A Brief Review of the Strata Property Act

The Strata Property Act came into force on July 1, 2000. It is largely a response to the “leaky condo” crisis in the Lower Mainland of British Columbia and sets out a more detailed framework for corporate governance of strata corporations than its predecessor, the Condominium Act . It also stipulates the insurance required to be held by a strata corporation, the standing of parties to sue in condominium disputes and the mechanisms for resolution of problems. The purpose of this paper is to highlight those provisions which regulate how individual strata owners interact with their strata corporation. Unfortunately, this legislation does very little to assist claims handling. In fact, as detailed below, the Strata Property Act imposes clauses which clash with policy wordings and gives rise to confusion.

What Insurance is Required?

A strata corporation must obtain and maintain liability insurance against property damage and bodily injury claims against it to a minimum limit of $2,000,000.00 . The purpose is to ensure that strata lot owners are protected from judgments against the strata corporation and that their assets and strata unit owner’s policies are not at risk. To further this purpose, the Strata Property Act mandates that the strata corporation must review annually the adequacy of the insurance and report at every annual general meeting.

A strata corporation is responsible for obtaining and maintaining property insurance on the common property, common assets, buildings shown on the strata plan and any fixtures built or installed on a strata lot that are part of the original construction. The property insurance must be on the basis of full replacement value and insure against specific major perils set out in the regulations and any other perils specified in the bylaws.

What If the Strata Corporation Does Not Insure or Gets the Wrong Coverage?

It may be the case that the policy issued by the insurer differs from the requirements in the Strata Property Act. If that is the case, then it is the policy wording which prevails in determining coverage. The Strata Property Act simply informs the strata corporation what type of policy to acquire. It does not substitute for the wording of the actual policy issued. Because this legislation is in its infancy, we are in a period where policy language does not match the requirements of the Act. Eventually, underwriters may change their language to provide insurance coverage which satisfies the new needs of a strata corporation. Until that time, the strata corporation will have to rely on its strata council and insurance broker to obtain the correct coverage, if available.

Correct coverage is a particular concern as a judgment against the strata corporation is a judgment against all the strata lot owners. It is expected that there may be more claims against the directors and officers of strata councils if improper coverage is obtained.

In John Campbell Law Corp. v. Strata Plan 1350 , liability for damage caused by a blocked sewer pipe was allocated equally among everyone in the strata development. It was the plaintiff’s position that the defendants were strictly liable for this damage due to an alleged statutory duty to maintain and repair their common property as mandated by what was then section 116 of the Condominium Act. In the alternative, the plaintiff claimed the defendants were negligent.

The court held that the defendants had acted reasonably in their maintenance of the common facilities. There was no evidence that other strata corporations regularly inspected their sewer pipes, nor was there evidence that the strata had a policy or plan to inspect their sewer pipes which it failed to carry out. However, the court held that although it may have been reasonable for the defendants not to have inspected their sewer line in all the circumstances, given their statutory obligation to maintain and repair, the cost of their not having adopted a policy to inspect the sewer line was held to be the responsibility of everyone in the development. Liability for the repair would be borne equally by all strata members. While the cost to a strata corporation of inspecting on a sufficiently frequent basis in order to pre-empt any possible problem would be too onerous, the strata owners would still be responsible for absorbing the cost of any damage that occurred to anyone as a consequence, no matter how remote or unanticipated the source of the problem.

A strata lot owner’s responsibility is limited. A strata lot owner has no personal liability, as an owner, for the management and maintenance of the common property and common assets, the acts or omissions of the strata council or strata corporation, or any contacts or debts incurred on behalf of the strata corporation. An owner’s liability is equal to a proportionate share of the judgment as if it was a contribution to the operating fund. An individual strata lot owner’s policy may respond to such a loss.

What Property is Supposed to be Covered by the Strata Corporation’s policy?

The strata corporation is supposed to insure the common property, common assets, the buildings shown on the strata plan, and the fixtures built or installed on a strata lot as part of the original construction.

(i) Common Property

Common property is that part of the land and buildings shown on a strata plan that is not part of a strata lot. For example, a tool shed separate from the individual strata lots which houses various gardening equipment. Common property also includes portions of the building that may be considered part of a strata lot but are used by all or many of the owners. In particular, pipes, wires, cables, chutes, ducts and other facilities for water, sewage, drainage, electricity, telephone, television, heating or similar services are common property if they are within a floor, wall or ceiling that forms a boundary between two strata lots, or between a strata lot and the common property. Even if the service is partially or wholly within a strata lot, it is common property if it is capable of being and is intended to be used in connection with another strata lot or the common property. In most cases, the key will be whether the service or device is exclusive to one strata lot or is of benefit to more than one strata owner.

(ii) Common Asset

A common asset are things which the strata corporation owns or land that is held in the name of, or on behalf of, the strata corporation. A strata corporation may own or control one or more strata lots. It would therefore have to insure those particular lots because they are common assets. An example of common assets would be the gardening equipment in the tool shed.

(iii) Common Expenses

Common expenses are those expenses used in the upkeep or maintenance of the common property and assets or any expenditure to meet the obligations of the strata corporation. Examples would be purchases of fertilizer for the common green areas, repairs to the central heating systems, or premiums paid to obtain insurance.

In Strata Corp. LMS 509 v. Andresen a repair levy related to common property, to repair water ingress damage, was challenged by owners whose units had not suffered damage. In a motion to dismiss the strata corporation’s application for a declaration that all owners were responsible to pay for the repair of the damaged property, several townhome owners argued that (1) because the strata consisted of two different types of strata lots and (2) the damage was to the apartment complex and not the townhomes, the cost of rectification was the responsibility of the apartment unit owners alone. The Court confirmed that the levy was related to common property and constituted a valid common expense and an operating fund expenditure against all unit owners, including the townhome owners.

Similarly in Lim v. Strata Plan VR 2654 , townhome owners petitioned the Court for a declaration that two by-laws and a special resolution passed by the council were void and unenforceable as contrary to the Condominium Act. The by-laws attempted to amend provisions of the Condominium Act and allocate common expenses among different types of strata lots. One set of townhomes experienced water leaks which necessitated repairs to their balconies. The council adopted a resolution allocating the cost of repairs to the individual owners and the owners subsequently approved a bylaw that created six strata sections and allocated common expenses to each of those sections. The Court held that the balconies of the strata complex were limited common property not part of the strata lot. Common expenses associated with repairs to the balconies were to be borne by all other owners in the complex not just the individual owners who had suffered the damage.

(iv) Fixtures

Fixtures are defined as items attached to a building, including floor and wall coverings and electrical and plumbing fixtures, but does not include refrigerators, stoves, dishwashers, microwaves, washers, dryers or other similar items that can be removed from the building. A key consideration is whether the fixture was put in place during the original construction or as a result of the tenant’s own renovations. The strata corporation is only responsible for insuring those fixtures which are as a result of the original construction of the strata unit.

Prior to the Strata Property Act, the allocation of insurance responsibilities between the strata corporation and the strata owner was unclear. The Condominium Act required that the strata corporation provide coverage for “buildings, common facilities and any insurable improvements owned by the strata corporation”. Naturally, this created confusion when considering whether a certain portion of an individual strata unit was an insurable improvement or not.

The expressed delegation of insurance responsibilities in the Strata Property Act was intended to alleviate this confusion. However, the discrepancies between the Act’s provisions and the terms of a policy, presently make this legislation of little assistance for adjusting claims. For instance, an owner who purchases a strata unit at the time of original construction may request an upgraded fixture to be installed at that time. Although the value of the upgrade is usually excluded from the strata corporation’s policy coverage, on a strict reading of the legislation, the strata corporation would be responsible for insuring the upgraded fixture because it is part of the original construction.

What Perils are Supposed to be Covered?

The strata corporation’s insurance policy must now insure against these major perils:
(a) fire, smoke, explosion, water escape;
(b) lightning, windstorm, hail;
(c) strikes, riots or civil commotion;
(d) impact by aircraft and vehicles; and
(e) vandalism and malicious acts.

The owners may also, at a general meeting, adopt bylaws which set out perils that the strata corporation must obtain insurance against. These perils may not be included in a company’s insurance policy and it is therefore important to check coverages before committing the insurer to indemnifying for the loss. Two good examples of perils that may be included by bylaw but which are not normally covered are floods and earthquakes.

“Full Replacement”

The strata corporation must obtain full replacement value coverage, not actual cash value coverage.

(i) Strata Corporation Can Choose Not to Repair or Replace

For damaged property, any monies that the strata corporation receives from an insurer must be used to repair or replace the damaged property without delay unless the strata corporation formally decides not to make the repair or replacement.

A strata corporation may pass a resolution by a ¾ vote at an annual or special general meeting held no later than sixty days after the receipt of the insurance monies to decide not to repair or replace the damaged property. Usually if an insured decides not to replace or rebuild, it is only entitled to actual cash value. As such, it is arguable that the policy will require replacement to contemplate this option provided to the strata corporation.

(ii) How Do You Pay Out the Insurance Monies?

Those monies will be paid to the strata corporation or an insurance trustee if the latter has been established by the bylaws. The fact that many adjusters pay a restoration contractor directly is another example of how this legislation does not correspond to common industry practice. The Act stipulates that the trustee or the strata corporation will hold the money in trust for each person who has an interest in the money. The monies must be distributed according to each person’s interest, or in accordance with a court order. Owners, holders of registered charges against a strata lot, the insurer of the land or any other person the court decides is appropriate can seek an order that either the damaged property be rebuilt or the insurance monies be disbursed. This means that if you have paid out the insurance monies on a replacement basis, and no replacement or rebuilding is taking place, a court application may be made to force the strata corporation to repair or replace.

It may be prudent to obtain a direction to pay from the strata council before providing a contractor directions. The use of joint cheques may also prevent allegations that insurance monies were not paid to the strata corporation or its trustee.

The Insurance Deductible and Recovery of the Insurance Deductible

The insurance deductible is a common expense collected from the strata fees. The Strata Property Act, however, now allows the strata corporation to sue an owner for the deductible if they are directly responsible for the loss or damage that gave rise to the claim.

In Strata Corp. VR 2673 v. Comissiona , the defendant strata owner brought an application to dismiss the strata corporation’s action against him on the basis that strata corporations could not sue suite owners for damages that were the subject of insurance. The strata corporation had sued Commisiona and another owner for damages caused by water leaking from their suites onto common property and other suites. The strata corporation claimed, on its own behalf and on behalf of the owners of the damaged suites, the amount of damages falling within the insurance deductible under the insurance policy maintained by the insurance corporation.

The Court held that although the Strata Property Act established a scheme whereby the payment of an insurance deductible was a common expense payable by all the suite owners, the Act did not preclude the strata corporation from suing Commisiona to recover the deductible portion of the insurance claim because he was responsible for the loss or damage that gave rise to the claim. There existed no legal bar to the action by the strata corporation because the damages claimed were not covered by the insurance policy and were within the deductible under the insurance policy.

Does an Owner Have to Obtain Insurance?

There is no specific requirement in the Strata Property Act that an owner obtain insurance. However, it makes practical sense for a strata lot owner to obtain insurance for her individual strata unit. With the new definition of fixture, tenant improvements do not have to be covered by the strata corporation’s insurance policy. Therefore, if a pipe bursts and causes damage to both the common property and a tenant’s new carpeting, the strata corporation may not have to respond to the damaged carpet loss depending on the wording of the policy.

The Strata Property Act does allow an owner to obtain and maintain insurance for the following:
(a) loss or damage to the strata lot and fixtures not insured by the strata corporation (essentially back-up insurance if the strata corporation does not obtain the required insurance);
(b) amounts in excess of the strata corporation insurance limits (excess policy);
(c) fixtures which are tenant improvements, not common property;
(d) loss of rental value; and
(e) liability for property damage and bodily injury.

What Happens if there is “Other Insurance”?

Because duties of the strata corporation and the strata unit owner may overlap, it is likely that their insurance coverages will overlap as well. For example, both the strata corporation and the strata unit owner may have policies which cover the original fixtures of the strata unit. The Strata Property Act allows for a right of contribution between the two policies if issued for the same property. However, the Strata Property Act provides for policies that have “other insurance” clauses which designate the policy as excess if there is another insurance policy covering the same risk. Such clauses will be effective only if issued for the same property.

The recent decision of the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada Ltd. has clarified issues that arise when liability is shared among insurers covering the same risk. In a unanimous ruling, the Court set out the proper approach in cases of overlapping insurance coverage, in particular where two insurers each try to limit its obligation where the same risk is covered by two different policies.

In this case, Family Insurance Corp. insured a stable owner under a homeowner’s policy for up to $1 million. Lombard Canada Ltd. insured the stable owner under a group policy with the B.C. Horse Council for comprehensive business liability coverage of up to $5 million. Based on the wording of their policies, each insurer argued that the other was the primary insurer. At trial liability was split 50-50, but the B.C. Court of Appeal overturned this decision and declared Family the primary insurer. The Supreme Court restored the decision at first instance holding that the B.C. Supreme Court applied the correct principles to a contest between two excess insurance clauses that were mutually repugnant and inoperative vis a vis each other. It concluded that in the face of irreconcilable intentions, a court must determine the most equitable means of resolving the dispute, one that respects the intentions of the parties as well as the right of the insured to recover fully.

LEGAL PROCEEDINGS AND ARBITRATION

(A) Lawsuits

How Can a Strata Corporation Be Sued?

A strata corporation’s primary duty is to maintain and repair the common property and assets. It is a duty owed to both owners and third parties. The strata corporation, as the representative of the owners, can be sued by a third party with respect to any matters arising from the common property, common assets, bylaws, or any act or omission of the strata corporation. A strata owner is also entitled to sue the strata corporation. Examples of potential claims include a third party or a strata lot owner who slips and falls on common property or a strata lot owner who is injured using a common asset like a barbeque.

If the strata corporation is sued, the owners must be informed promptly. The expense of defending the suit is shared by the owners in the same way a judgment is apportioned. In the case of an owner suing the strata corporation, however, obviously the owner is not required to contribute.

Judgment Against the Strata Corporation

A judgment against the strata corporation is a judgment against all the owners. The strata lot owner’s share of the judgment and subsequent liability is calculated in the same manner as contributions to the operating fund and contingency reserve fund.

There is no personal liability against the strata lot owner, in his or her capacity as an owner, for loss or damage arising from:
(a) the management and maintenance of the common property and common assets of the strata corporation;
(b) the actions or omissions of the council or strata corporation;
(c) any contracts made or debts or liabilities incurred by or on behalf of the strata corporation.

Actions by the Strata Corporation

One of the most significant changes brought about by the Strata Property Act is that the strata corporation can now sue a strata lot owner. It may also add a strata lot owner to an action by a third party if the strata lot owner’s actions led to the claim. What will be interesting is whether subrogated actions against a strata lot owner will be allowed. The Strata Property Act mandates that, despite the terms of the insurance policy, owners and tenants are named insureds under the policy. So although the Strata Property Act gives the strata corporation the right to sue an owner, under long standing principles of insurance law there may be a subrogation bar.

(B) Arbitration

The strata corporation, owner or tenant may refer a dispute to arbitration if, at the time the dispute arose, it involved the owner or tenant and concerned any of the following:
(a) the interpretation or application of the Act, the regulations, the bylaws or the rules;
(b) the common property or common assets;
(c) the use or enjoyment of a strata lot;
(d) money owing, including money owing as a fine, under this Act, the regulations, the bylaws or the rules;
(e) an action or threatened action by, or decision of, the strata corporation, including the council, in relation to an owner or tenant;
(f) the exercise of voting rights by a person who holds 50% or more of the votes, including proxies, at an annual or special general meeting.

A dispute cannot be referred to arbitration if a court proceeding has been started. If the matter is being arbitrated, a party may seek relief at court but may be prevented by an application to adjourn the court proceedings. The court must adjourn its proceedings unless the court is satisfied that there is good reason to continue. In determining whether to adjourn its proceedings, the court may consider all of the following:
(a) the legal and factual complexity of the dispute;
(b) the suitability of the intended arbitrator;
(c) the comparative expense and delay of the court proceedings and the arbitration;
(d) the interests of any other parties;
(e) the likelihood that all the parties to the arbitration will cooperate to do all things necessary for the proper conduct of the arbitration;
(f) any other matter the court thinks proper.

Arbitration will not occur if provisions of the Residential Tenancy Act apply, or if all parties to the dispute agree that the Commercial Arbitration Act will applies.

A party may begin arbitration by giving the other party a Notice Beginning Arbitration in the prescribed form that describes the dispute and proposes either an arbitrator, a choice of arbitrators or a method for appointing an arbitrator. Within two weeks after receiving the Notice Beginning Arbitration, the recipient party must give the party who began the arbitration a Notice of Reply in the prescribed form. The Notice of Reply must:
(a) indicate agreement to one of the proposed arbitrators or the proposed method of appointing an arbitrator, or
(b) propose another arbitrator, choice of arbitrators or method of appointing an arbitrator.

Within one week after receiving a Notice of Reply that proposes another arbitrator, choice of arbitrators or method of appointing an arbitrator, the party who began the arbitration must give the other party a Notice Responding to Reply in the prescribed form. The Notice Responding to Reply must:
(a) indicate agreement to one of the proposed arbitrators or the proposed method of appointing an arbitrator, or
(b) reject the proposed arbitrator, choice of arbitrators or method of appointing an arbitrator.

If an arbitrator, choice of arbitrators or method of appointing an arbitrator is rejected in the Notice Responding to Reply, each party has one week to appoint his or her own arbitrator, and the two arbitrators must either:
(a) name a third person as the sole arbitrator, or
(b) name a third arbitrator to act with them and to chair the panel.

On application of a party, the Supreme Court may appoint an arbitrator if for any reason a single arbitrator or a panel of arbitrators is not appointed within six weeks after the Notice Beginning Arbitration is given. The arbitrator must not be an owner, tenant or occupant in the strata corporation, the strata manager or other employee of the strata corporation, unless all parties consent. Before holding a hearing, the arbitrator must advise the parties as to whether mediation is possible.

The arbitrator is free to make whatever decision he considers just having regard to the Strata Property Act, the regulations, the bylaws and the rules. He may do one or more of the following:
(a) order a party to do something;
(b) order a party to refrain from doing something;
(c) order a party to pay money as damages.

An arbitrator’s decision is final and binding upon the parties and it must be in writing and include reasons. The decision may be reviewed under the Judicial Review Procedure Act or be appealed to the court. The arbitrator’s decision and order may be filed in Supreme Court or Provincial Court depending on the amount in question. Once filed, enforcement proceedings can then commence as with any other judgment.