BC Supreme Court orders restoration of common property to state before unauthorized changes made, appoints administrator for deadlocked duplex strata property

BC Supreme Court orders restoration of common property to state before unauthorized changes made, appoints administrator for deadlocked duplex strata property

October 12, 2016

BY Kevin Zakreski

In Anthony v Schnapp, 2016 BCSC 1839, the Supreme Court of British Columbia considered “two competing petitions” from strata-lot owners. The strata property at issue was a duplex. A dispute over changes to common property had festered and caused a complete breakdown in the strata property’s governance. The owners were seeking remedial orders and, on one side, the appointment of an administrator.

The court’s overview gave a succinct rendition of the case’s major facts:

This case involves two strata lots that form a strata duplex located on an irregular shaped parcel of land in Surrey, B.C. There are allegations that the owners of one lot are treating their ownership like that of a traditional duplex where they are free to make any alterations they wish to one-half of the property. Unfortunately the property they are making alterations on does not belong to them but is common property. Because there are only two voters in the strata corporation, the struggle between the competing owners has prevented proper governance of the strata corporation.

These facts essentially called on the court to grapple with three issues.

The first issue was whether there had been an unauthorized change in use of common property, contrary to section 71 of the Strata Property Act. This issue was resolved in a fairly straightforward application of the leading authorities on section 71, which the court set out in the following passage:

In Chan v The Owners, Strata Plan VR677, Vancouver Registry number S115516, Mr. Justice Groves considered the meaning of significant change in the use or appearance of common property. His discussion is helpfully paraphrased by Mr. Justice Bowden in Foley v. The Owners, Strata Plan VR 387, 2014 BCSC 1333 (CanLII) at para. 19:

• A change would be more significant based on its visibility or non-visibility to residents and its visibility or non-visibility towards the general public;
• Whether the change to the common property affects the use or enjoyment of a unit or a number of units or an existing benefit of a unit or units;
• Is there a direct interference or disruption as a result of the changed use?
• Does the change impact on the marketability or value of the unit?
• The number of units in the building may be significant along with the general use, such as whether it is commercial, residential or mixed use.
• Consideration should be given as to how the strata corporation has governed itself in the past and what it has allowed. For example, has it permitted similar changes in the past? Has it operated on a consensus basis or has it followed the rules regarding meetings, minutes and notices as provided in the Strata Property Act.

Applying this test to the facts of the case, the court concluded that there had been a significant change in the use or appearance of the strata’s common property:

it is clear that the Schnapps have treated all of the common property on the north side of the property as limited common property for their own use and that they did not get the consent of the Anthonys or the strata corporation to make these alterations to the common property. The Schnapps say they have not caused any damage to the Anthonys. I disagree. Although they have taken good care of the common property they have expropriated common property on the north side for their exclusive use and this has caused damage to the Anthonys.

This conclusion led directly to the next issue considered by the court. This issue raised an interesting procedural point. Because the strata corporation was effectively hamstrung, it didn’t carry out the acts complained about and it was unable to bring proceedings against the owner who had taken action. So the court was asked to consider whether an individual owner can rely on the provisions of the Strata Property Act to bring a cause of action against another individual owner:

In this case, both parties have named the owner of the other strata lot and they both rely on certain sections of the SPA. The claims they bring against the strata corporation are brought pursuant to ss. 71, 163, 164 and 165 of the SPA.

It is the strata corporation and not the other property owner who is liable under s. 71 of the SPA and the remedies under s. 165 only relate to the strata corporation. In order to bring the claim pursuant to these provisions, the Anthonys need to establish that it was the strata corporation which breached the SPA in some way.

The court found that sections 164 and 165 of the act were applicable in this case and provided a remedy:

Section 164 does apply in this case as it relates to the voting rights exercised at the special general meeting. The Anthonys and the Schnapps are persons who hold 50% or more of the votes. Each assert that the other has conducted themselves in an oppressive and unfairly prejudicial manner. The Schnapps say it was unfair of the strata corporation to fail to ratify the Alterations. By their failure to second the motion, I surmise that the Anthonys would say the opposite. If the strata corporation had ratified the Alterations they would say that it was significantly unfair to them to permit the Schnapps the right to unilaterally alter common property or to do so with the knowledge of the Anthony’s disapproval.

Each owner used their 50% vote resulting in a deadlocked meeting. The deadlocked meeting is unfair to both owners and not in the best interest of the strata corporation which will never be able to resolve disputes unless its conduct is regulated for future affairs.

***

The British Columbia Strata Property Practice Manual says that s. 165 allows an owner, tenant, mortgagee or other interested person to bring an application to compel a strata corporation to follow the SPA. It provides an important mechanism for the court to craft orders that are flexible and meet the particular needs of the situation. Effectively s. 165 is a form of injunction.

The possible range of applications is broader in s. 165 than under s. 164(a). Section 164 is aimed more at actions of the strata corporation. Section 165 may be used to address the failure to act as well as a wrongful act. It is not necessary to find a strata council has acted significantly unfairly in order to invoke s. 165. It is enough to find the strata corporation had a duty to do something and has not performed a duty.

These considerations led to the following conclusion:

I find that the Schnapps made significant changes in the use or appearance of common property without the consent of the strata corporation. This was a breach of bylaw 6. The strata corporation has failed to take action. The strata corporation had a duty to control the use of the common property and neglected to do so. It neglected to do so because it only has two members and cannot pass a resolution given that they are in conflict with one another.

This conclusion led to the third and final issue considered by the court. In view of the deadlock between the two owners who made up the strata corporation, the court examined whether to appoint an administrator under section 174 of the act. Similar to the first issue for this case, the court viewed this as a rather straightforward application of tests developed in leading cases to the facts of this one:

In Andrews v. Leno, 2003 BCSC 431 (CanLII), the court allowed an application by the petitioner owners of half of a strata duplex against the petitioner owners to vary an order appointing an administrator pursuant to s. 174 of the SPA. The parties in that case were all individuals and the court noted that they had never complied with the SPA but still found they could receive relief pursuant to it.

In Lum et al v. The Owners, Strata Plan VR519, 2001 BCSC 493 (CanLII), Mr. Justice Harvey concluded that factors to be considered in exercising the court’s discretion whether the appointment of administrators is in the best interest of the strata corporation include:

• whether there has been established a demonstrated inability to manage the strata corporation;
• whether there has been a demonstrated substantial misconduct mismanagement or both in relation to the affair strata corporation;
• whether the appointment of an administrator is necessary to bring order to the affairs of the strata corporation
• whether there is a struggle among competing groups within a strata corporation such as to impede or prevent proper governance of the strata corporation; and
• whether only the appointment of an administrator has any reasonable prospect to bring order to the affairs of the strata corporation.

I find that the factors set out in paragraphs (a), (c), (d) and (e) apply in the case before me. Therefore I conclude that it is in the best interest of the strata corporation to appoint an administrator to exercise the powers and perform the duties of the strata corporation. I recognize that this represents a serious interference with the democratic governance of the strata community, however, that democratic process has now collapsed. The expense involved in appointing an administrator will be considerable and so hopefully this will influence the owners to arrive at a consensus to avoid this considerable expense.

In the result, the court made a series of specific remedial orders and appointed an administrator “to oversee the repairs to the common property which I have listed above and to address outstanding costs for repairs effected by each of the owners” and to consider “whether or not to pass a resolution to amend the bylaws to designate certain parts of the common property as limited common property for the exclusion of the Anthonys and the Schnapps.”