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.
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.
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.
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.
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 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.
(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.
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.
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.
(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.
LEGAL PROCEEDINGS AND ARBITRATION
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.
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.
(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.
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) 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.
(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.
(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.
(a) name a third person as the sole arbitrator, or
(b) name a third arbitrator to act with them and to chair the panel.
(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.