West Vancouver, Dundarave Mews: Court finds developer, Stephen Elmitt, responsible for significant unfairness to residential condo owners

 

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Shaw v. The Owners Strata LMS 3972
et al.,

 

2008 BCSC 453

Date: 20080416
Docket: S078169
Registry: Vancouver

Between:

Susan Shaw, Jacqueline Jamieson, Peter Topliss,
Margaret Hepworth, Jonathan Agnew, and Mary
Lou Reigh

Petitioners

And

The Owners Strata LMS 3972, Mews Holdings Ltd.,
and Delany’s Coffee House Ltd.

Respondents


Before: The Honourable Madam Justice Koenigsberg

Reasons for Judgment

Counsel for the Petitioners:

Paul G. Mendes

Counsel for the Respondents

Hector MacDonald

Date and Place of Hearing:

April 9, 2008

 

Vancouver, B.C.

INTRODUCTION

[1]                These are written reasons following oral delivery of these reasons on April 9, 2008.  For the factual background I have utilized almost in its entirety the written submissions of the petitioners.  No exception was taken to the statement of facts by the respondents.

[2]                This is a petition for the reallocation of certain common expenses in a 23-unit mixed use condominium located at 2418 Marine Drive, West Vancouver, known as Dundarave Mews (the “Condominium”).

[3]                The petitioners apply for declarations and orders pursuant to s. 164 of the Strata Property Act, S.B.C. 1998, c. 43 (the “Act”), including:

(1)        a declaration that the respondents have conducted themselves in a manner that is significantly unfair to the petitioners; and

(2)        an order for the reallocation of certain common expenses according to the resolution attached to the petitioners’ outline.

FACTS

Background

[4]                The Condominium has seven residential strata lots over top of 16 commercial strata lots.  The Condominium was built in 1999 by Dundarave Village Mews Inc. (the “Developer”), whose principal at the time was Mr. Stefen Elmitt.

[5]                The petitioners individually own six of the seven residential strata lots.  The respondent Mews Holdings Ltd. (“Mews”) and Delany’s Coffee House Ltd. (“Delany’s”) own the 16 commercial strata lots.  Mews owns 14 of the commercial strata lots and Delany’s owns the other two.  Mews bought its strata lots from the Developer in 2005.

[6]                Mews rents out its strata lots to a variety of tenants including a Starbucks coffee shop, a fitness centre, a beauty salon, a dentist office, a dog food manufacturing business, a fresh fruit arrangement business, an interior designer and some accounting offices.

The Bylaws

[7]                The Condominium’s bylaws (the “Bylaws”) provide that the strata corporation is organized into separate sections to represent the interests of the commercial and residential owners (the “Commercial Section” and the “Residential Section”).

[8]                The Bylaws further provide that the strata corporation’s common expenses are to be allocated either between the Sections or to both Sections, and that the owners must contribute to those expenses through their monthly strata fees.

[9]                Under Bylaw 18, expenses allocated to either Section are borne by the owners of that Section in proportion to their unit entitlement within that Section.  Common expenses allocated to both Sections are allocated to all owners and are borne by them in proportion to their unit entitlement within the strata plan, or as otherwise set out in the budget of the strata corporation.

Unit Entitlement and Control of the Strata Corporation

[10]            The unit entitlement of the Condominium is based on 1986.2 m2.  The unit entitlement and the votes in the Condominium are split 62% and 38% between the Commercial Section and the Residential Section, respectively.  Mews alone has 54% of the unit entitlement and votes.  Mews, therefore, controls the strata corporation.  Starbucks and Delany’s coffee shops occupy approximately 168 m2 each, or 18% of the total floor area of the Condominium.

[11]            From 2000 to 2005, while the Developer still owned units, the Condominium was managed by Hunter McLeod Realty Corp. (“Hunter McLeod”).  Hunter McLeod became the property manager for Mews, and unilaterally assigned its contract to manage the Condominium to Ascent Real Estate Management Corporation (“Ascent”).

[12]            From 2000 to 2005, the president of the strata council was Stefen Elmitt, who was elected at each Annual General Meeting (“AGM”).  As noted above, Mr. Elmitt was a principal of the Developer.  The other members elected to the strata council were chosen from the residential owners.

[13]            During that period, however, and until only very recently, there were no strata council meetings and there are no strata council minutes.  The petitioners believe and say that management decisions at the Condominium were made unilaterally by Hunter McLeod, acting under the direction of the Developer, and then by Ascent acting under the direction of Mews and its agent Hunter McLeod.

[14]            The petitioners say that as a result of the Developer’s (and now Mews) voting control of the strata corporation, Hunter McLeod has acted as the de facto “landlord” of the Condominium, and exercised unilateral control of the Condominium’s budgets and the allocation of common expenses between the Sections.

[15]            From 2000 to 2005, the budgets of the strata corporation, including the Common Budget and the Sections Budget were set by Hunter McLeod, without any input from, or consultation with, the residential members of strata council.

[16]            While Ascent manages the Condominium, the strata corporation’s budgets were set by Ascent acting in consultation with Hunter McLeod, as the agent for the Mews, without any input from the strata council.

[17]            As stated above, no strata council meetings were convened prior to 2008.  The petitioners, relying on the advice of Hunter McLeod and Ascent, believed that strata council meetings were not required because the strata corporation had separate Sections.

[18]            The lack of strata council meetings has meant that the Commercial Section has been able to act unilaterally with respect to strata corporation decisions, including the approval of changes to strata lots and common property, and the allocation of common expenses under the budgets.

[19]            There is one other item which deserves comment.  The petitioners complain that no meeting of the strata council was held between 1999 and 2008.  It is conceded that the residents/petitioners hold the majority in that body.  They say they did not understand they could call for budgets – line item explanations and consultation, because the property manager who is, under the Bylaws, answerable to them on settling budgets – told them it was not necessary to meet.

[20]            There is no evidence before the Court that the property manager deliberately misled or used undue influence over them.  The residents could have simply called a meeting and assumed what power they have.  Any problems occasioned by the failure of the residents to assume and exercise the power they have cannot be remedied by resort to a finding of significant unfairness.

Common Expenses and Budgets Historically

[21]            The strata corporation and the Sections’ expenses are paid out of budgets contributed to by the owners through monthly strata fees in proportion to their share of unit entitlement.

[22]            The Developer included estimates of the annual budgets for a typical full year in the Disclosure Statement.  The Disclosure Statement was provided by the Developer to all original purchasers, and included estimates for what is referred to as a “joint use” budget and Residential section budget.  No budget estimate was provided for the Commercial Section.

[23]            Under the Act, a strata corporation must approve a budget by a simple majority at each AGM.  From 2000 to 2006, the budget included expenses allocated to both Sections (the “Combined Budget”), and expenses allocated exclusively to the Residential Section (the “Residential Budget”).  During that period, there was no budget for expenses allocated to the Commercial Section.  Only the 2007 budget included expenses allocated exclusively to the Commercial Section.

[24]            Until that time, the Commercial Section had no budget and relied solely on the Combined Budget, for its common expenses.  This is important, because the residential owners pay for 38% of the expenses in the Combined Budget.

[25]            Historically, the Combined Budget has included the following expenses:  management fees; insurance; electricity; fire and safety; janitorial; window cleaning; landscaping; water and sewer; and repairs and maintenance.

[26]            Historically, the Residential Budget has included the following expenses:  air conditioning and heating; elevator maintenance; enter phone, garbage; and natural gas.

[27]            As time passed, certain line items in the Common Budget saw significant increases and the residential owners began to ask questions about the allocation of common expenses between the Sections, especially in view of the heavy traffic being attracted to the Condominium by the Commercial Section tenants.

[28]            In 2004, two areas in the Combined Budget saw significant increases that year:  water and sewer was over budget by 40%; and repairs and maintenance were over budget by 135%.  As a result, the Combined Budget for 2005 was increased to reflect these increases in Combined Budget spending.

[29]            In 2005, the Developer signed a lease with Starbucks and sold its interest in the Condominium to the respondent Mews.  This resulted in further increases in common area expenses.  In 2005, actual expenses water and sewer rose by a further 26% and repair and maintenance rose by another 53%.  Other expenses also saw significant increases over budget from the previous year, including landscaping (112%), and previously unbudgeted expense for “drain basins” in the amount of $2,313.99.

[30]            In 2006, the strata corporation started allocating certain expenses between the Sections.  Water and sewer was allocated 72% to the Commercial Section and 28% to the Residential Section.  Repair and maintenance was allocated 47% to the Combined Budget, 23% to the Commercial Section and 30% to the Residential Section.  It is important to recall that before this time, there was no Commercial Section budget.

The Reallocation Resolution and the 2007 Budget

[31]            One of the main areas of concern among the residential owners in recent years has been the increase in water, maintenance, landscaping, and janitorial expenses, all of which have historically been included in the Combined Budget.

[32]            Water consumption at the Condominium is measured by use of a water meter that is read by the District of West Vancouver (the “Condominium Water Meter”).  In February of 2007, the Residential Section installed its own water meter to measure the volume of water consumption by the residential strata lots of the Condominium (the “Residential Water Meter”).

[33]            By comparing the readings of the Condominium Water Meter with those of the Residential Water Meter, the petitioners discovered that only 1% of the water delivered to the Condominium is consumed by the Residential Section.

[34]            In March 2007 the residential owners brought forward a unanimous vote resolution at the AGM to reallocate the expenses in the Combined Budget between the Sections for the fiscal year ending January 31, 2008, and every fiscal year thereafter, the expenses in the Common Area Budget were allocated as follows:

(1)        water and sewer:  80% to the Commercial Section and 20% to the Residential Section;

(2)        all other expenses:  75% to the Commercial Section and 25% to the Residential Section.

[35]            The Reallocation Resolution was put to a vote of the owners at the strata corporations March 8, 2007 AGM.  The Commercial Section vetoed the Reallocation Resolution and it was defeated.

Use of Common Ares by the Commercial Section

[36]            Following the Commercial Sections veto of the Reallocation Resolution, the petitioners began to monitor and record the use of common property by the occupants and visitors to the strata lots owned by Mews and Delany’s.  The data obtained by the petitioners confirmed their view that Mews and Delany’s derive the overwhelming benefit of common expenses related to parking, storage, access areas within the common property, cleaning, electricity, landscaping and gardening.

ISSUES

[37]            The issues for determination as set out by the petitioners are:

(1)        whether the allocation of common expenses in the Condominium is significantly unfair to the respondents; and

(2)        whether the Court should order the reallocation of common expenses as proposed by the petitioners.

LEGAL ANALYSIS

 

 (More)

Vancouver, Leaky Condo Case Study, Pendrell Place: Oldaker questions Ascent regarding compliance with building code

 

August 2, 2000

[The following correspondence was conducted via fax.]

[To] Mike Roach [Ascent Real Estate Management]

I am advised that the building code specifically speaks to the "leaky condo" question

If my advice is correct is it appropriate for an owner to request assurance any repairs are being done in compliance with code?

Regards,

R. B. Oldaker

[Owner, Strata Lot 22, Strata Plan VR 1008, Suite #504, Pendrell Place, 1819 Pendrell St., Vancouver]

 

[Mike Roach replied by return fax as follows]

Richard Oldaker

I don't believe that this building would fall into the "leaky condo" classification.  It is not normally the practice to supply individual owners with such assurances as the repairs are being conducted on common property, or limited common property which is the responsibility of the strata corporation as a whole.

[Signed Mike Roach]

[To which Mr.Oldaker replied]

Mike Roach

Do you have any "authority" for your "belief" that 1819 [Pendrell St.] does not fall into leaky condo class.[sic]

Do not inividual owners own common property - if they don't who does?

As owners they are surely entitled to any and all information - it is they, after all, who pay the bills.

R.B. Oldaker

[Source: BC Supreme Court File, Docket L003498]

[Editor's Note (July 2007): we have been unable to determine that Mr. Roach ever responded to Mr. Oldaker.]