BC Supreme Court orders strata corporation to amend its Schedule of Unit Entitlement

BC Supreme Court orders strata corporation to amend its Schedule of Unit Entitlement

August 25, 2016

BY Kevin Zakreski

Unit entitlement is one of the building blocks of strata-property law. Under British Columbia’s Strata Property Act, unit entitlement is “used in calculations to determine the strata lot’s share of (a) the common property and common assets, and (b) the common expenses and liabilities of the strata corporation.” Section 246 (3) of the SPA sets out a series of rules that must be followed in calculating unit entitlement for various types of strata lots. Under these rules, for “a residential strata lot,” unit entitlement is typically “the habitable area, in square metres, of the strata lot, as determined by a British Columbia land surveyor, rounded to the nearest whole number.”

In Barrett v The Owners, Strata Plan LMS 3265, 2016 BCSC 1477, the BC Supreme Court considered a petition by strata-lot owners to amend a strata corporation’s Schedule of Unit Entitlement. Unit entitlements in the strata corporation had been determined by habitable area. When the strata corporation was established, the bulk of its strata lots had unfinished areas. At the time, these areas weren’t considered part of the habitable area of a strata lot, so they weren’t included in the determination of the strata lot’s unit entitlement. But, over the years, many strata-lot owners finished these areas, developing them into living spaces. Despite this, the strata corporation didn’t make any changes to its Schedule of Unit Entitlement. This upset owners whose strata lots lacked these areas. They commenced a petition in BC Supreme Court. The court granted the petition and ordered the strata corporation to amend its Schedule of Unit Entitlement to include the finished areas in the calculation of the habitable area of a strata lot.

Facts and issues

The strata corporation at issue “comprises 80 strata lots distributed between 23 buildings.” “Of the 80 strata lots,” the court found, “59 were constructed with unfinished basements, 16 with crawl spaces and five with neither a basement nor a crawl space. Two of the strata lots with basements were also constructed with unfinished lofts located above their garages.”

The strata corporation was developed under a phased strata plan. Phase one was deposited in June 1998 and phase two was deposited in November 2000. In other words, the strata corporation straddled the advent of the Strata Property Act, which came into force on 1 July 2000.

The strata corporation’s Schedule of Unit Entitlement “was established under the Condominium Act and, in accordance with Policy Statement 4 [of the superintendent of real estate], was based on the size of the habitable area of the strata lots.” The owner-developer advised purchasers in its required disclosure statement:

unit entitlement was “calculated by reference to habitable area of each unit, but excludes any non-living areas such as garages and unfinished basements and lofts.” In addition, the following notation was included on the first page of each phase of the strata plan:

UNFINISHED BASEMENTS, CRAWL SPACES, CANTILEVERED WINDOWS, LOFT AREAS AND GARAGES ARE PART OF THE STRATA UNIT, BUT NOT INCLUDED IN THE UNIT ENTITLEMENT.

“Over time,” the court found, “the basements and lofts in many of the strata lots at [the strata corporation] were finished but the Schedule was never amended to reflect any corresponding increase in the habitable area of those strata lots. The evidence concerning specifically how many basements and lofts have been finished, and to what extent, is not precise.”

Several owners expressed concerns over the years about unit entitlement. This led to a dispute, which “came to a head in 2015” as the strata corporation was in the process of adopting a special levy to fund roof repairs: “On March 31, 2015, the Strata Corporation passed a resolution approving the Roof Levy and allocating it amongst the owners in accordance with the original Schedule; in other words, without making any change.”

After the levy was passed, the owners of six of the strata lots, each lacking basements and lofts, commenced this petition, noting:

Because the common expenses and liabilities are borne by the owners in proportion to the unit entitlements of their strata lots, the petitioners say that the owners of strata lots without basements have effectively subsidized those whose strata lots have basements by bearing responsibility for a disproportionately high share of the common expenses and liabilities.

The court decided that the following four issues arose from these facts:

• Should the schedule be amended pursuant to ss. 246(7) and (8) of the SPA?
• Alternatively, should the schedule be amended pursuant to either s. 164 or s. 165 of the SPA?
• Should the roof levy resolution be varied pursuant to s. 164 of the SPA?
• Alternatively, should the roof levy resolution be amended pursuant to s. 165 of the SPA?

Should the schedule be amended pursuant to ss. 246(7) and (8) of the SPA?

The largest part of the court’s reasons for judgment was dedicated to considering this first issue, which the court found to turn on “the availability of the remedy contemplated by ss. 246(7) and (8) of the SPA.” Determining whether this remedy was available led the court to consider five “sub issues”:

• Were the unit entitlements for [the strata corporation] originally calculated on the basis of habitable area in accordance with the SPA or on the basis of square footage in accordance with s. 1 of the Condominium Act?
• If so, is the actual habitable area or square footage accurately reflected in the schedule?
• If not, was the inaccuracy contained in the schedule at the time of the deposit in the land title office?
• If not, should the court order that the schedule be amended and if so how?
• If an order is granted amending the schedule, is it necessary to make any other orders to give effect to that order?

Were the unit entitlements for [the strata corporation] originally calculated on the basis of habitable area in accordance with the SPA or on the basis of square footage in accordance with s. 1 of the Condominium Act?

The court’s analysis of this question turned on the wording of section 246 (7), which “provides that the court may only grant a remedy under s. 246(8) if the unit entitlements were ‘calculated on the basis of habitable area in accordance with subsection (3)(a)(i) [of the SPA] or on the basis of square footage in accordance with section 1 of the Condominium Act.’ ” The court determined that the latter option was used in this case, basing its decision on three points:

• “[I]n practice, the square footage counted for purposes of applying the formula in s. 1(3)(a) [of the Condominium Act] was the square footage of the habitable area.”
• “If the words ‘calculated . . . on the basis of square footage in accordance with section 1 of the Condominium Act’ were limited to unit entitlements calculated on the basis of total square footage as opposed to habitable square footage, [sections 70 (4) and 261 (1) of the SPA] would be redundant because no change in the habitable area of a strata lot with a unit entitlement based on total square footage could ever trigger a change in the schedule of unit entitlement.”
• The “strata plan made clear that the unfinished basements were not included in the Schedule. If that Schedule was submitted as an alternative under s. 1(3)(b) of the Condominium Act, the failure to include the unfinished basements could not be characterized as an inaccuracy. It could only be characterized as an inaccuracy if the Schedule was based on habitable square footage under s. 1(3)(a).”

If so, is the actual habitable area or square footage accurately reflected in the schedule?

“Habitable area” is defined in section 14.2 of the Strata Property Regulation. As the court noted, “[t]here is no dispute that finished basements fall within this definition.” So the “remaining question is whether unfinished basements and unfinished lofts also fall within the definition of ‘habitable area.’ ” The court answered this question by relying on the earlier decision in Fenwick et al v Parks et al (Strata Plan VIS 2014), 2004 BCSC 1132. As a result, it found that “the actual habitable areas of the strata lots . . . are not accurately reflected in the Schedule in two respects:

• the finished basements and lofts (if there are any) are not included; and
• the unfinished basements and lofts (if there are any) are not included.”

If not, was the inaccuracy contained in the schedule at the time of the deposit in the land title office?

As noted earlier, the strata corporation’s phased strata plan straddled the coming into force of the SPA. This engaged one of the transitional regulations to the act. As the court noted:

Section 14.13(a) of the Regulation precludes relief being granted under s. 246(8) “if the inaccuracy referred to in section 246(7)(b) of the [SPA] was contained in the Schedule of Unit Entitlement at the time of the deposit of the strata plan in a land title office.”

In interpreting this provision, the court concluded “it is reasonable to infer that the purpose of s. 14.13(a) was to prevent amendments that would alter the original schedule of unit entitlement upon which it could be said the owners reasonably relied.”

This consideration led the court to draw a distinction between the finished and unfinished basements and lofts in the strata corporation:

I have found that the actual habitable area is not accurately reflected in the Schedule in two respects. The finished basements and lofts (if any) are not included and the unfinished basements and lofts (if any) are not included. In determining whether s. 14.13(a) precludes relief, the question is whether either of these inaccuracies were reflected in the Schedule at the time the strata plan was deposited.

The basements and lofts were unfinished at the time the strata plans were deposited. As a result, the inaccuracy that arises from the failure to include finished basements and lofts did not exist at the time the strata plan was deposited. In contrast, the inaccuracy that arises from the failure to include unfinished basements and lofts did exist at the time the strata plan was deposited. The inaccuracy that arises from the failure to include finished basements and lofts was not “contained in the Schedule of Unit Entitlement at the time of deposit of the strata plan” and, according, s. 14.13(a) of the Regulation does not preclude an application under s. 246(7) for relief in relation to that inaccuracy. The inaccuracy that arises from the failure to include unfinished basements and lofts was “contained in the Schedule of Unit Entitlement at the time of deposit of the strata plan” and, according, s. 14.13(a) of the Regulation does preclude an application under s. 246(7) for relief in relation to that inaccuracy.

If not, should the court order that the schedule be amended and if so how?

The court declined to exercise its discretion not to order an amendment to the schedule for the following reasons:

The Strata Corporation says the court ought not to exercise its discretion in this case because the Schedule reflects the state of affairs into which everyone bought and which has been used for many years. However, the state of affairs has changed. The majority of the unfinished basements have been finished. Some unfinished lofts may have been finished. I am satisfied that the unit entitlements should be reallocated to reflect those changes. While this will mean an increase in the strata fees for some owners, there is no evidence that indicates this will result in an unbearable financial burden for any of them. Further, unfinished basements and lofts will continue to be excluded from the calculation of habitable area and, accordingly, the state of affairs into which the original owners purchased will be preserved.

If an order is granted amending the schedule, is it necessary to make any other orders to give effect to that order?

The court made no other orders, but gave the parties “leave to make further submissions and seek other orders pursuant to s. 246(8)(b).”

Alternatively, should the schedule be amended pursuant to either s. 164 or s. 165 of the SPA?

Applying earlier cases, the court held it didn’t have jurisdiction to amend the schedule under either section 164 or 165.

Should the roof levy resolution be varied pursuant to s. 164 of the SPA?

Section 164 deals with “preventing or remedying unfair acts.” While the section “does not confer jurisdiction to amend the Schedule itself, it clearly does provide jurisdiction to amend a resolution.”

The court applied section 164 as interpreted by the court of appeal in Dollan v The Owners, Strata Plan BCS 1589, 2012 BCCA 44, which

adopted a two-stage analysis focusing on the petitioner’s reasonable expectations in determining whether particular conduct meets the threshold of significant unfairness. First, it must be determined whether the evidence supports the asserted reasonable expectations of the petitioner. Second, it must be determined whether those reasonable expectations have been violated in a way that is significantly unfair, applying the above-noted definition of that phrase.

On the first stage, the court had “no hesitation concluding that the petitioners reasonably expected that the Schedule would be based on habitable area and that increases to the habitable area would be accompanied by corresponding changes to the Schedule.” On the second, the court made these remarks:

The purpose of s. 70(4) of the SPA is to ensure that schedules of unit entitlement remain accurate notwithstanding physical changes that increase or decrease habitable area. In effect, the result of the decision was to avoid the default position of the SPA, which is to allocate costs in accordance with a schedule of unit entitlement that, given s. 70(4), is intended to accurately reflect habitable area. I have no difficulty concluding that this was burdensome, harsh, and inequitable. As discussed above, the evidence indicates that in approximate terms, the Roof Levy for the owners of the strata lots that do not have basements would be reduced by approximately $5,000 if the costs were allocated in accordance with a schedule of unit entitlement that reflected all the basements and lofts. As already explained, there are only two lofts and it is conceded that many if not the vast majority of the basements have been finished. Accordingly, $5,000 is a reasonable estimate of the impact of the decision on the owners of the strata lots without basements. This is not trifling.

For these reasons, I find that the reasonable expectations of the petitioners have been violated in a way that is significantly unfair.

Alternatively, should the roof levy resolution be amended pursuant to s. 165 of the SPA?

The court found it unnecessary to consider this issue.

Result

In the result, the court made the following orders:

• Pursuant to s. 246(8)(a) of the Strata Property Act, the Schedule of Unit Entitlement for The Owners, Strata Plan LMS 3265, shall be amended to include the areas of the finished basements and finished lofts in the calculation of habitable area.
• If the parties are unable to agree on the specific changes that must be made to give effect to paragraph 1 above, they have leave to make further submissions concerning the specific changes that must be made including submissions concerning any other orders, pursuant to s. 246(8)(b), that they consider are necessary to ascertain the areas of the finished basements and finished lofts.
• Pursuant to s. 164 of the Strata Property Act, the Roof Levy resolution, passed March 31, 2015, shall be varied to reflect the amendments to the Schedule of Unit Entitlement for The Owners, Strata Plan LMS 3265, required by paragraph 1 above [e., the first order in this list].
• If the parties wish to make submissions on costs they may do so by contacting the registry to obtain a date to make further submissions on costs, provided they contact the registry for this purpose within 60 days of release of this judgment. Otherwise the petitioners shall have their costs at Scale B.