Court finds that strata corporation’s decision to share expenses based on unit entitlement was significantly unfair to owner

Court finds that strata corporation’s decision to share expenses based on unit entitlement was significantly unfair to owner

October 18, 2018

BY Kevin Zakreski

In King Day Holdings Ltd v The Owners, Strata Plan LMS3851, 2018 BCSC 1772, the BC Supreme Court considered a petitioner’s request for “a declaration that the strata fees [and special levies] levied against it by the respondent strata corporation constitute a significantly unfair action and seeks relief under s. 164.” The court sided with the petitioner, even though the respondent strata corporation had decided to calculate the strata fees and special levies at issue on the basis of strata lots’ unit entitlements. Along with Norenger Development (Canada) Inc v Strata Plan NW 3271, this decision marks the second time this month in which the court has decided that it has the power to craft orders that depart from the Strata Property Act’s rather rigid provisions on cost sharing.

King Day Holdings involved “a 26-storey building known as The Westin Grand (‘the hotel’) located at 433 Robson Street, Vancouver,” which “contains the hotel, some commercial properties (a restaurant, lounge/bar, and convenience store), and a four level underground parkade.” The strata property was organized as follows:

There are 207 strata lots associated with the hotel (Strata Lots 1 to 207 – known as the Hotel Lots), nine commercial strata lots (Strata Lots 208 to 215, and 217 – known as the Commercial Lots) and 12 strata lots associated with the parkade (Strata Lots 216 and 218 to 228 – known as the Parkade Lots).

The Hotel Lots have a unit entitlement of 42,393, or 59.90% of the total unit entitlement. The Commercial Lots have a unit entitlement of 7,279, or 10.28% of the total unit entitlement. The Parkade Lots have a unit entitlement of 21,105, or 29.82% of the total unit entitlement.

The petitioner was “the original purchaser of the Parkade Lots in or around 1998, at the time the building was under construction.” Right from the start, the petitioner recognized that its strata lots would be consuming little in the way of goods and services (in comparison to the other strata lots) and tried to obtain some relief from the strict apportionment of common expenses by unit entitlement. Ultimately, this relief came in the form of bylaws that created types of strata lots and that contained an acknowledgement that “[t]he strata corporation must deal with each strata lot and its owners and occupants in a fair, reasonable and equitable manner and, in particular, must recognize the different purposes and use of the different types of strata lots and treat such strata lots and their owners accordingly.”

But there continued to be conflicts over the allocation of expenses paid for out of the strata corporation’s operating fund and those funded by special levy. These conflicts intensified after “the majority of the owners of the Hotel Lots decided to sell their ownership interests to Retirement Concepts Ltd. (‘Retirement Concepts’), a large company that handles numerous hotels and retirement homes.”

Retirement Concepts was able to use its voting power to elect every member of the strata council. This new council put forward a budget that set strata fees “to reflect the use of the unit entitlement formula.” It also proposed two special levies:

Both special levies relate exclusively to expenses in respect of limited common property areas designated for the exclusive use of the Hotel Lots. The $400,000 special levy relates solely to upgrades to the hotel elevator designated for the exclusive use of the Hotel Lots, and the $1,500,000 special levy relates to upgrades to the hotel lobby and to the hotel facilities, corridors, and stairwells designated for the exclusive use of the Hotel Lots.

The budget and special levies were approved by the owners, over the petitioner’s objections. After the petitioner refused to pay in accordance with the new formula, liens were placed on its strata lots, and the petitioner filed this proceeding.

The petitioner argued, in sum, that “[b]ased on [an earlier agreement between the petitioner and the strata corporation], its reasonable expectations, and the prior course of conduct, [the petitioner] should only pay 18% of the operating expenses, no portion of the two special levies, or alternatively, only 18% of the special levies.” Meanwhile, “[t]he thrust of the respondent’s argument,” as the court characterized it, “is that in the circumstances of this case, absent a unanimous vote pursuant to s. 100 of the SPA, the strata fees must be based on unit entitlement pursuant to s. 99, and as a result of the strata corporation following the statutory requirements, [the petitioner] cannot rely on s. 164 to argue that the results are significantly unfair.”

In its interpretation of what is “significantly unfair” for the purposes of section 164, the court placed special emphasis on an earlier court-of-appeal decision:

In my view, the issue in this case, whether the outcome of the majority decision-making process has yielded results that are significantly unfair to [the petitioner], is determined by the decision of the Court of Appeal in Dollan v. The Owners, Strata Plan BCS 1589. Madam Justice Garson stated at para. 24:

[24]       Section 164 is remedial. It addresses that, despite using a fair process and holding a democratic vote, the outcome of majoritarian decision-making processes may yield results that are significantly unfair to the interests of minority owners. Section 164 provides a remedy to an owner who has been treated significantly unfairly by co-owners or the strata council that represents them. The view that significantly unfair decisions reached through a fair process are insulated from judicial intervention would rob the section of any meaningful purpose.

Garson J.A. disagrees with the suggestion in Peace that provided the process is fair and democratic, the decision of the majority should be given deference. As Hall J.A. stated, the court can look beyond a decision supported by the majority to consider the impact of the decision on those in the minority.

Looked at through this lens, the court concluded that:

for the reasons articulated by [the petitioner] . . . the strata fees levied by the respondent against the petitioner on the basis of unit entitlement and the special levies levied against [the petitioner] on the basis of unit entitlement, . . . constitute a significantly unfair action in relation to [the petitioner] contrary to s. 164(1) of the SPA. The decision of the strata council to do so is oppressive, unduly burdensome, unjust, and inequitable for [the petitioner].

The “reasons articulated” tied into the “following facts” that the court had earlier noted the petitioner in identifying to bolster its argument:

• at the time [of the petitioner’s] purchase of the Parkade Lots, there were numerous discussions about addressing the potential inequity, including interest on destruction for unit entitlement, sectioning, separate utility meters, and it was finally agreed that amendments to the bylaws include three separate budgets;
• even after the [Condominium Act] was replaced by the SPA, until 2007 operating expenses were attributed on the basis of what expenses were appropriate for the three types of strata lots. The average percentage of the expenses attributed to the Parkade Lots was 5–6%;
• in 2007 there was discussions about using unit entitlement but it was agreed in the spring of 2007 that the Parkade Lots would be responsible for 30% of some expenses, 6% of others, and some expenses for which the Parkade Lots would not contribute any amount. The overall percentage of the expenses paid by the Parkade Lots was 11%;
• in 2009 there was a disagreement about who was to pay for a $400,000 special levy for improvements to the hot water system; the Parkade Lots have no hot water;
• in January 2011, after lengthy discussions between the owners, it was agreed that the Parkade Lots would pay 18% of all operating expenses and special levies related to common property, the Commercial Lots would pay 10%, and the Hotel Lots would pay 72%. The Agreement was confirmed in the minutes, although a special resolution was not passed;
• for the budgets in 2009 up to and including 2015, the percentage split for the operating expenses was as set out in the Agreement;
• since [the petitioner’s] purchase of the Parkade Lots it has had a revenue sharing agreement with the hotel operator, on behalf of the Hotel Lots. On June 1, 2013 [the petitioner] entered into a revised parking revenue sharing agreement with the hotel operator which requires [the petitioner] to pay to the hotel operator an increase from 11.67% to 20% of self-parking and an increase of 30.26% to 38% of valet parking gross revenue. [The petitioner] entered into the revised revenue sharing agreement on the basis that it would be paying 18% of operating expenses and special levies;
• once Retirement Concepts purchased the majority interest in the Hotel Lots, within months there were significant special levies to be divided on the basis of unit entitlement, and Retirement Concepts used its majority to pass a budget for 2016 which allocated the operating expenses on the same basis.

In the result, the court granted the petitioner a wide-ranging set of orders:

1. An order that the resolution attached hereto as Schedule “A” be deemed to have passed unanimously as of January 31, 2009 (the “Resolution”); and

(a)      the respondent file the Resolution at the Land Title office;

(b)      the respondent revise its 2016/2017 Common Property Budget according to the Resolution and prepare an accounting of the owners’ contributions to the Common Property Budget according to the Resolution (the “Accounting”);

(c)        the owners of the Hotel Lots and Commercial Lots, repay to the petitioner any over-contributions made by [the petitioner] to the Common Property Budget arising from the Accounting and the Resolution;

2. A declaration that the two special levies – one for $400,000 and one for $1,500,000 – passed by the respondent on January 6, 2016, at its annual general meeting (the “2016 Special Levies”) constitute a significantly unfair action in relation to the petitioner contrary to s. 164(1) of the Strata Property Act, S.B.C. 1998, c. 43.
3. An order that the 2016 Special Levies be apportioned solely among the owners of the Hotel Lots and Commercial Lots;
4. An order that any amounts paid to the respondent by the petitioner on account of the 2016 Special Levies be returned to the petitioner immediately, with interest pursuant to the Court Order Interest Act, RSBC 1996, c. 79;
5. An order that the respondent immediately remove the liens filed by the respondent on the petitioner’s strata lots;
6. An order that the respondent pay costs of and incidental to this petition to the petitioner;
7. An order that the petitioner is exempted from contributing to the costs or expense of defending this proceeding pursuant to s. 167 of the Strata Property Act.