthorized business provide assurance of prudent oversight?
- Is there any regulation in its home jurisdiction of the business conducted by the unauthorized insurer in BC ?
- Are there sufficient assets within the jurisdiction of BC courts to cover any claims against the unauthorized insurer ?
- Would the unauthorized insurer agree to appear before BC courts in an action? Does it have an attorney for service in BC ?
- Does the unauthorized insurer have any adjusters authorized by the Superintendent of Insurance to adjust claims in BC on its behalf ?
- Does the unauthorized insurer handle claims and disputes using the same standards of fairness as in BC ?
Before acting on any client instructions to obtain a quote from an unauthorized insurer, licensees are advised to contact the office of the Superintendent of Insurance to further discuss the Financial Institutions Act requirements and risks of proceeding. For more information on this issue, please refer to the BC Financial Services Authority (BCFSA) Bulletin INS-06-010 at www.bcfsa.ca/pdf/insurance_bulletins/INS_06_010.pdf — will open in a new tab.
BC Housing, Licensing and Consumer Services annually releases a public document pertaining to Provincial Sales Tax (PST) refunds from building restoration projects. It has been learned that there have been instances where a strata corporation’s PST refund was sent to its strata management brokerage, but that the brokerage did not deposit the PST refund to the credit of the special levy account, and did not report receipt of the refund to the client on a timely basis. This has caused considerable delays resulting in the refund not being issued back to the rightful owner, as strata lots were sold in the meantime.
To the extent that the strata corporation has an obligation to establish the special levy refund time at the completion of a project, the strata manager will rely upon a direction by the strata council and/or its legal counsel to establish the refund date.
The brokerage is obligated to promptly report to its strata corporation client receipt of any rebates, refunds, settlements and/or surpluses relating to the special levy project.
Regarding refunds to owners, licensees are reminded that, in accordance with section 108 of the Strata Property Act, the refund is issued to the registered owner. The owner, in section 1 of the Strata Property Act, is defined as the person registered on title. In the event that the refund is to be issued to a party other than the registered owner, licensees should exercise diligence to ensure that all parties involved in the transaction of a strata lot refund have granted written consent for the release and acceptance of the refunds or settlements to any party other than the registered owner. It would be prudent for the brokerage to advise the strata corporation to seek legal advice on the disbursement of refunds, and documentation, that may be necessary to manage the risk to the strata corporation associated with releasing the funds to alternate parties.
For further information on the PST Relief Grant Program, please visit the BC Housing, Licensing and Consumer Services website — will open in a new tab.
[12/12/2011 The following section was added to the Professional Standards Manual]
Whenever a strata corporation raises funds by means of a special levy the strata corporation may only use those funds in the manner set out in the resolution. If there are surplus funds section 108(5) of the Strata Property Act stipulates that the strata corporation must pay to each strata lot owner the portion of the surplus levy which is calculated by unit entitlement unless no owner is entitled to receive more than $100 in which case the excess funds can be deposited to the contingency reserve fund.
Section 108(5) of the Strata Property Act provides as follows:
If the money collected exceeds the amount required, or for any other reason is not fully used for the purpose set out in the resolution, the strata corporation must pay to each owner of a strata lot the portion of the unused amount of the special levy that is proportional to the contribution made to the special levy in respect of that strata lot.
Section 108(5) of the Strata Property Act requires that the surplus special levy must be paid to the current owner which may not be the owner who paid the special levy if the strata lot has sold between the time the special levy was paid and the time the surplus was refunded.
Dealing with surplus special levies raises issues for licensees providing trading services and for licensees providing strata management services.
Because section 108(5) of the Strata Property Act requires the strata corporation to pay a special levy to the current owner, if the owner who is selling the strata lot wishes to recover the surplus, special arrangements must be made.
The first step a licensee should take when a strata lot is listed for sale is to determine from the seller whether there are any special levies for which there may be a surplus.
If there is a possibility that a previously approved special levy may result in a surplus the seller should be made aware that under the Strata Property Act the strata corporation is required to pay the surplus to the owner shown on title at the time of payment. If the seller wishes to retain the right to recover the surplus special levy after completion of a sale or the right to vote on any future decisions with respect to the disposition of the surplus the seller must negotiate these rights with a prospective buyer. If the seller wishes to negotiate an agreement that would entitle the seller to receive the surplus special levies or vote on decisions relating to the disposition of the surplus, the seller and the buyer should be advised to seek independent legal advice prior to entering into an unconditional Contract of Purchase and Sale. If a seller or a buyer wants to make the contract subject to entering into such an agreement the Contract of Purchase and Sale should include the Recovery of Proceeds Payable to Strata Corporation Clause.
The agreement contemplated by the subject clause is an agreement between the seller and the buyer and does not involve the strata corporation. Because the strata corporation is not a party to the agreement, the strata corporation is not obligated to pay out the funds other than to the current owner as required by the Strata Property Act. It will be up to the seller to enforce the agreement with the buyer and the seller should not expect the strata corporation to assist the seller by paying the funds directly to the seller.
Licensees providing strata management services must advise strata corporations of section 108(5) of the Strata Property Act which requires strata corporations to pay surplus special levies to each owner of a strata lot in proportion to the contribution made to the special levy in respect to the strata lot. An owner is defined as the person shown on the title at the Land Title Office.
Section 108(5) was amended in December 2009 to reference the owner of a strata lot. By requiring that the surplus be paid to each owner of a strata lot, the amendment to section 108(5) has clarified that the surplus must be paid to the current owner. If however the repayment of the surplus would result in no owner receiving more than $100 the surplus may be deposited into the contingency reserve fund.
As with all funds held on behalf of a strata corporation, when considering the payout of a surplus special levy, the brokerage should only disburse funds after receiving instructions from the strata corporation.
Occasionally brokerages and strata corporations will be provided with Contracts of Purchase and Sale or other agreements which indicate that the special levy surplus should be paid to someone other than the current owner. Because the strata corporation is not a party to the agreement, the strata corporation is not obligated to pay out the funds other than to the current owner as required by the Strata Property Act. If the strata corporation is contemplating paying the surplus levy funds to anyone other than the current owner, the brokerage should advise the strata corporation of section 108(5)
of the Strata Property Act and recommend that the strata corporation seek legal advice.The licensee should then disburse the funds in accordance with the instructions of the strata corporation. In the event the brokerage is instructed to release the surplus to a party other than the registered owner, licensees should insure that they have written instructions from the strata corporation to that effect.
Making ‘‘Loans’’ from a CRF or Transferring Funds between Trust Accounts Requires Express Authorization from the Strata Corporation
Questions have been raised by brokerages providing strata management services whether the borrowing of funds or making ‘‘loans’’ from a strata corporation’s CRF (or from any other strata corporation trust account) requires express authorization from the strata corporation, prior to doing so.
Section 3-3(1) of the Rules, specifically items (1)(b) and (c), stipulates that a brokerage and its related licensees, when providing strata management services to or on behalf of a strata corporation client, must act in accordance with the lawful instructions of the strata corporation (which are provided through its elected strata council) and only within the scope of the authority given by the strata corporation.
When you contract to provide strata management services to a client, section 3-3 of the Rules sets out the duties a brokerage and related licensee has to its client and specifically includes the duties to:
act only within the scope of the authority given by the client
- act in accordance with the lawful instructions of the client, and
- advise the client to seek independent professional advice on matters outside of the expertise of the licensee
Understanding what these duties mean ensures that you act within your professional limits as a strata manager when a client’s instructions appear to put these duties in conflict. To guide you in these efforts, you have three key resources:
the written service agreement between the strata corporation and the brokerage,
- the Real Estate Services Act (RESA), and
- the Rules.
1. Know Your Scope of Authority
The written service agreement should set out the responsibilities and decisionmaking capabilities that have been delegated to the brokerage. For example:
You need to arrange for a minor plumbing repair at a strata property you manage. Do you need to check with the client before going ahead?
- You need to file a lien against a strata lot. Do you have the authority?
The answers to these questions can likely be found in the service agreement. When a strata corporation enters into a service agreement with a brokerage, it typically delegates certain responsibilities and decision- making capabilities to the brokerage. The service agreement may give the brokerage ongoing authority in particular areas, allowing the brokerage to make decisions on behalf of the strata corporation. In other areas, a service agreement may give the brokerage the authority to act only upon the specific instructions of the strata council.
Example: A service agreement gives the licensee the express authority to arrange for repairs under $500 without further instruction (subject to the aggregate limitation of spending identified within section 98 of the Strata Property Act (SPA), or any provision established in the strata corporation’s bylaws). However, the same service agreement requires the licensee to have specific instructions from the strata council in order to file a lien against a strata lot.
Understanding the difference between these two types of authority is crucial. They define the scope of decision-making the client has given the brokerage. And as the scope of authority delegated to the brokerage may be different for different clients, it is your responsibility to ensure that you are familiar with the terms of the service agreement for each of your clients.
Using the example above, if you were to file a lien against a strata lot or spend $650 on repairs without specific instructions from the strata council, you will have acted outside of the scope of authority given to you by your client. Find more information on Scope of Authority for Expenditures on Behalf of Strata Corporations.
2. Act in Accordance With Lawful Instructions
You are required to carry out the lawful instructions of your clients, and know what to do if you receive instructions that you believe may not be lawful.
First, ensure that you have received the instructions in a form that you’re authorized to act on. While you can be given instructions a number of ways— by email, verbally, or at a strata council meeting—you may not be authorized to act in each case.
Many service agreements stipulate that licensees must receive instructions in a specific method, or a range of methods (for example: in writing after a majority decision of the strata council; or in writing by at least two strata council members). As service agreements may be different depending upon the client, make sure you review the service agreement to ensure you are acting appropriately.
If the written service agreement does not give your brokerage authority to undertake the duties your client has requested, it is important to ensure that you get specific instructions from the client before acting.Finally, if you’ve received verbal instructions, it is prudent to confirm the instructions with the strata council in writing.
What may constitute unlawful instructions?
Instructions that could result in your client acting contrary to the provisions of applicable legislation may be unlawful. If you are concerned that instructions you’ve received from a strata council may result in such a contravention, you should take steps to deal with the situation. While RECBC does not have the jurisdiction to enforce legislation other than RESA, licensees are expected to be familiar with and provide competent advice to their clients with respect to applicable legislation such as the SPA, the strata corporation’s bylaws, as well as RESA and the Rules. In addition, licensees will be expected to be aware of other legislation that may affect their client and advise them to seek independent professional advice on those areas of legislation that they are not familiar with.SPA/Strata Bylaws
As a licensee, you are expected to be familiar with both SPA and your client’s bylaws. If your client’s instructions appear to be in conflict with either SPA or the strata bylaws (or any applicable legislation such as the Residential Tenancy Act or Legal Profession Act), it is appropriate to discuss your concerns with your client and your managing broker.
You may draw your client’s attention to the provisions that you believe are applicable and recommend to the client what you view as the appropriate course of action. It is best to ensure that the instructions from the client and your advice to the client are in writing.
Despite your advice, your client may insist that you carry out the instructions. In this case, you may wish to recommend that your client obtain professional advice prior to taking any further steps.
If the client’s instructions pose a serious conflict, you may decide to advise the client that you are not prepared to follow the instructions. This may result in the termination of the service agreement, either by the brokerage or the client.
As a licensee you are expected to not only be familiar with, but to act in accordance with, the provisions of RESA and the Rules. If you receive instructions from a strata client that you believe contravene either RESA or the Rules, you should advise your client of this, preferably in writing.
If your client does not modify the instructions, or responds with a specific direction to carry out these instructions, you are faced with three choices:
follow the instructions,
- refuse to follow the instructions, or
- cease to act for the strata corporation.
Choosing A, to follow instructions that you believe are in contravention of RESA or the Rules, may have potentially serious consequences. You should discuss the matter with your managing broker to determine how best to proceed. If you have acted upon instructions from a strata council and your conduct becomes the subject of an RECBC investigation, the fact that you followed the instructions of your client does not relieve you—or the brokerage—of the obligation to comply with the requirements of RESA. You and/or the brokerage may be found to have committed professional misconduct.
Your managing broker may determine that it would be prudent for the brokerage to obtain its own legal advice. It is also usually appropriate to advise the client to obtain independent legal advice on their intended course of action. The brokerage may decide that it is not prepared to continue to provide services to the client. In this case, the brokerage should review the termination provisions of its service agreement.
Generally speaking, your managing broker should be involved in any attempts to resolve the issue, as refusing to follow the instruction given by the strata council may result in a termination of the relationship between the brokerage and the strata corporation.
3. Matters Outside Your Expertise: When to Advise the Client to Seek Independent Professional Advice
It’s not uncommon for strata management clients to regard the strata manager as an expert in all strata property matters. Your clients may turn to you for advice or information on a wide variety of topics, from legal issues to insurance, finances, roofing, plumbing, landscaping and more. And although you may have some knowledge about these issues, it is usually more appropriate to recommend to the strata council that they seek independent advice from a professional in the subject field.
For More Information
You should be cautious about providing advice that is outside of your expertise and which your clients may rely on in making a decision about the maintenance or governance of the strata corporation. Although clients may sometimes be reluctant to pay for specific expert advice, it is important to realize that wrong advice can have devastating results for both you and your client.
In situations where you are asked for an opinion or advice that is technical in nature, or where there may be the potential for significant costs or losses to your client, you should strongly recommend to the client that they seek independent professional advice. If you provide poor or incorrect advice, you may be found to have demonstrated incompetence (a contravention of section 35(1)(d) of RESA) and/or to have failed to act with reasonable care and skill (section 3-4 of the Rules).
30. (1) Money in a brokerage trust account, other than money that the brokerage holds as stakeholder, may be withdrawn only if it is one or more of the following:
(a) money paid into the trust account by mistake;
(b) interest paid in accordance with section 29 [interest on trust account];
(c) money authorized to be withdrawn under section 31 [payment of licensee remuneration];
(d) unclaimed money transferred under section 32 [unclaimed money held in trust];
(e) money paid into court under section 33 [payment of trust funds into court];
(f) money paid in accordance with a court order;
(g) money paid to or in accordance with the instructions of the principal to whose credit the money was deposited.
In conjunction with the above, the Rules require that:
1. a brokerage providing strata management services must establish in its service agreement, the brokerage’s scope of authority to sign cheques and make disbursements on behalf of its strata corporation clients [section 5-1 (5.1)(c)(i)], and
2. the service agreement must include a brokerage’s authority to transfer amounts between brokerage trust accounts maintained for the strata corporation under section 7-9(2) of the Rules [section 5-1(5.1) (b)(i)];
The Real Estate Council, when investigating complaints or conducting an audit regarding a brokerage, will look at service agreements to determine a brokerage’s scope of authority relative to withdrawals from, or transfers between, trust accounts.
There may be many different scenarios for which the borrowing or transferring of funds from one trust account to another may be required. One example is where a strata corporation has cash flow problems in its Operating Fund and requires a ‘‘loan’’ from its CRF. Another example is where a strata corporation has a cash shortfall in a special levy account created by either unanticipated expenditures or unforeseen ‘‘extras’’ which exceed the original levy budget, or due to unpaid special levies on the part of some strata lot owners. The strata manager would be acting outside of his/her scope of authority to unilaterally transfer or ‘‘loan’’ such funds from the CRF trust account to an Operating or Special Levy trust account in the absence of express authorization to make such a transfer or ‘‘loan’’.
It is therefore important for a strata manager and the brokerage to assess each situation carefully before proceeding with making such ‘‘loans’’ from, or transferring trust funds between, trust accounts. For those situations where the scope of authority is not established within the service agreement, the brokerage should obtain the express authority of its strata corporation clients, in the form of a separate written direction that clearly establishes the authority for the specific circumstance. Without the authority to ‘‘loan’’ or transfer funds, a strata manager may incur substantial risk and liability, as well as be subject to discipline under the Rules.
If there is uncertainty whether the authority provided for within a service agreement is sufficient, it is good business practice for a strata manager and the brokerage to minimize their risk and liability by obtaining a separate written direction that provides authority from the strata corporation client to make a ‘‘loan’’ from, or transfer funds between, trust accounts.A brokerage should ensure that any parameters respecting its scope of authority to act on behalf of a strata corporation are either clearly established within its service agreement or provided by the strata corporation client, through its elected strata council.
[09/18/2011 The following section was added to the Professional Standards Manual]
RECBC occasionally receives complaints from strata corporations suggesting that the brokerage providing strata management services has withdrawn an increased management fee from the strata corporation’s operating trust account without proper authority to do so.
Section 3-3(1)(c) of the Rules requires licensees to act only within the scope of authority given by their client.
Section 3-3(1)(f) of the Rules requires licensees to disclose to the client all known material information respecting the real estate services being provided. Further, section 5-1(6) of the Rules specifies that any amendment of or addition to the terms of a service agreement must be made in writing and signed by the client and an authorized signatory of the brokerage.
In some complaints, it has been alleged that the strata manager had discussed the management fee increase with the strata council at the time when the strata corporation’s annual operating budget for the next fiscal year was being reviewed and prepared so that consideration could be given to increase the budget for management fees. It has been further alleged in some complaints that the strata council had agreed in principal to the increase, but wished to put the matter forward to their owners for consideration at the Annual General Meeting before approving the increase.Even when a strata corporation’s proposed annual operating budget is ratified by its strata owners (which includes an increased budget for strata management fees), a brokerage would only have authority to withdraw the increased management fee amount once the increased fees had been effected in writing, and signed by the strata corporation client and an authorized signatory of the brokerage. This may be done through (a) amending the management fee amount in the existing service agreement, (b) an addendum to the existing service agreement reflecting the new management fee, or (c) a new service agreement. In any case, licensees and their related brokerages must ensure that the amendment, addendum or new service agreement is signed by the strata corporation and a person authorized by the brokerage, and that it includes the date on which the fee increase is to take effect.
[09/18/2011 The following section was added to the Professional Standards Manual]
Concerns have been brought to RECBC’s attention in regard to the manner in which some brokerages licensed for strata management services are assigning existing service agreements to other brokerages also licensed to provide strata management services.
While, depending on the terms of their service agreement, brokerages may have the contractual right to assign their service agreements to another licensed brokerage (and the rights and obligations contained therein), brokerages and their related licensees must ensure that prior to doing so, they have fulfilled their obligations under section 3-3(1)(f) of the Rules by informing their strata corporation clients of their intent to do so.
Section 3-3(1)(f) of the Rules requires brokerages and their related licensees to disclose to their client all known material information respecting the real estate services. It is strongly recommended that this disclosure be made to the client in writing at the earliest possible date.
It is further recommended that the contract assignment made between the two brokerages be in writing, and that it include the date upon which the assignment is to take effect.
Rental property management and strata management service relationships are typically long term. When special projects arise, brokerages will often agree to provide services that are in addition to those identified in the original written service agreement. For example, a strata corporation client may ask its strata management brokerage to oversee a substantial remediation project. The brokerage may agree to do so on the understanding it will receive remuneration, in addition to that established in the original service agreement.
Section 5-1(6) of the Rules requires that any amendment of or addition to the terms of a service agreement must be in writing and be signed by the client and an authorized signatory of the brokerage. When either amending or adding to the service agreement, particular attention should be paid to establishing
what additional services are to be provided by the brokerage, when the brokerage will begin providing the additional services, and for how long they will be provided;
- any additional remuneration to be paid and the circumstances in which it will be payable; and
- any additional scope of authority of the brokerage to act on behalf of the client, particularly related to signing cheques, making disbursements, and entering into contracts.
With respect to the second bullet above, brokerages should be aware that section 5-15(4) of the Rules establishes when money held in a brokerage trust account that is intended as remuneration is considered earned for the purpose of authorizing a withdrawal from trust. That section states that such remuneration may be withdrawn in accordance with the service agreement or other agreement under which the applicable real estate services are provided, or at a time otherwise agreed to in writing by the client.
Both of these circumstances underscore the necessity of having written authority to withdraw remuneration.
Under BC’s Strata Property Act (SPA), strata corporations are required to have a depreciation report completed by a “qualified person.” But who is qualified?
Draft Depreciation Reports: To Provide or Not Provide With a Form B?
According to Section 6.2 of the Strata Property Regulation, a “qualified person” means “any person who has the knowledge and expertise to understand the individual components, scope and complexity of the strata corporation’s common property, common assets and those parts of a strata lot or limited common property, or both, that the strata corporation is responsible to maintain or repair.”
Some licensees, who may either have experience in this area or a relevant professional designation, consider themselves qualified, and have prepared, or are planning to prepare depreciation reports.However, licensees should take note: neither RECBC nor the Office of the Superintendent of Real Estate considers that the preparation of a depreciation report falls under the definition of strata management services found in section 1 of the Real Estate Services Act (RESA). This means that a person who is licensed to provide strata management services is not qualified to prepare depreciation reports solely by virtue of being licensed under RESA.
Issues to Consider
Licensees who are considering preparing depreciation reports need to consider a number of factors before they make the decision to provide a strata corporation with this service:
Am I insured?
In the May 2012 issue of the “Risk Report,” the Real Estate Errors and Omissions Insurance Corporation advised licensees that:
“Licensees preparing the Depreciation Reports required by SPA will not have coverage under the Indemnity Plan for this service. The Insurance Corporation’s view is that the preparation of such reports is not the provision of Real Estate Services and thus falls outside of coverage provided in the Indemnity Plan. Preparing Depreciation Reports is a highly specialized service and does not require a real estate licence. Licensees offering this service to clients should purchase separate coverage from an appropriate insurer. It is good practice for strata managers to expressly advise strata corporations to hire only service providers who are properly insured.”
- Have I made the required disclosures?
Licensees preparing depreciation reports should disclose to their clients in writing that although they are licensed, they are not acting as a licensee in this case, so they are not regulated under RESA in relation to this service. This means the client is not entitled to the protections applicable under RESA they would normally expect when dealing with a licensee.
As well, section 5-12 of the Rules requires licensees who anticipate receiving a benefit (remuneration) from an expenditure made by or on behalf of the principal to disclose this to the client and to their brokerage before the benefit is accepted.
- Has my remuneration been kept separate from Brokerage Trust Accounts?
Brokerages must be aware that as the preparation of depreciation reports is not a real estate service, remuneration received for preparing the depreciation report should not be deposited in a brokerage trust account with any other money received in relation to the provision of real estate services.
- Do I need a contract?
While the provision of a depreciation report is not a real estate service, so there is no requirement for a written service agreement, it may still be advisable to ensure that there is a contract in place that outlines the services provided for the provision of the depreciation report. This will help ensure that both parties have a clear understanding of the services provided and the contractual relationship.
Learn More About Depreciation Reports
SPA requires strata corporations to obtain a depreciation report every three years, unless a strata corporation holds an annual ¾ vote to waive the requirement, or has four or fewer strata lots. Strata corporations that existed on December 14, 2011 were required to obtain a depreciation report by December 14, 2013. Newer strata corporations must obtain a depreciation report within 6 months following the date of their second Annual General Meeting (or the last date that they would have been required to hold their second AGM if there was a waiver of the meeting).Find complete information about requirements for Depreciation Reports — will open in a new tab at the BC Office of Housing and Construction Standards.
Section 5-9 of the Rules requires all licensees to make disclosure to the opposite party when acquiring or disposing of real estate. Section 5-9 applies to individuals licensed as strata managers in the same way that it applies to other licensees. As a result, an individual licensed as a strata manager must make disclosure to the opposite party in writing before any agreement for the acquisition or disposition of real estate is entered into. Before purchasing, selling, or renting real estate, an individual who is licensed to provide strata management services must complete a ‘‘Disclosure of Interest in Trade’’ form. A copy of the form is located on RECBC’s website. Licensees are not required to complete a Disclosure Form in relation to the rental of real estate if the real estate is to be used for residential use and the lease, including options, is less than one year.
For more information on the requirements of section 5-9 of the Rules, including the exception, see the section entitled ‘‘Disclosure’’.
Section 5-11 of the Rules requires that a licensee disclose all remuneration received or anticipated to be received from anyone other than the licensee’s client, which is paid as a result of providing the real estate services to or on behalf of a client. Such disclosure must be in writing and be separate from a service agreement or any other agreement under which real estate services are provided.
Licensees engaged in strata management are required to disclose to the strata corporation any remuneration that the licensee receives or anticipates receiving, which is paid by someone other than the strata corporation and which is paid as a result of providing strata management services to or on behalf of that strata corporation. Section 5-11 of the Rules provides that if a licensee receives or anticipates receiving, directly or indirectly, remuneration as a result of recommending persons to the strata corporation who provide real estate-related products or services or recommending the strata corporation to such persons, the licensee must make written disclosure of the remuneration to the strata corporation.
Remuneration is defined in RESA to be any form of remuneration, including any commission, fee, gain, or reward, whether the remuneration is received or is to be received directly or indirectly.
Licensees who recommend particular suppliers, and service and trades people to a strata corporation, and who receive any form of benefit, must disclose the benefit to the strata corporation. The benefit may take the form of a referral fee, or it may be loyalty points, air miles, or it may even be a discount on work done for the licensee personally. In each case, the licensee must promptly disclose in writing to the strata corporation and the licensee’s related brokerage the source of the remuneration, the amount of the remuneration or, if the amount is unknown, the likely amount of the remuneration or the method of calculation oft he remuneration, and all other relevant facts relating to the remuneration. All such remuneration must flow through the brokerage.
The brokerage is also a licensee; therefore, where the brokerage is receiving the remuneration and not an individual within the brokerage, the managing broker must ensure that the brokerage has provided sufficient disclosure to its clients to meet the requirements of sections 5-11 and/or 5-12 of the Rules.
RECBC has developed disclosure forms for strata management services that are available on RECBC’s website at www.recbc.ca. Licensees may use these disclosure forms or any form of the licensees choosing so long as it satisfies the disclosure requirements outlined above.
Section 5-12 of the Rules requires that, if a licensee, who provides rental property management or strata management services, receives or anticipates receiving a benefit as a result of expenditures made by or on behalf of the principal to whom the management services are provided, the nature and extent of the benefit must be disclosed in writing to both the principal and the licensee’s brokerage before the benefit is accepted. A brokerage is a licensee and is subject to the same disclosure requirements as individual licensees. Disclosure is also required if an associate of the licensee is to receive the benefit.
A rental property manager or strata manager may obtain a benefit by retaining companies in which the licensee or an associate of the licensee has an interest to provide services or carry out work for in relation to the managed property. If, for example, the licensee retained a company owned by their spouse to provide landscaping services, section 5-12 of the Rules would apply and require that the benefit be disclosed to the principal, i.e. rental property owner or strata corporation. In such circumstances, an associate of the licensee is obtaining a benefit as a result of an expenditure made on behalf of the principal.
Section 5-7 of the Rules defines the meaning of ‘‘associate’’ for both individual licensees and brokerages. Rental property managers and strata managers should pay particular attention to the definition in order to ensure that the required disclosures are made.
Licensees must also ensure that, if they intend to direct business to any service provider on the understanding that the licensee will receive a benefit for doing so, this is first disclosed to and agreed to by the client on whose behalf the services will be provided.
A sample form entitled ‘‘Disclosure of Benefits’’ has been prepared by RECBC for use in situations where a representative, brokerage, or associate will receive a benefit.
Section 7-9 of the Rules requires a brokerage providing strata management services to maintain separate trust accounts for every strata corporation for which the brokerage holds or receives funds. If the brokerage is to hold both the operating fund and the contingency reserve fund (CRF), the brokerage must maintain at least one separate trust account for each type of fund. In addition, funds raised by special levy must be deposited into a trust account separate from the operating account and the CRF account.
Funds received that are either only operating funds, CRF funds, or special levy funds are to be paid into the appropriate account. However, in many cases, monthly strata fees paid by owners to the brokerage contain operating funds and a contribution to the CRF, and may include a payment of a special levy. In such cases, sections 7-9(3) and (4) of the Rules provide that the funds may be deposited into the operating account. Within seven days of the end of the month in which the CRF and/or special levy funds were received, the brokerage must either pay the funds to the strata corporation or, if the brokerage is to hold the money, transfer the funds to the appropriate CRF and/or special levy fund accounts.
Section 7-9(5) of the Rules permits operating funds to be transferred to a pooled trust account, which can be used as a flow-through account. In some cases, a brokerage may prefer to make one payment to pay invoices on behalf of a number of strata corporations. For example, a brokerage may wish to pay a utility expense for several strata corporations with one cheque or debit. In these cases the brokerage may transfer the necessary funds from each strata corporation’s operating account into the flow-through account and then pay the invoices.
Section 7-9(6) of the Rules provides that a trust account that contains either the CRF or special levies requires two signatures in order for funds to be withdrawn. The signatories on such an account must be at least two of the following:
a related managing broker;
- a member of the council of the strata corporation or a member of the section executive;
- another related licensee of the brokerage;
- a director or officer of the brokerage; and
- a person employed or engaged by the brokerage who is authorized to practice as a lawyer, CGA, CA, or CMA.
Section 7-9(7) of the Rules provides that for each trust account, the brokerage must arrange to receive monthly statements from the savings institution. No later than six weeks after the end of the month for which a statement was issued, the brokerage must provide each strata corporation with a copy of that statement, along with a copy of the monthly reconciliation of the statement and, if requested by the client, a copy of the records related to the monthly reconciliation for the month in question.
Section 7-9.1 of the Rules permits a brokerage to collect a “blended payment” which includes a payment of a strata fee to a strata corporation and a strata fee to an associated section of that strata corporation, as a single payment into a trust account holding the funds of one of the two parties. Section 7-9.1(3) requires the brokerage to transfer the portion of the blended payment received on behalf of the 2nd party to the trust account maintained in the name of the 2nd party within 7 days of receipt of the payment.
[01/16/2011 The following section was added to the Professional Standards Manual]
Licensees who are providing strata management services should advise their strata corporation clients as to the type of investments that are permitted under the Strata Property Regulation before obtaining instructions from the client as to what types of investments should be made with the CRF funds or special levy funds.
RECBC has disciplined licensees for failing to properly advise strata corporation clients in this regard, and for improperly investing strata corporation funds. For further information, please see: www.canlii.org/en/bc/bcrec/doc/2010/2010canlii74020/2010canlii74020.html — will open in a new tab
Section 7-9(8) of the Rules requires a licensee providing strata management services to be subject to the same restrictions that are set out in the Strata Property Act with respect to investments made on behalf of strata corporation clients. Sections 95(2) and 108(4)(b) of the Strata Property Act require that a strata corporation must invest Contingency Reserve Funds (CRF) or special levy funds in one or both of:
Investments permitted by the regulations
Section 6.11 of the Strata Property Regulation provides an exhaustive list of the type of investments that are permitted. A common thread in many of the permitted investments is that they are guaranteed, for example:
securities, the payment of the principal and interest of which is guaranteed by Canada, or a province; or
- guaranteed trust or investment certificate of a bank.
A complete list of investments permitted under section 6.11 of the Strata Property Regulation can be found at: www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/12_43_2000#section6.11 — will open in a new tab
Amendments to Strata Property Regulation
[01/21/2015 The following section was added to the Professional Standards Manual]
On July 17, 2014, an amendment to Section 6.11 of the Strata Property Regulation took effect, simplifying the provisions governing investments of contingency reserve funds and money collected for special levies. The amendment is expected to spur investment by strata corporations. For strata managers, this means care is needed to ensure that all investments comply with the requirements of the Strata Property Regulation.
Many strata councils will be looking to get the best possible return on their investments in order to fund the long-term maintenance and replacement costs identified in their depreciation reports. While there are many GIC’s and other investment vehicles available on the market, not all meet the requirements of the Strata Property Act. Therefore. caution is needed and the conditions of the GIC or other investments should be carefully reviewed before arranging an investment for a strata corporation client.
For example: Section 6.11(b)(ii) of the Strata Property Regulation allows strata corporations to invest contingency reserve or special levy funds in a guaranteed investment certificate (GIC), if:
the certificate has a pre-determined rate or rates of interest, and
- is insured by either the Canada Deposit Insurance Corporation (CDIC) or the Credit Union Deposit Insurance Corporation (CUDIC).
In Trust Investments
When a brokerage is contracted to hold and administer their strata corporation client’s contingency reserve funds, these funds must be held in a brokerage trust account. Some brokerages offer their clients the ability to invest in a GIC or other investment vehicle at the same financial institution the brokerage uses for the trust accounts. These investments are set up to be held “In Trust.”
Brokerages that offer the ability to hold investments (such as GIC’s) in trust must ensure that these investments comply with the Strata Property Act. Otherwise, the brokerage will not be able to comply with section 7-9(8) of the Rules:
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.
Keep an Eye on Maturing Investments
The Government has stated that existing investments that do not comply with the amended regulation are grandfathered until they mature or are sold. However, licensees must take care that when the current investments mature, they are not automatically renewed into an investment that does not comply with the legislation.
Investments Outside a Brokerage’s Trust
Some clients choose to invest their contingency reserve or special levy funds separately from the brokerage in order to get a better interest rate at another financial institution or through a financial investment broker. Although licensees can’t control the strata corporation’s investment choices when funds are not maintained in a brokerage trust account, they still need to comply with sections 3-3 (Duties to Clients) and 3-4 (Duty to Act with Reasonable Care and Skill) of the Rules.
Brokerages should take the following steps when their client chooses to invest funds outside of the brokerage’s trust account(s), or when a client considers taking such a step.
Review the written service agreement with the client to determine if the brokerage is required to hold all funds in trust. If so, an addendum to the agreement may be required.
- Advise the client in writing that funds not held in a brokerage trust account will not be protected under the Special Compensation Fund. (Section 5.1 of the Real Estate Services Regulation identifies that the maximum amount that may be paid to a single claimant is $100,000, and section 5.2 of the Real Estate Services Regulation identifies that the maximum total amount that may be paid in respect of claims related to a single brokerage is $500,000)
- Advise the client in writing of the strata corporation’s duty to comply with Section 6.11 of the Strata Property Regulation. Ideally, discuss it at a strata council meeting and record it in the meeting minutes.
- If the strata council is considering not complying with Section 6.11 of the Strata Property Regulation;
- recommend independent legal advice,
- recommend that the strata council seek approval from the owners, and
- advise the strata council that if it willfully violates the legislation, there may be limitations to coverage from any Directors & Officers or Errors & Omissions insurance the strata corporation may have.
- Recommend that the strata council advise the investment broker of the need to comply with Section 6.11 of the Strata Property Regulation.
Request that the strata council make the decision to withdraw the funds from the brokerage’s trust account at a strata council meeting.
- If this is not possible, request written instructions from at least 2 members of the strata council.
- Keep a record of all advice, minutes and instructions.
- If the brokerage is contracted to provide monthly accounting statements (other than the requirements laid out within the Rules), request that the brokerage receive regular statements from the other financial institution/broker in order to report the strata corporation’s complete financial position. If these are not available, the financial statements prepared by the brokerage should identify the amount invested and clarify that the funds are held outside of the brokerage’s trust accounts.
- Recommend that the strata council keep a record of the signing authorities for the external investment(s), including changes to signing authorities. If the client requests that the brokerage keep this record, identify that the brokerage should be updated with any changes to the signing authorities.
- DO NOT be a signing authority on any account where the funds are not held in a brokerage trust account.
Insured accounts with saving institutions in British Columbia
Where a brokerage is maintaining these investment accounts on behalf of a strata corporation, the accounts must be designated as trust accounts in the records of the brokerage and they must also be reflected as trust accounts in the statements issued by the savings institution pertaining to these accounts.
[04/09/2013 The following information updated to reflect switch back to GST]
[05/17/2011 The following section was amended with new information]
[08/24/2010 The following information updated to reflect switch to HST]
Builders Lien Act – The Holdback
The Builders Lien Act provides a form of security to contractors, subcontractors, workers and suppliers who work on a building that is under construction – the builders lien. A builders lien is a charge on property by a person who has supplied work or material to a building under construction. A builders lien may be claimed by a contractor, subcontractor or worker.
The Builders Lien Act also creates a pool of money out of which claims may be paid, by requiring an owner to hold back 10% of each payment to the contractor – the builders lien holdback. The builders lien holdback provides two functions:
It ensures that there is a pool of money out of which builders lien claims can be paid, although it does not guarantee payment of those claims. The requirement for owners to establish a holdback account is clearly intended to give the contractor and the subcontractors comfort that the holdback funds are indeed available. It also aims to assure the contactor and subcontractors that they will not be, for example, at the mercy of a mortgagee or owner who must come up with the holdback funds at the end of the project.
- It limits an owner’s liability for lien claims. If an owner complies with the holdback provisions of the Builders Lien Act, the owner’s maximum liability for lien claims will be limited to the amount of the 10% holdback or the unpaid balance of the contract price, whichever is greater.
The Builders Lien Act helps to ensure that money intended to finance construction is used for that purpose by imposing a trust on money received by contractors and subcontractors in connection with the construction project – the statutory or deemed trust. The holdback account will be treated like a trust account. Contractors and subcontractors are deemed to be trustees of the money received by them. The persons engaged directly by them are the beneficiaries of the particular trust fund.
The Holdback Account
The Builders Lien Act creates a mandatory obligation to retain a 10% holdback on the “person primarily liable on each contract, and the person primarily liable on each subcontract, under which a lien may arise under this Act”. In the case of work being done on behalf of a strata corporation, the persons primarily liable would be the strata corporation in the case of a contract with a contractor and the contractor in the case of each subcontract. It is not sufficient that the owner (the strata corporation in this case) simply hold back 10% of the payment amount from the contractor, the monies must actually be paid into the holdback account. If the owner acts as the general contractor, a separate holdback account will be required for every contract with the owner.
Establishing the Holdback Account
There are no regulations prescribing how the holdback account must be established and managed. The only conditions relating to the operation of the account is that the interest on the account is to be to the credit of the owner to the date it is due and to the contractor after the date the holdback is due. There are no rules setting out for example, whether the account is to have joint signatories, and whether all payments out of the holdback account are to be directly to the contractor or to a subcontractor when the progressive releases or payments are made. The parties are thus left with a wide discretion for what they can agree to concerning the management of the account and these issues are often addressed in the contract executed by the parties.
For every progress payment under the contract, 90% of the price of the work completed in any month is paid by the owner to the contractor or contractors, and 10% is retained as a holdback that must be paid into the holdback account. At the end of the contract, the amount in the account should equal 10% of the contract price.
At the direction of their strata corporation client, a strata manager can establish the account with its usual financial institution, with the account set up in the usual manner, but with a reference to it being a “holdback account for Strata Corporation ____”. If there are to be multiple accounts due to the strata corporation acting as the general contractor, the accounts could be set up as follows: “holdback account for Strata Corporation ____ – Contract A; holdback account for Strata Corporation ____ – Contract B,” and so on.
Exemptions from the requirement to establish Holdback Account
There are two major exceptions to the requirement that the 10% lien holdback be paid into an actual account.
The first is where the owner has a construction mortgage with a “savings institution” and authorizes the savings institution to disburse the mortgage money. In that case the lender may hold back 10% of the mortgage money from each mortgage draw, and the lender will be liable to the owner and any lien holders if it fails to fulfill its obligations in relation to the holdback. Mortgage lenders do not want to supervise holdbacks and will rarely agree to this arrangement. Most lenders will instead advance 100% of each draw, but will contractually require that the owner pay the 10% into the holdback account.
The second is where the total value of work and materials is less than $100,000 (e.g. renovations and smaller projects).
Clearly, if there is a general contractor and the contract price exceeds $100,000, the owner must establish the account. However, consider a situation in which a contract at first is less than $100,000, but as result of changes, eventually exceeds the amount. It would be difficult to allege the owner was then in default of the Act, if the owner did not voluntarily set up an account.
The same is true on a cost-plus contract where there is no specific amount for the value of the improvement or the contract. Presumably, there will be budgets or estimates that will show if the anticipated value of the work exceeds $100,000, and if it does, then the account must be established.
The Builders Lien Act does not indicate if the $100,000 limit includes GST. Although GST is considered to be a lienable part of the contract price, the applicability of taxes is a separate issue that remains unanswered. The conservative approach is to assume that if the GST takes the value of the project over the $100,000 threshold, a strata corporation should establish the account.
Problems arise in the construction management scenario, where there is no “head contractor” as defined in the Builders Lien Act. In construction management structures, all of the trade contractors, who normally act as subcontractors, contract directly with the owner. The construction manager only receives payment of his or her own fees and does not receive funds from the owner to be passed on to the trade or subcontractors. Payment is made directly by the owner to the trade contractor. The problems arise in relation to the exemption as to whether the $100,000 threshold relates to the value of the individual owner/trade contractor contracts or to the aggregate value of the improvements. There is no authority clearly determining whether or not an owner has to establish and maintain the holdback account in such circumstances, but the more conservative position is to establish the holdback if the total value of all contracts exceeds $100,000.
Note that the holdback is mandatory. The person primarily liable must retain the 10% holdback and there is no option to the owner but to retain at least that amount, even if they do not have to establish the holdback account due to falling within one of the exemptions.
Payment of Interest Accruing in the Holdback Account
Interest on monies on deposit in the holdback account accrues to the benefit of the owner until the holdback payment is due to be released, and to the contractor after payment of the holdback is due to be released.
Failure to Establish the Holdback AccountThe failure of the owner to pay the holdback into a holdback account is an event of default under the construction contract, irrespective of the wording of the contract. If the owner fails to establish the account or make the payments into the account, the contractor can give a 10-day notice, and if the default is not corrected in that time, the contractor may stop work. Typically during this period the holdback funds are paid into the newly established holdback account.
A special compensation fund exists under RESA to protect the public against the loss of trust money; however, the Real Estate Services Regulation limits the maximum amount that may be paid to a single claimant to $100,000, and the maximum total amount that may be paid in respect of claims against a single brokerage to $500,000.
In terms of a potential claim against a brokerage with respect to trust funds held related to strata management services, a strata corporation would be considered a single claimant. Therefore, regardless of the amount of money that a brokerage may hold in trust on behalf of a strata corporation, the maximum amount that could be recovered from the special compensation fund, should there be a significant misappropriation, would be $100,000.
Licensees and their related brokerages must not indicate to their strata corporation clients, or potential clients, that there is more protection available unless the brokerage itself has secured additional protection independent of RESA. In the event a brokerage has secured additional protection, the brokerage must be able to provide RECBC with proof of such coverage if requested to do so. A copy of the coverage should be retained in the brokerage’s head office.
Information about the trust protection coverage available under RESA is available on RECBC’s website at www.recbc.ca.
[04/03/2012 The following section was added to the Professional Standards Manual]
Licensees are often asked to or are sometimes expected by their strata corporation clients to provide services which may be outside of their professional scope of expertise. These activities may include representing strata councils in court proceedings such as small claims court actions, drafting of resolutions, strata bylaws or bylaw amendments for consideration at general meetings, and preparing and executing Strata Property Regulation forms.
RECBC’s role is to ensure that licensees are compliant with the provisions of the Real Estate Services Act. There are a number of other Acts which may be relevant to the real estate services provided by a licensee under Real Estate Services Act, such as the Strata Property Act, the Residential Tenancy Act, the Small Claims Act and the Legal Profession Act. Section 3-4 of the Rules provides that a licensee must be competent to provide the services for which he or she is licensed and therefore is expected to be familiar with other legislation. Section 3-3(1)(d) of the Rules provides that a licensee must advise the client to seek independent professional advice on matters outside of the expertise of the licensee.
With respect to the Legal Profession Act, RECBC has from time to time dealt with issues arising where the Law Society has investigated the activities of a licensee or where licensees have been found by the Law Society to be in breach of section 15 of this Act.
Section 15 provides that no person other than a practicing lawyer is permitted to engage in the practice of law and section 1 of the Legal Profession Act proscribes what activities are included in the practice of law including:
(a) appearing as counsel or advocate,
(b) drawing, revising or settling
(i) a petition, memorandum, notice of articles or articles under the Business Corporations Act, or an application, statement, affidavit, minute, resolution, bylaw or other document relating to the incorporation, registration, organization, reorganization, dissolution or winding up of a corporate body,
(ii) a document for the use in a proceeding, judicial; or extrajudicial,
(iv) a document relating in any way to a proceeding under a statute of Canada or British Columbia,
(v) an instrument relating to real or personal estate that is intended, permitted or required to be registered, recorded or filed in a registry or other public office.
In the December 2009 Report from Council, the issue of a rental property manager’s role in Residential Tenancy Branch Dispute Resolution Hearings was discussed. It was concluded by Council and confirmed by the Unauthorized Practice Committee of the Law Society of British Columbia that, so long as licensees were acting as the rental property owner’s agent pursuant to a written service agreement, they could appear at RTB hearings. This was because of the specific definition of “landlord”, as contemplated in the Residential Tenancy Act, includes the owner’s agent.
However, with respect to the Small Claims Act, there is no such special language in this Act which would permit a licensee to act for a strata corporation client in proceedings under that Act. Licensees may, of course, act as witnesses for their clients. Accordingly, licensees who act on behalf of clients in Small Claims Court may find themselves in conflict with the Law Society.
The issue of preparing and executing Strata Property Regulation forms has also been considered by Council. It was concluded by Council and confirmed by the Unauthorized Practice Committee that where the signature of the strata manager is contemplated on the form (e.g. Form G – Certificate of Lien and Form H – Acknowledgment of Payment), strata managers can prepare these forms as part of their general duties so long as they do not charge the client a separate fee for this activity. In this regard, it was suggested that strata managers not charge separately for preparation and execution of these forms as section 1(1) of the Legal Profession Act specifically provides that activities that would normally fall within the definition of “practice of law” are exempted if they are not “performed for or in the expectation of a fee, gain or reward, direct or indirect, from the person for whom the acts are performed”. More information about the filing of liens in relation to the unauthorized practice of law is available at Filing of Liens.
Licensees may be asked to perform other activities on behalf of clients in relation to requirements under the Strata Property Act such as the drafting of any strata bylaws or bylaw amendments, resolutions particularly with respect to restrictive covenants, creation or cancellation of sections and significant amendments to common or limited common property, which are intended, permitted or required to be registered at the Land Title Office. With respect to these activities, in accordance with section 3-3(1)(d) of the Rules, a licensee must advise their strata corporation client to seek legal advice on the wording of the bylaw, bylaw amendment and/or resolution prior to issuing notice for a general meeting where these matters would be considered. Brokerages should consider engaging legal services for drafting of resolutions and bylaws that are commonly used by their strata corporation clients.It is important for licensees to note that the Real Estate Errors and Omissions Insurance Corporation may deny coverage for conduct that is outside the scope of their licence to provide real estate services.
Sec. 30. Withdrawals from trust account
(1) Money in a brokerage trust account, other than money that the brokerage holds as stakeholder, may be withdrawn only if it is one or more of the following:
(a) money paid into the trust account by mistake;
(b) interest paid in accordance with section 29 [interest on trust account];
(c) money authorized to be withdrawn under section 31 [payment of licensee remuneration];
(d) unclaimed money transferred under section 32 [unclaimed money held in trust];
(e) money paid into court under section 33 [payment of trust funds into court];
(f) money paid in accordance with a court order;
(g) money paid to or in accordance with the instructions of the principal to whose credit the money was deposited.
In conjunction with the above, the Rules require that: (1) a brokerage providing strata management services must establish in its service agreement the brokerage’s scope of authority to sign cheques and make disbursements on behalf of its strata corporation clients [section 5-1(5.1)(c)(i)]; and (2) the service agreement include a brokerage’s authority to transfer amounts between brokerage trust accounts maintained for the strata corporation under section 7-9(2) of the Rules [section 5-1(5.1)(b)(i)]; Therefore, the Real Estate Council, when investigating complaints or conducting an audit regarding a brokerage, will look at service agreements to determine a brokerage’s scope of authority relative to withdrawal of funds from trust accounts. An example is where a strata corporation has cash flow problems in its operating fund and requires a ‘‘loan’’ from the Contingency Reserve Fund (CRF). The strata manager would act outside of his/her scope of authority to unilaterally transfer such funds from CRF to operating in the absence of express authorization to do so.
If authority to make such transfers has not been established in the service agreement, a strata manager may incur substantial risk and liability, as well as be subject to discipline under the Rules. A brokerage should ensure that any parameters respecting its scope of authority to act on behalf of a strata corporation are clearly established in its service agreement with that client.
Section 8-1 of the Rules requires all brokerages to maintain the necessary financial records in order to ensure the appropriate and timely accounting of all transactions relating to the real estate services provided by the brokerage. The financial records must readily distinguish between monies received and paid by the brokerage on its own account, and monies received and paid on behalf of others.
For each general account that a brokerage maintains, a brokerage must keep a record showing all receipts and disbursements, all bank documents, and monthly bank reconciliations of the bank statements to the cash record.
In relation to the trust accounts maintained by the brokerage, a brokerage must keep a trust cash record showing all transactions affecting the trust account, including deposits and withdrawals, a trust journal showing all amounts received and disbursed, and separate trust ledgers for each strata corporation showing amounts received and disbursed in relation to the strata corporation and any unexpended balance. The brokerage must also prepare a monthly trust liability and asset reconciliation no later than five weeks after the monthly accounting cut-off date for the account and retain all banking documents.
A brokerage must keep a separate list for each year of all strata corporations that are or were managed by the brokerage during that year.Section 8-7.1 of the Rules requires a brokerage to keep separate books, accounts and other records with respect to each strata corporation for which the brokerage provides strata management services. A brokerage is also required to keep, on behalf of each strata corporation, any written service agreements, any financial statements provided to the strata corporation, any accounting statements and invoices for expenditures provided to the strata corporation, and any monthly statements for the strata corporation provided by a savings institution.
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.
|Which strata lots||Different character or forms 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||Bylaw 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 power 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.
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 has 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.
Strata Management Seminar Videos
The following guidelines have been prepared by RECBC to assist brokerages that are managing strata corporations with sections to comply with the requirements of the Real Estate Services Act (“RESA”) and the 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 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 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 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 RECBC 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 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).
(1) 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.
(2) 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.
(3) 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 section 7-9.1 of the 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.
(4) 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 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’ (or www.recbc.ca/licensee/psm.html) for a discussion of how brokerages can deal with these types of conflicts.
(5) 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 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 Rules. Additionally the brokerage must ensure that the further provisions of section 7-9 of the 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 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.
(6) 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 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 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.
(7) 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 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.
Brokerages managing strata corporations and sections should review their practices in respect of strata corporations with sections for compliance with RESA and the 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 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.
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 Rules. The first part of this article identifies relevant legislative matters, while the second examines those legislative matters in the context of several scenarios.
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.
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 Rules contain limited exceptions. Section 7-9(2.1) of the 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, section 7-9.1 of the 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.
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, section 7-9.1 of the Rules, as discussed above, would permit the brokerage to receive the funds. Section 7-9.1 of the 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.
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. However, the requirements under SPA regarding the obligation to prepare a depreciation report — will open in a new tab apply to sections. Since depreciation reports must be attached to the Form B, this 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.
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.
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.
The following scenarios represent objections a strata manager may face when discussing with their strata corporation/section clients what RESA and the 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 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; RECBC, 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. Section 7-9.1 of the 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.
The Rules 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 Rules when receiving money on behalf of multiple clients in the same payment.