Kelowna: Court rules owners of town houses must pay their share of cost to repair leaky condo tower in Kelowna


 

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Poloway v. Owners, Strata Plan K692,

 

2012 BCSC 726

Date: 20120522

Docket: S84849

Registry: Kelowna

Between:

James Michael Poloway, John Wayne Toljanich, Lorraine Dorothy Toljanich, William Rutherford Bradley, Deborah Louise Bradley, Gusbertus Bastiaan Bouma, Emma Josephine Bouma, Victoria Crompton, Nicholas John Kozuska, Elizabeth Gail Kozuska, Randall Yatscoff, Nancy Christine Yatscoff, Sherry Linn Priebe, David Gibbons and Carol Ponsford

Petitioners

And

The Owners, Strata Plan K692

Respondents

 

Before: The Honourable Mr. Justice Barrow

 

Reasons for Judgment

Counsel for the Petitioners:

J.D. Metherell

Counsel for the Respondents:

A. Murray

Place and Date of Hearing:

Kelowna, B.C.

January 11-12, 2012

Place and Date of Judgment:

Kelowna, B.C.

May 22, 2012


 

[1]             The petitioners are owners of townhouse-style strata lots within the respondent Strata Corporation (the “Strata Corporation”). They argue that the respondent has acted, and will act in the future, in a significantly unfair manner. The past unfairness relates to a special resolution put before a general meeting on April 30, 2011 (the “Special Resolution”). The future unfairness relates to costly repairs that are needed to the apartment tower within the development. The Strata Corporation proposes that those costs be borne by all of its members, including the owners of townhouses, on the basis of unit entitlement. The petitioners argue that to do so will result in them subsidizing repairs to a building that they have little connection with. They seek an order under s. 164 of the Strata Property Act, S.B.C. 1998, c. 43 creating “sections” within the Strata Corporation - one section for the townhouse-style strata lots and another for the apartment-style lots. They seek ancillary orders allocating the repair costs to the sections based on the building involved. The respondent argues that to allocate costs on the basis of unit entitlement is simply to follow the statutory regime, and in the absence of some reasonable expectation that another method would be used, that cannot be significantly unfair.

Background

[2]             The Strata Corporation was created with the filing of a strata plan in the Land Title Office in 1988. The property is comprised of 29 residential units housed in three buildings. Building A is a four-storey building containing 17 apartment-style strata units. Buildings B and C are single-storey buildings each containing 6 townhouse-style strata units. The petitioners are the owners of 10 of the 12 townhouse units.

[3]             The apartment building houses several amenities which benefit all of the strata lots in the development. Those amenities include a mailroom, a garbage collection room, and the primary water, cable and telephone hook ups for the development.

[4]             Between its creation and the year 2000 when the Strata Property Act came into force, the Strata Corporation functioned under the statutory framework contained in the Condominium Act, R.S.B.C. 1996, c. 64. Part 5 of the Condominium Act sets out the bylaws of strata corporations, and by s. 26 those bylaws applied until altered or repealed in a manner provided for by the Act. Part 5 included s. 128 which dealt with the allocation of common expenses. Although the Condominium Act did not define different types of strata lots, s. 128 (2) required that common expenses attributable to one or more types of strata lots be allocated to and shared by the owners of those particular strata lots in proportion to their unit entitlement. All other common expenses were required to be shared by all the owners in proportion to their unit entitlement to the entire condominium development. Section 128 read:

(2) If a strata plan consists of more than one type of strata lot, the common expenses must be apportioned in the following manner:

(a) common expenses attributable to one or more type of strata lot must be allocated to that type of strata lot and must be borne by the owners of that type of strata lot in the proportion that the unit entitlement of that strata lot bears to the aggregate unit entitlement of all types of strata lots concerned;

(b) common expenses not attributable to a particular type or types of strata lot must be allocated to all strata lots and must be borne by the owners in proportion to the unit entitlement of their strata lots.

[5]             Despite this statutory regime, the Strata Corporation did not allocate common expenses attributable to one type of strata lot solely to the owners of that type of lot; rather, except for the year 1991, the Strata Corporation’s budgets simply allocated all common expenses to all owners, regardless of whether the expenses were attributable to only one type of strata lot or not. The amended disclosure statement filed on March 22, 1989, foreshadowed the approach to common area expenses that the Strata Corporation would follow. Under the heading “Budget”, paragraph 6 (o) of that document provides in part as follows:

An estimated operating budget for a typical full year of operating expenses of the Strata corporation, based on current costs, is attached .... These common expenses will be allocated among the individual Strata Lot owners in the proportions that the Unit Entitlements of their respective Strata Lot bear to the total Unit Entitlements of all Strata Lots, and Exhibit “C” hereto gives the estimated monthly assessment for each Strata Lot based on the budget.

[6]             For the year 1991 the Strata Corporation changed the manner in which it treated the common area expenses that were attributable to one type of strata lot but not to others. Further, it seems that consideration was given to a similar approach in 1992. Uncertainty about this stems from a lack of minutes for that period indicating which of two proposed budgets was adopted by the Strata Corporation. There is a schedule of strata fees for 1991 and if fees were in fact levied based on that schedule then common area expenses were allocated according to the method prescribed in s. 128 of the Act. There is a “proposed” schedule of fees for 1992, and if it was adopted then common area expenses were shared by all strata lots in accordance with their unit entitlement and regardless of  whether the expenses related to only one type of strata lot.

[7]             What is clear from the material is that by 1993 the method of allocating common area costs associated with only one type of unit was becoming an issue within the Strata Corporation. The issue arose because expensive repairs to the fire sprinkler system in the apartment building were in the offing. One of the townhouse owners wrote to the Deputy Superintendent of Real Estate inquiring about how costs of that sort could be allocated. The Deputy Superintendant responded, and his letter and the issue more generally was the subject of discussion at an extraordinary general meeting of the Strata Corporation on September 29, 1993. The minutes of that meeting include the following:

Discussion of both letters [that is the letter to and the letter from the Deputy Superintendent] ensued. Owners recognized that there were a number of costs borne by the townhouse type units which were directly attributable to the highrise type units. However, it was stated that owners had agreed from the inaugural General Meeting onward that the Strata Corporation was to be treated “all as one” with the costs being apportioned among all units. It was decided to proceed with the meeting, but mention that the contents of the letter from [the Deputy Superintendent] had been received, and duly noted.

While nothing was decided at this meeting regarding the manner in which common area costs should be allocated, the minute is relevant in three respects. First, it tends to support the conclusion that the proposed budget that would have allocated common area costs according to unit type was not adopted. Second, it is an indication of what the owners knew about the cost sharing arrangements when they purchased their units. Third, it demonstrates that the Strata Corporation turned its corporate mind to the manner by which common area expenses should be shared.

[8]             It is clear that in the years since 1993 common area expenses have been shared by all strata units in accordance with their unit entitlement and without regard to whether the expenses related to one type of unit or another. This has been the case notwithstanding that on February 17, 1994 the owners adopted changes to the Strata Corporation’s bylaws. The changes were voluminous, and among them was the adoption of the cost allocation scheme envisioned by s. 128 of the Condominium Act. Thus, from 1994 forward the Strata Corporation should have been accounting for common area expenses by allocating those referable to one type of strata lot to strata lots of that type. In spite of the adoption of this approach in its bylaws, the Strata Corporation did not change the method by which it accounted for such expenses.

[9]             The ability to allocate common area expenses according to unit type changed with the coming into force of the Strata Property Act on July 1, 2000.

[10]         From 1993, when the fire suppression system in the apartment tower was replaced at a cost of just over $14,000, until 2007, there were at least four special levies imposed to cover the cost of various repairs. According to John Tolijanich, one of the petitioners, those levies totalled $213,922, and of that sum $42,000 was for repairs that benefited the complex as a whole; $51,717 was for repairs that benefited only the townhouse units; and $120,205 was for repairs associated with the apartment complex. In addition the Strata Corporation spent a further $90,000 to repair the balconies attached to the apartment units and to fix some associated water damage. These costs were treated as common area expenses and borne by all units regardless of type.

[11]         There remains some dispute as to whether the foregoing amounts are properly categorized as benefiting the apartment tower or the townhouses. When this petition initially came on for hearing in August 2010 Burnyeat J. adjourned the matter. He said that it would be of assistance if the Strata Corporation had its auditors prepare a list of past and future expenses allocating them according to the unit type benefited. That exercise has not been done for reasons I will mention below. All I am now asked to take from the evidence about how past expenses have been allocated is that it demonstrates that the townhouse owners have not disproportionately benefited from the uniform sharing of expenses. In other words this is not a situation in which the apartment owners have subsidized repairs to the townhouses, and that the townhouse owners are now seeking to avoid doing the same for in relation to repairs needed to the apartment tower. This conclusion is well supported by the evidence even if the cost of past repairs or their characterization is not entirely accurate.

[12]         What is not in dispute, and what prompted this petition, is that there are much needed and very expensive repairs necessary to address water ingress in the apartment tower. These expenses may exceed $2 million. The deficiencies that give rise to these costs first surfaced in 2007. From the outset, at least some of the townhouse owners have been concerned about how these costs would be allocated. In February 2009 the Strata Corporation held its annual general meeting. In advance of that meeting some of the townhouse owners, including the petitioners, requested that a resolution be placed before the meeting as provided for by s. 46 of the Strata Property Act. The resolution read:

The Bylaws of the Strata Corporation KAS692 be amended to provide for the creation and administration of separate sections for the town house style strata lots (strata lots 18 to 29) and the apartment style strata lots (strata lots 1 to 17) in accordance with Section 191 and 193 of the Strata Property Act. ...

The resolution was defeated by a vote of 10 in favour and 16 opposed.

[13]         The next event of consequence occurred in the spring of 2009 when the Strata Corporation’s insurers carried out an inspection of the development. In April 2009 they wrote to the corporation advising of a number of issues which, in an effort to reduce and manage future risks, needed to be addressed. On that list was water ingress in several of the apartment-style units. At a September 2009 meeting, council authorized the expenditure of $4,000 to have a professional building inspection done. In October 2009 this petition was filed. On January 31, 2010 the building inspection report prepared by Aqua - Coast Engineering Ltd. was released. The report noted significant water penetration problems primarily in relation to the cladding, the balconies and the skylights in the apartment tower. While it is not entirely clear exactly how much of these repairs relate to the apartment tower and how much relate to the townhouses, it is reasonable to assume that close to 90 percent of the costs would be for the apartment building.

[14]         Aqua - Coast provided three options for remedying the problems and the costs of those options ranged from just over $1 million to $1.14 million. The petitioners sought a second opinion and that opinion was provided by Timothy Spiegel, a professional quantity surveyor, on June 17, 2010. He estimated the costs, exclusive of soft costs, mark ups and the like, at $1.14 million. Of that sum, $954,035 was for repairs to the apartment tower and $186,665 was for repairs of the townhouses.

[15]         Votes at meetings of the Strata Corporation are allocated according to units; each unit has one vote. Given that there are 29 units of which 17 are apartments, the apartment owners hold 58 percent of the available votes and townhouse owners the remaining 42 percent. Allocation of common expenses is done according to unit entitlement, and the apartments have 57.9 percent of the units of entitlement while the townhouse owners have 42.1 percent.

[16]         When the petition came on before Burnyeat J. he had two concerns. One related to resolving the evidentiary conflict surrounding how to characterize the past expenses, that is, whether they related to the townhouses, the apartment tower or both. Burnyeat J.’s other concern was that the petition was premature insofar as the Strata Corporation had not yet resolved to proceed with the repairs. He therefore asked for the accounting noted above and ordered that the Strata Corporation convene a special general meeting prior to November 15, 2010 for the purpose of considering a special resolution to be prepared by the strata council dealing with the levy by which the repair costs would be funded. The resolution the council was to prepare was to be “fair to all owners”.

[17]         Following Burnyeat J.’s decision the owners of the Strata Corporation established an ad hoc committee with four members, two from each type of strata unit (the “Committee”). The Committee was charged with exploring the possibility of a consensual solution to the issue of cost allocation between the different types of units and with providing input on the resolution ordered by Burnyeat J.

[18]         Not long after the Committee was struck there was a serious rain storm in Kelowna which caused flooding in three of the apartments. Aqua - Coast was asked to revisit its recommendations in light of this additional damage. It issued its second report on January 17, 2011 (the “2011 Report”) (in the interim the parties had filed a consent order extending the deadline imposed by Burnyeat J.). In the 2011 Report the cost of remediation is estimated at just over $2 million. Of those costs, $1.88 million relate exclusively to the apartment tower and $137,838 relate to the townhouses. In percentage terms, just over 93 percent of the costs relate to the tower and just under 7 percent relate to the townhouses.

[19]         Armed with this new information, the Committee set about attempting to agree on an acceptable resolution to be placed before the special general meeting. The townhouse representatives on the Committee proposed that townhouse owners pay for the repairs to the townhouses recommended in the 2011 Report and contribute $200,000 towards the repairs necessary to the apartment tower. Further, they recommended that going forward any common area repairs to the apartment tower would be paid for by the owners of the units in the tower, and the townhouse owners would pay for repairs to their buildings; in neither case would there be contribution by owners in buildings housing one type of strata unit to repairs made to buildings housing another type of unit. The townhouse owners on the Committee thought that if the Committee could not agree on a resolution, then each faction on the Committee would put forth a draft resolution and council would put them in final form for presentation to the owners.

[20]         The apartment owners provided a counter proposal in which they suggested the townhouse owners would only contribute 33 percent of the cost of the remediation of the apartment tower (down from the 42 percent that would otherwise apply) but that all future repairs would be paid for in accordance with unit entitlement regardless of which type of building needed the repairs.

[21]         These drafts were given to the council who, after seeking legal advice, proposed the Special Resolution that would have had the townhouse owners contribute $300,000 to the remediation of the apartment building as well as pay for all the repairs to the townhouse buildings. As a percentage of the total cost, this amounted to just under 22 percent. Further, the Special Resolution included an explicit rejection of future sharing of costs otherwise than on the basis of unit entitlement without regard to which building the repairs may relate to. The Special Resolution was put before a special general meeting on April 30, 2011, and defeated by a vote of 19 opposed and 6 in favour.

[22]         After the April 30 meeting, the respondent retained Ms. Murray. She advised that it was not legally possible for the Strata Corporation to allocate costs otherwise than by unit entitlement unless the Strata Corporation passed a unanimous resolution to that effect or created sections. Given Ms. Murray’s advice on the matter, further attempts at a consensual resolution appeared doomed and the parties reset their petition.

Analysis

[23]         The petitioners seek relief under s. 164 of the Strata Property Act which provides that:

(1) On application of an owner or tenant, the Supreme Court may make any interim or final order it considers necessary to prevent or remedy a significantly unfair

(a) action or threatened action by, or decision of, the strata corporation, including the council, in relation to the owner or tenant, or

(b) exercise of voting rights by a person who holds 50% or more of the votes, including proxies, at an annual or special general meeting.

(2) For the purposes of subsection (1), the court may

(a) direct or prohibit an act of the strata corporation, the council, or the person who holds 50% or more of the votes,

(b) vary a transaction or resolution, and

(c) regulate the conduct of the strata corporation's future affairs.

[24]         The parties agree that the definition of “significantly unfair” is that set out in Reid v. Strata Plan LMS 2503, 2003 BCCA 126, 12 B.C.L.R. (4th) 67. In that case Ryan J.A. approved of the definition of “significant unfairness” in Gentis v. Strata Plan VR 368 2003 BCSC 120, 8 R.P.R. (4th) 130, where at paras. 27-29 Masuhara J. held:

[27]      The scope of significant unfairness has been recently considered by this Court in Strata Plan VR 1767 v. Seven Estate Ltd. (2002), 49 R.P.R. (3d) 156 (B.C.S.C.), 2002 BCSC 381. In that case, Martinson J. stated (at para. 47):

The meaning of the words "significantly unfair" would at the very least encompass oppressive conduct and unfairly prejudicial conduct or resolutions. Oppressive conduct has been interpreted to mean conduct that is burdensome, harsh, wrongful, lacking in probity or fair dealing, or has been done in bad faith. "Unfairly prejudicial conduct" has been interpreted to mean conduct that is unjust and inequitable: Reid v. Strata Plan LMS 2503, [2001] B.C.J. No. 2377.

[28]      I would add to this definition only by noting that I understand the use of the word ‘significantly’ to modify unfair in the following manner. Strata Corporations must often utilize discretion in making decisions which affect various owners or tenants. At times, the Corporation’s duty to act in the best interests of all owners is in conflict with the interests of a particular owner, or group of owners. Consequently, the modifying term indicates that court should only interfere with the use of this discretion if it is exercised oppressively, as defined above, or in a fashion that transcends beyond mere prejudice or trifling unfairness.

[29]      I am supported in this interpretation by the common usage of the word significant, which is defined as “of great importance or consequence”: The Canadian Oxford Dictionary(Toronto: Oxford University Press, 1998) at 1349.

[25]         The Strata Property Act recognizes and permits the creation of “sections” within a strata corporation. Section 191 provides that:

(1) A strata corporation may have sections only for the purpose of representing the different interests of

(a) owners of residential strata lots and owners of nonresidential strata lots,

(b) owners of nonresidential strata lots, if they use their strata lots for significantly different purposes, or

(c) owners of different types of residential strata lots.

(2) For the purposes of subsection (1) (c), strata lots are different types if they fall within the criteria set out in the regulations.

[26]         Section 11.1 of the Strata Property Regulation, B.C. Reg. 43/2000, establishes three types of strata lots, including apartment-style and townhouse-style lots. Sections may be established either by the owner developer on depositing the strata plan or by the strata corporation following its creation. In relation to the latter, s. 193 of the Act provides in part that:

(1) To create or cancel sections, the strata corporation must hold an annual or special general meeting to consider the creation or cancellation.

(2) The notice of meeting must include

(a) a resolution to amend the bylaws to provide for either the creation and administration of each section or the cancellation of the sections, ...

(3) The resolution referred to in subsection (2) (a) must be passed

(a) by a 3/4 vote by the eligible voters in the proposed or existing section, and

(b) by a 3/4 vote by all the eligible voters in the strata corporation.

[27]         In Chow v. Strata Plan LMS 1277, 2006 BCSC 335, 54 B.C.L.R. (4th) 380 Taylor J. ordered the creation of sections pursuant to the remedial power in s. 164. The parties agree that this Court has the authority to order the creation of sections under s. 164; they disagree on whether anything done or proposed to be done by the Strata Corporation has been or will be significantly unfair.

[28]         The petitioners argue that two actions, one that has occurred and the other which is proposed, has been or will be significantly unfair. The past action is the manner in which the Strata Corporation dealt with the Special Resolution which Burnyeat J. wanted the Strata Corporation to consider. The proposed action is the imposition of a special levy that will be necessary to fund the repairs to the apartment tower.

[29]         It is the prospect of the special levy which is at the core of the petitioners’ concern and I will therefore deal with that issue first. The Strata Property Act prescribes how operating and other costs are to be shared. Section 99 sets out how the owners’ contribution to the Strata Corporation’s operating and contingency reserve fund are to be calculated. It provides that each owner is to pay that portion of such costs that the owner’s unit entitlement bares to the total unit entitlement of all the lots in the Strata Corporation. Repairs of the kind necessary to the apartment tower are not operating expenses and the contingency reserve fund does not and will not have a sufficient balance to cover them. As a result they will have to be funded by a special levy. Section 108 of the Actprovides that:

(1) The strata corporation may raise money from the owners by means of a special levy.

(2) The strata corporation must calculate each strata lot's share of a special levy

(a) in accordance with section 99, 100 or 195, in which case the levy must be approved by a resolution passed by a 3/4 vote at an annual or special general meeting, or

(b) in another way that establishes a fair division of expenses for that particular levy, in which case the levy must be approved by a resolution passed by a unanimous vote at an annual or special general meeting.

...

[30]         The Strata Corporation has a total unit entitlement of 3,537. The unit entitlement of the apartments range from 108 to 138 per lot and total 2,041 units or 58 percent of the total. The townhouse lots range from 118 to 150 per lot and total 1,496 or 42 percent of the total unit entitlement.

[31]         The 2011 Report groups the recommended repairs according to the urgency of undertaking them. The two most urgently needed repairs relate exclusively to the apartment tower. As noted above they are estimated to cost $1,882,406. The third category of repairs, those that are the least urgently needed, relate to the two townhouse buildings and are expected to cost $137,838. Assuming all the repairs are undertaken, the cost per unit of entitlement will be $571. The cost for each apartment-style lot will range from a low of $61,668 to a high of $78,798. The cost for the townhouse lots will range from $67,378 to $85,650. If the Strata Corporation is divided into sections and the repair costs are borne by the type of units to which they relate, the cost per unit of entitlement for the apartment-style lots would be $922 per unit. The cost to each apartment owner would range from a low of $99,576 to a high of $127,236. The townhouse owners’ cost per unit of entitlement would be $92. The individual owners would have to pay from $10,856 to $13,800.

[32]         Put in other terms, some 93 percent of the repairs relate to the apartment tower. If they are paid for by all of the owners contributing according to their unit entitlement, the townhouse owners will pay 42 percent of these costs. In terms of the impact on individual townhouse owners, they will be paying from between $56,522 to $71,850 more than if they were paying only for repairs to the buildings housing their units. This, they say, is significantly unfair.

[33]         The apartment owners on the other hand argue that they purchased lots in the Strata Corporation as a whole and on the assumption that every owner would contribute as provided for by theAct. If sections are created and costs allocated according to unit type and building benefited, then they will pay from between $37,908 to $48,438 more than they reasonably expected to pay. They also say that there is no history of treating the townhouse buildings differently than the apartment tower. Further, they argue they will be saddled with the additional administrative costs associated with running what will be in effect three strata corporations - the two sections and the umbrella Strata Corporation. Those costs they argue are not insignificant. Finally, they point out that there are amenities and services housed in the apartment tower which benefit the townhouse owners. To the extent that is so, repairs to the apartment building benefit the townhouse owners. Section 195 of the Strata Property Act provides that only the expenses that relate “solely” to the strata lots in a section are section expenses to be paid for by that section. If the townhouses benefit from the cost of repairs to the apartment building, then arguably the expense does not relate “solely” to the apartment-style units and is not an expense to be borne by only one section.

[34]         The petitioners argue that their situation is similar to that dealt with in Chow and to a lesser extent Shaw v. Strata LMS 3972, 2008 BCSC 453, 71 R.P.R. (4th) 255. The respondents argue that support for their position is found in  Strata Plan LMS 1537 v. Alvarez, 2003 BCSC 1085, 17 B.C.L.R. (4th) 63; Terry v. Strata Plan LMS 2153, 2006 BCSC 950; Peace v. Strata Plan VIS 2165, 2009 BCSC 1791; Liverant v. Strata Plan VIS-5996, 2010 BCSC 286, The Owners, Strata Plan VR1767 v. Seven Estate Ltd., 2002 BCSC 381, 49 R.P.R. (3d) 156 and Large, McCall v. Strata Plan No. 601, 2005 BCSC 1128, 34 R.P.R. (4th) 62.

[35]         An examination of this jurisprudence should begin with Alvarez, a decision of Bauman J. (as he then was). The issue in Alvarez related to the cost of repairs to the building envelop. The threshold legal question was whether the regime created by the Strata Property Act or the Condominium Act governed the allocation of those costs. In the course of answering that question Bauman J. considered the overall scheme of the Strata Property Act. He held at paragraph 35 that the organizing principle of the Strata Property Act is that “you are all in it together”.

[36]         The strata development in Alvarez consisted of eight units - two of which were in a heritage house while the other six were in a new building attached to the heritage house. The new building experienced water penetration problems and costly repairs were needed to remedy them. The Alvarezes, who owned one of the heritage units, did not want to contribute to the cost of the repairs, taking the position that the repairs did not benefit them at all. Bauman J. concluded that all of the units in the development were of one type, and thus the option of creating sections was not available. The question of whether the allocation of the repair costs in accordance with unit entitlement was significantly unfair was however considered. At paragraph 97 he wrote:

            From the perspective that this building is an integrated structural unit (albeit marrying old and new construction) there is nothing unfair or oppressive, as urged in the alternative by Mr. and Mrs. Alvarez, in the resolution of 15 October 2001. On the contrary, it is wholly consistent with the implicit representations made by the Alvarezes as owner developers of this project. That is to say, there was never any suggestion in the disclosure statement for this development but that common expenses would be shared by all units in accordance with their unit entitlement.

[37]         The repair costs in Alvarez were estimated at $160,000. The precise implications for the individual owners is not set out in the decision but, assuming relatively equal unit entitlement, the cost to the Alvarezes would likely be $20,000 if all contributed to the repair costs. If only those housed in the newly constructed portion of the building paid, then each of them would pay about $26,666.

[38]         Terry is another decision of Bauman J. It involved a phased strata development. All the units were of the same type and thus sectioning was not available as a remedy if the actions complained of were found to be significantly unfair. Phase 1 of the development had water penetration problems. The other two buildings did not. The cost of repairing the problems was variously estimated at between $2.9 million and $4 million. There were 302 units in the building. The repairs would cost between about $10,000 and $13,500 per unit. If only phase 1 units were required to shoulder the cost, the levy would be about $25,000 per unit (about half the units were in phase 1). The phase 1 owners sought declarations that the repairs were necessary and that there be a special levy applicable to all owners according to their unit entitlement. This was resisted on the ground that it would be significantly unfair. The court held that all owners in all phases were required to contribute to the cost of repairs. In reaching that conclusion Bauman J. adopted the more expansive definition of “significant unfairness” in Reid and then noted at paragraph 86:

I begin by noting that in each of the cases cited by counsel where "significantly unfair" conduct was found, there had been a history of past dealing or conduct which the strata corporation, in each case, was ignoring in pursuing the impugned action, usually against a distinct minority within the strata corporation...

He then concluded in paragraphs 100 and 102 that:

[100]    Nothing in the conduct of the strata corporation before the advent of Phases 2 and 3 can sustain a submission that the corporation has been "significantly unfair" to these new members. ...

...

[102]    The unfairness argument really falls away when one looks at what the Phase 2 and Phase 3 owners knew, or ought to have known, when they purchased their units. Nothing about the problem with the Phase 1 buildings was kept secret. The nature and extent of that problem was disclosed in the minutes of the strata corporation. The problem was also, eventually, more fully disclosed by the developer, at least to the extent of putting purchasers on their enquiry in the amended Disclosure Statement of October 2003. There is no suggestion that the Phase 1 owners delayed so as to subject the Phases 2 and 3 owners to responsibility for the repair costs.

[39]         The declarations requiring the strata corporation to effect the necessary repairs and allocate costs based solely on unit entitlement sought in Terry were, for the most part, made. The court found that it was not significantly unfair for owners in buildings that did not have water ingress problems to pay, according to their unit entitlement, for repairs necessary to the buildings that did have those problems.

[40]         The matter at hand has three circumstances that may serve to distinguish it from Terry. Those three circumstances are: firstly, in the matter at hand the buildings house different types of units; secondly, the expenses are not ones that anyone anticipated when they purchased; and finally, the expenses per unit of entitlement are significantly higher.

Posted by condorot ( Legal Issues, Kelowna, Kelowna, K692 ) :: Permalink :: Trackbacks (0)

Vancouver, VR 1411: Court ready to order windingup liquidation of leaky rotten condos at 1023, 1027 and 1029 W. 7th Avenue

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Buchanan v. S.P. VR 1411,

2008 BCSC 977

Date: 20080723
Docket: S074006
Registry: Vancouver

Between:

Mary Isobel Buchanan

Petitioner

And:

Strata Plan VR 1411, Ranald Craig Fraser, Maurice Bradley Duteau,
Vancouver City Savings Credit Union, Royal Bank of Canada and the
Toronto Dominion Bank

Respondents

Docket: S062820
Registry: Vancouver

Between:

R. Craig Fraser

Petitioner

And:

The Owners, Strata Plan VR 1411, Maurice Duteau
and Mary Buchanan

Respondents


Before: The Honourable Mr. Justice Curtis

Reasons for Judgment

Counsel for Mary Buchanan

Frank. R. Eadie

Counsel for Ranald Craig Fraser

Andrew Davis

Maurice Bradley Duteau

Appeared on his own behalf

Counsel for Court Appointed Administrator

G. Stephen Hamilton

Date and Place of Hearing:

June 9 and 10, 2008

Vancouver, B.C.

[1]                These applications concern a three-unit strata title property at 1029 West 7th Avenue, Vancouver.  There are two buildings, one in which Ms. Buchanan’s unit is located and one in which Mr. Fraser and Mr. Duteau’s units are located.  Both buildings require costly repairs for water damage.  The three owners are unable to agree upon how to proceed.  Ms. Buchanan and Mr. Duteau allege that they cannot afford the cost of repairs which they allege could be uneconomic and want the Strata Corporation wound up.  The Court Appointed Administrator has applied for the power to repair the building which coincides with the position of Mr. Fraser, who lives in his unit and wants his building repaired.  Ms. Buchanan lives in California and Mr. Duteau lives in Shanghai, neither of them occupies their units which are rented.  If repairs are ordered and either or both Ms. Buchanan or Mr. Duteau do not pay the portion of the repairs levied against their units, their units would be subject to being sold to realize the amount assessed.

[2]                The two buildings that compromise the strata title property share a foundation and stairway.  The buildings are constructed of steel studs and floors of metal decking topped with concrete.  Strata Lot 1, now owned by Ms. Buchanan was previously owned by Vinaya Vasent Kulkarni and Manoj Gupta.  In 2002, they did repair work to their roof and presented Mr. Fraser with a set of bylaws for the corporation that divided the obligation to repair between the buildings.  Mr. Fraser agreed to the bylaws and in November of 2004, he received a report dated April 29, 2002 from Spratt Emanuel Engineering Ltd. outlining deficiencies of Strata Lot 1.  In June of 2004, Mr. Fraser hired an architectural firm to help him with proposed changes to his balcony.  He hired Spratt Emanuel Engineering Ltd. to assess the condition of his building and received from that firm a report dated June 1, 2005 which outlined problems with the building in the following terms:

BACKGROUND:

The existing top storey of this 3-unit strata complex was altered at the time of construction to comply with the City of Vancouver height restrictions.  We understand that the roof had originally been constructed at a higher elevation and was cut down to comply with the City of Vancouver zoning By-Laws which require a maximum elevation of 25 ft 0 inches.  The original over-height structure was badly reconstructed at a new lower elevation to meet the City of Vancouver zoning and development By-Laws.  The resulting existing structure does not comply with the Building By-Law at the time of construction Vancouver Building By-Law 6134, nor does it comply with the current Vancouver Building By-Law 8057, 1999.  The following deficiencies were noted:

DEFICIENCIES:

1.         A mix of combustible and non-combustible construction materials were used.  The requirement was for non-combustible structure.

2.         The reconstructed structure contains window and door headers which are not supported by load bearing members.

3.         Load bearing members, where present, do not allow adequate transfer of load to subsequent lower floors.

4.         The roof structure appears to be under capacity due to the use of 2x4 wood roof rafters placed continually.

5.         Lack of adequate Environmental Separation, Part 5 of Vancouver Building By-Law 8057, 1999 requires adequate thermal and moisture protection.  The existing structure offers no dedicated roof insulation.  Heat transfer from the exterior to the interior has resulted in condensation within the roof structure and subsequent mould, fungus and deterioration.  The existing insulation value does not comply with Vancouver Building By-Law 8057, 1999 as well as the older By-Law in place at the time of construction.

6.         Unsafe wiring is present with inadequate clearance between the framing members, wiring and wall surfaces.

7.         Deficiencies of the exterior building envelope, due to improper roofing, flashing, wall cladding assemblies, insulation and vapour barrier assemblies, window detailing, door detailing, and deck detailing have all contributed to premature building envelop failure, resulting in rainwater infiltration and condensation on building surfaces.  The resultant damage consists of heavy rust to steel structural components, wood rot, fungus and mould on wood components, and subsequent damage to interior finishes.

RECOMMENDATIONS:

We recommend that extensive building envelope remediations are required at this building.  The remediations should include new roofing, new roof structure, new wall cladding, new wall structure, new windows, new doors, additional insulation, and better measures to deal with the thermal bridging evident at the walls and ceilings of the living space. This can best be accomplished by placing insulation out-board of the walls and roof of the existing living space.  In our opinion this additional exterior wall insulation will qualify for the City of Vancouver FSR exemption.  The addition of insulation to the roof will cause encroachment beyond the current building height, which we understand is at the allowable limit.

[3]                Mr. Fraser’s architect submitted an application to the City of Vancouver to repair the roof.  After the building was inspected, the City of Vancouver issued the following Legal Notice to the three unit owners:

RE:      1023, 1027 and 1029 West 7th Avenue (1029 West 7th Avenue)

A recent inspection of the unit (1029 West 7th) on the top floor of the above noted building revealed that there are multiple indications of faulty construction as follows:

1.         the roof structure is overspanned and sagging;

2.         vertical supports for the roof are not tied in to provide a continuous load path for the roof structure;

3.         beams and lintels and top wall plates are not supported to carry the superimposed loads;

4.         the bedroom wall is buckling near the top from lack of support;

5.         there is evidence of corrosion of wall members and fasteners of exterior gypsum sheathing board;

6.         the top wall plate is comprised of non structural material (flashing and partition guage metal);

The above structural deficiencies constitute AN UNSAFE CONDITION.

Accordingly, pursuant to Article 1A.6.1.2. of the Vancouver Building By-Law, you are ordered to:

1.         make application for a building permit to re-construct the roof structure and supporting members to meet the minimum requirements of the by-law BY JUNE 27, 2005

and

2.         commence repairs immediately upon issuance of the building permit

[4]                Mr. Richard Balfour, the architect hired by Mr. Fraser wrote a report dated June 8, 2005 to Mr. Fraser particularizing his findings followed by an estimate in December 2005 in which he suggested the repair costs for Messrs. Fraser and Duteau’s building would be $517,920 and $34,920 for the shared foundation and walkway structures.  No estimate was given to repair the deficiencies to Ms. Buchanan’s building.

[5]                Mr. Fraser retained legal counsel in November 2005.  His lawyer wrote a letter in December 2005 suggesting a sharing of repair costs as follows: Ms. Buchanan, $152,180.18, Mr. Duteau, $132,311.91, Mr. Fraser $167,000.83.  This expenditure would not have repaired any of the deficiencies in Ms. Buchanan’s property.

[6]                On the 15th of February 2006, Mary Buchanan commenced an action seeking a declaration that she was not required to contribute to the remedial costs of the Fraser/Duteau building.  She did so on the basis that she was led to believe that was the case when she purchased her unit.

[7]                Mr. Fraser applied to the Court by petition in Action No. S062820 for an order for repair of the buildings financed through an assessment upon the three owners.

[8]                The matter came on for hearing before Mr. Justice Cullen August 29, 2006 and resulted in the following order:

THIS COURT ORDERS THAT:

1.         The owners of strata lots 2 and 3 will contribute to the costs of remedial work to Building B, pro rata in accordance with their respective unit entitlements.

2.         The owners of strata lots 2 and 3 are responsible to contribute to the costs of repair and maintenance of Building B, pro rata in accordance with their respective unit entitlements.

3.         The Bylaws of the Owners, Strata Plan VRl411 (herein referred to as the "Strata Corporation") registered in the Land Title Office at New Westminster, in the Province of British Columbia under number BV313905 (herein referred to as the "Existing Bylaws") are hereby revoked and registration of same on the common property record of the Strata Corporation shall be cancelled upon delivery of a certified copy of this Order to the Registrar of the said Land Title Office.

4.         The Bylaws attached as Schedule "A" to this Order (herein referred to as the "New Bylaws") shall be deemed to have been passed and adopted by all members of the Strata Corporation as of the 11th day of August, 2003,

5.         The New Bylaws shall be registered on the common property record of the Strata Corporation upon delivery of a certified copy of this Order to the Registrar of the said Land Title Office.

6.         As of August 11, 2003 the rights and obligations of the owners of strata lots 1, 2 and 3 of the Strata Corporation shall be determined in accordance with the provisions of the New Bylaws and not the Existing Bylaws to the extent those bylaws affect the rights and obligations of the said owners.

7.         Pursuant to s. 174 of the Strata Property Act, S.B.C. 1998, c. 43 as amended (the "Act"), Garth Cambrey of Stratawest Management Ltd. is hereby appointed as the Administrator for the Strata Corporation to exercise the powers and perform duties of the Strata Corporation and the Strata Council, subject always to the Act, the New Bylaws and the Rules of the Strata Corporation in connection with repairs, maintenance and remediation of Building B and the stairs and foundations, part of the common property as defined under the New Bylaws.

8.         The Administrator has the following specific responsibilities:

(a)        to determine what is necessary for the proper repair and maintenance of Building "B" (strata lots 2 and 3) of the Strata Corporation and to oversee that work;

(b)        to review the expenses incurred by the Petitioner to the date of this Order and determine which of them, or which portions of them, are expenses properly attributable to the Strata Corporation as a whole, to Building B, or to either of the individual owners of strata lots 2 and 3, as the case may be, in accordance with the New Bylaws;

(c)        to determine what is necessary for the proper repair and maintenance of the stairs and foundations of the Strata Corporation covered in section 3 of the New Bylaw and to oversee that work;

(d)        to issue any demand letters or liens that may be necessary against any strata lot owner who does not pay their share of a special levy or levies approved or imposed under this Order; and to take such steps, including action under section 116 of the Strata Property Act, as may be necessary to pay for the repairs.

9.         The Administrator's determination of the allocation of previous expenses under paragraph 8(b) of this Order is subject to further review by this Court on application by any strata lot owner;

10.       The Administrator take such steps as may be reasonable and necessary to ensure that the Strata Corporation determines the appropriate recommendation and course of action for the repair of Building "B" including, without limitation:

(a)        appoint an independent engineering firm to undertake further investigations, if the Administrator deems that necessary;

(b)        consider the recommendations made in all building envelope investigation studies and other engineering or architect reports including any existing studies (collectively the "Existing Studies");

(c)        ensure that all owners have access to the reports of the independent engineering firm and the Existing Studies at least 20 days prior to any meeting called for the purpose of presenting recommendations and voting to raise funds to repair the building envelope;

(d)        ensure that the preferred repair program satisfies the requirements of the City of Vancouver so that the various Work Orders and Stop Work Orders issued by the City can be and are removed;

(e)        recommend what work if any, should be done to repair the building envelope of Building "B" and the estimated cost of any such work;

(f)         present the owners of Strata Lots 2 and 3 with the findings of the building envelope inspection, the evaluation of the Existing Studies and the suggested repair program for Building "B"; and

(g)        draft a resolution incorporating the preferred repair plan, the estimated cost, the name of the engineering firm to be hired to supervise the work and put that resolution to a ¾ vote of the Owners for their approval and acceptance, at a meeting called for such purpose by no later than January 30, 2007

(h)        if the owners fail to approve the ¾ vote resolution, to apply to Court on five clear days notice for an order determining that the recommended work is necessary and imposing a special levy on the owners in accordance with the New Bylaw.

11.       The Administrator take such steps as may be reasonable and necessary to ensure that the Strata Corporation determines the appropriate recommendation and course of action for the repair of the stairs and foundation, (which are areas that remain the responsibility of the Strata Corporation under the New Bylaw) including, without limitation:

(as in paragraph 10).

12.       The Petitioner, Mary Buchanan and Maurice Duteau and their successors in title to Strata Lots 1, 2 and 3 provide access to all information, records and documents requested by the Administrator, and provide such authorizations as are requested by the Administrator to obtain information, records and documents held by third parties which relate to the Strata Corporation.

13.       The Administrator may retain professionals, including legal counsel, for opinion, advice and services in respect of his duties pursuant to this appointment.

14.       The Administrator's fees of $150.00 per hour plus disbursements shall be rendered monthly, and shall be payable by the Strata Corporation, provided that at the request of any party, the Administrator shall pass his accounts before the Registrar of the Supreme Court of British Columbia.

15.       The Administrator shall allocate his time and disbursements, insofar as it is possible, between Building B and the stair and foundation issues referred to in paragraph 11 of this Order, which are the responsibility of the Strata Corporation in accordance with the New Bylaw, and the owners are responsible for their pro rata share of the Administrator's fees in accordance with the breakdown set out in the New Bylaw.

16.       The Petitioner shall take reasonable steps to add the Administrator as a named insured on its errors and omissions insurance policy, at the expense of the Petitioner.

17.       In the alternative, the Administrator may purchase liability insurance coverage for the work performed as the Administrator under this Order and all expenses associated in obtaining the insurance coverage shall be charged to the Petitioner as an expense of the Administrator.

18.       The Administrator shall report to the Court as soon as possible after February 1, 2007, or such other date as determined by this Honourable Court, with respect to the steps taken under this Order, the costs incurred as a consequence of his appointment as Administrator, and whether his appointment as Administrator should continue.

19.       The Administrator may apply to the Court for directions to assist and permit him to discharge his duties as Administrator hereunder.

20.       The Administrator and/or any party may apply to the Court to substitute another Administrator for the one appointed, extend the term of an Administrator for any subsequent term or terms, or to expand or reduce the scope of an Administrator's powers, as the Court deems appropriate.

21.       If any ¾ vote resolution(s) or majority vote resolution(s) of the owners are required to give effect to any of the Orders set out herein, and if such resolution(s) do not pass at a general meeting of the owners, the Administrator and/or any party shall have leave to apply to the Court for an Order approving the resolution(s).

22.       No person shall issue any legal process against Mr. Cambrey, Stratawest Management Ltd. or any employee or representative of Stratawest Management Ltd. related to this appointment without leave of the British Columbia Supreme Court.

23.       The issue of costs is adjourned generally and may be dealt with by way of a separate order.

24.       The Respondent, Maurice Duteau, has liberty to apply to this Court to make submissions with respect to this Order on five clear days notice to counsel for the Petitioner and the Respondent, Mary Buchanan.

The order made by Cullen J. makes no provisions for repairs to Strata Lot 1 owned by Ms. Buchanan. 

[9]                The order of Cullen J. was not settled by the parties until November 8, 2006.  As a result of this delay, the Administrator was unable to meet the deadlines set out in the order which were extended by the order of Groberman J. January 30, 2007.  A further order of Satanove J. extended the time to July 23, 2007.

[10]            In October 2006, on the instructions of Mr. Fraser, an action was started against parties responsible for the construction of the buildings, but there is no suggestion significant recovery is likely.  The Administrator deposes in his affidavit of February 27, 2008, “As far as I am aware, Mr. Fraser commenced the Leaky Condo Action unilaterally without the approval of the Strata Corporation.”

[11]            On June 12, 2007, Mary Buchanan filed Petition No. S074006 seeking an order to wind up the Strata Corporation.

[12]            Mr. J. Garth Cambrey, the Administrator appointed by the order of Cullen J., submitted a report dated July 12, 2007.  The Administrator called a meeting for April 16, 2007 at which resolutions were proposed to raise $20,000 by Special Levy to retain an engineering firm to prepare design and specification documents for building envelope repair for the Fraser/Duteau building, to raise $20,000 by Special Levy to prepare design specification documents for stair and foundation repair and to pay the Administrator’s fees, and to raise $5,000 by Special Levy for Administrator expenses to review Mr. Fraser’s claims for monies spent on the property.  None of the proposed resolutions was considered or discussed.  Mr. Duteau and Ms. Buchanan took the position that the repair costs were uneconomic and that the Strata Corporation should be wound up and the property sold.  The Administrator stated in his report, “It is my opinion that the Strata Corporation should proceed with obtaining cost estimates on the building envelope repairs of building “B”….”

[13]            The Administrator’s report also gave his assessment of the proper allocation of expenses incurred by Mr. Fraser.  The Administrator assigned the already incurred costs as follows: Strata Lot 1 Ms. Buchanan $4,352, Strata Lot 2 Mr Duteau $38,633.07, Strata Lot 3 Mr. Fraser $69,555.01.

[14]            The Administrator also reported as follows:

Governance of the Strata Corporation is also of concern to me as I have not seen any evidence to support that the Strata Corporation is operated within the guidelines of the Strata Property Act.  For example, the Strata Corporation does not collect Strata Fees for common expenses, does not hold strata council or Annual General Meetings to approve budgets or elect a Strata Council and, as mentioned earlier, does not have an insurance appraisal completed in order to ensure the property carries property insurance to the full replacement value as required by the Section 149(4) of the Strata Property Act.  The Strata Corporation does have a bank account that was set up for the purposes of raising funds to investigate the walkway/foundation issues.

The Strata Corporation is currently in the position of not being able to pass a ¾ Vote Resolution required to raise funds to complete the repairs to Building “B” nor the foundation/walkway repairs.  As a result, the governance of the Strata Corporation has failed in that the Strata Corporation is unable to meet its statutory obligation to repair and maintain the common property pursuant to Section 72 of the Strata Property Act.

It is my opinion that proper governance of the Strata Corporation could assist in alleviating some of the issues at hand as it would force the Strata Corporation and owners to meet at least annually to discuss the property.  To date, the Owners have been embroiled in legal battles over the condition of the property and have been unable to focus on resolving the matters at hand.  If the Owners are not willing to operate the Strata Corporation consistent with the Strata Property Act, consideration should be given to retaining a licensed strata manager who would be capable of ensuring the Strata Corporation operates within the requirements of the Strata Property Act.

[15]            In the result, the Administrator recommended “… that my appointment continue and that I be required to report to the Court on or before September 30, 2007 with respect to the results of the preparation of the design and specification and cost estimates based on such design and specification documents in order that the Strata Corporation may decide if repairs are warranted or, alternatively, consider winding up of the Strata Corporation….”

[16]            The Administrator’s Report was brought before Rice J. July 23, 2007 as a result of which the following order was made:

THE APPLICATION of Mr. J. Garth Cambrey, the Court-appointed Administrator coming on for hearing at Vancouver, British Columbia on July 23, 2007, and on hearing G. Stephen Hamilton, counsel for the Administrator, Frank R. Eadie, counsel for Mary Buchanan and Messrs. Maurice Duteau and R. Craig Fraser appearing on their own behalf, and on reading the materials filed:

THIS COURT ORDERS that:

1.         a special levy in the sum of $20,000.00 be assessed against the owners of strata lots 2 and 3 in Strata Plan VR 1411 for the purpose of preparing a design and specifications for building envelope repairs to the strata corporation's building (the "Design and Specifications Work"), to be paid immediately in accordance with unit entitlement;

2.         before Mr. Cambrey authorizes the commencement of the Design and Specifications Work, he shall:

(i)         provide to the parties the fee quotes he receives from engineers respecting the Design and Specifications Work;

(ii)        allow the parties 15 days from the receipt of the fee quotes to ask questions or provide comments in relation to the fee quotes;

(iii)       by no later than 7 days following the 15 day period referred to in paragraph 2 (ii) of this Order, confirm in writing the fee quote he intends to accept for the Design and Specifications Work;

3.         the parties will have no more than 7 days following receipt of Mr. Cambrey's written confirmation that he intends to accept a fee quote for the Design and Specifications Work, to apply to Court to seek relief in relation to Mr. Cambrey's intention to accept a fee quote, and if no application to the Court is made by any party, Mr. Cambrey may accept the fee quote without further notice to the parties;

4.         a special levy in the sum of $10,000.00 be assessed against the owners of strata lots 1, 2 and 3 in Strata Plan VR 1411 for the purpose of funding the consulting fees related to the investigation and design work for the repair of the Strata Corporation's walkways and foundation (the "Walkways and Foundation Work"), to be paid immediately in accordance with unit entitlement;

5.         before Mr. Cambrey authorizes the commencement of the Walkways and Foundation Work, he shall

(i)         provide to the parties the fee quotes he receives from engineers respecting the Work, he shall:

(ii)        allow the parties 15 days from the receipt of the fee quotes to ask questions or provide comments in relation to the fee quotes;

(iii)       by no later than 7 days following the 15 day period referred to in paragraph 5 (ii) of this Order, confirm in writing the fee quote he intends to accept for the Walkways and Foundation Work;

6.         the parties will have no more than 7 days following receipt of Mr. Cambrey's written confirmation that he intends to accept a fee quote for the Walkways and Foundation Work, to apply to Court to seek relief in relation to Mr. Cambrey's intention to accept a fee quote, and if no application to the Court is made by any party, Mr. Cambrey may accept the fee quote without further notice to the parties;

7.         a special levy in the sum of $3,648.81 be assessed against the owner of strata lot 1 for the purpose of funding the Administrator's expenses, but such assessment is subject to review by the Registrar both as to the quantum of the Administrator's fees and expenses and distribution of same between the three members of the Strata Corporation;

8.         a special levy in the sum of$13,308.67 be assessed against the owners of strata lots 2 and 3 for the purpose of funding the Administrator's expenses, to be paid immediately in accordance with unit entitlement;

9.         the parties may make reasonable inquiries of the Administrator respecting his expenses within 14 days of the date of this Order, and the Administrator shall respond to the inquiries within 14 days;

10.       the parties may review the Administrator's expenses before a Registrar of the Supreme Court provided that an appointment for a review is brought within 14 days of Mr. Cambrey responding to any reasonable inquiries received from the parties;

11.       Mr. J. Garth Cambrey may cause the Strata Corporation to obtain an insurance valuation report on the Strata Corporation's property to establish replacement value for insurance purposes and to amend the Strata Corporation insurance policy to reflect the value established by the insurance appraisal and that the cost of the insurance appraisal and any increase in premium required as a result of the appraisal be paid from the funds contained in the Strata Corporation account located at VanCity Credit Union;

12.       Mr. J. Garth Cambrey may sign a Form “I” on behalf of the Strata Corporation with respect to the new Bylaws established by the Cullen J. Order and attend to the proper registration of the bylaws at the Land Title Office;

13.       Mr. J. Garth Cambrey will report to the Court by no later than October 1, 2007; and

14.       the signatures of the Petitioner, R. Craig Fraser, and the Respondent, Maurice Duteau, are not required to approve the form of this Order.

[17]            The Administrator’s second report is dated September 21, 2007.  He reported that his total fees and disbursements from November 1, 2006 to August 31, 2007 amounted to $36,524.10.  He felt that he had not obtained sufficient information to determine whether it would be beneficial to the Strata Corporation to repair the building or alternatively wind it up and sought an extension of his appointment and recommended he report to the Court as soon as possible after February 29, 2008.  This report came before Master Tokarek October 1, 2007 who ordered the Administrator to report to the court by February 29, 2008.

[18]            A further Administrator’s Report was filed February 20, 2008.  He noted his fees and disbursements to January 31, 2008 totalled $46,454.09 being $18,329.59 for Administrator’s Fees and $21,055.90 for legal fees.  The Administrator’s recommendations in that report were as follows:

Although in the report of February 5, 2008 McArthur Vantell sets out budget repair figures, these figures still remain estimates.  A more accurate repair cost of building “B” will not be known until the design is completed and the specifications are tendered.  I expect the bids pursuant to the tender to be received before May 31, 2008.  McArthur Vantell is proceeding with this work as authorized in the Rice J. Order

At the time the bids are received for the building repair of building “B” a decision will be required to either proceed with the repairs or wind up the Strata Corporation under the terms of the Strata Property Act.  It is highly unlikely that the Owners would be able to follow through with the necessary building envelope repair and roof repair of building “B” or the walkway and foundation repairs as recommended by McArthur Vantell without the assistance of an Administrator.  It is equally unlikely that the Owners would be able to make a decision on the winding-up of the Strata Corporation without the assistance of the Court or an Administrator.

The attitude of the individuals that make up the Strata Corporation are so diverse and polarized that I do not believe the Strata Corporation could govern itself through a building envelope repair or a winding up the Strata Corporation.  Ms. Buchanan and Mr. Duteau remain of a similar mind and philosophy which is contrary to that of Mr. Fraser.  As a result, I recommend that my appointment continue until the building repair work of building “B” has been rendered.

I have not been requested by the court to comment on the possibility of winding up the Strata Corporation and seek judicial direction in this regard.

I noted in my July 12, 2007 report my concerns with respect to the governance of the Strata Corporation and the fact that it does not comply with the requirements of the Strata Property Act as it does not hold Annual General Meetings, approve budgets, elect strata council members, collect strata fees or adhere to many of the procedures and requirements of the Strata Property Act.

Although the legal operation of the Strata Corporation is not the most pressing issue of the Owners, the Strata Corporation does have a statutory obligation to operate its affairs consistent with the Strata Property Act.

There has not been cooperation of Owners, even in the simplest of matters, such as payment of the insurance premium.  It is my opinion that with the current ownership, the Strata Corporation is not able to govern its own affairs and I recommend that my appointment as administrator be expanded to include the powers and duties of the strata council and strata corporation as required under the Strata Property Act and bylaws of the Strata Corporation.  In addition, I recommend that the current bank account held by the Strata Corporation at Vancity Credit Union be closed and all remaining funds transferred to me in trust.

 (More)

Penticton, Tiki Shores: (Part 3) Frustrated investor condo owners convince Court to order apointment of administrator to fix governance, management, accounting and repair problems

EXCERPT FROM

2008 BCSC 534 The Owners, Strata Corporation KAS 1490 v. 453842 B.C. Ltd.

 

 

[60]            It is the position taken on behalf of 453 that the Units owned by 453 are in a separate rental pool.  Parts of the Agreement support this submission and parts do not.  The definition of “Pooled Income” in paragraph 1 of the Agreement states that pooled income means “all rent and other monies received from time to time by the Manager to the credit of the Owners of the Units of the project from time to time constituting the Rental Pool from tenants of the Rental Pool ….”  There is nothing in evidence which allows me to conclude that the accounting provided to the AGM’s and to the Strata Council showed income being deposited into eight separate Rental Pools, that expenses were taken out of those eight separate Rental Pools, or that a quarterly or year-end accounting was undertaken to separate income and expenses into eight separate Rental Pools.  It may well be that this division was what was understood by all Owners and was reflected in the accounting that was provided from time to time, but that is not clear from either the Agreement or what is in evidence.  Schedule “A” to the Agreement provides as follows:  “The Rental Pool consists of 41 rental units … divided into eight unit types ….”  This could be interpreted to mean the Rental Pool consists of all Units.  However, in contrast to that, Units are then divided into “eight unit types” and revenue due to Owners is “… divided evenly by those Owners of the same rental pool type”.  Part of the Agreement does support the proposition that there are eight separate Rental Pools as paragraph 6.1 states that the Manager will use the best efforts “… to distribute guests so as to equalize wear and tear on all units of the same type.”

[61]            Even assuming that the revenue and the expenses “stay within” a particular Unit type, unless it can be shown that 453 only owns Units of a particular type and no other Owners own Units of that type, 453 would share revenue within the particular rental type that comprises their Units.  It would not be the case that 453 would not share revenues within the same rental pool type.

[62]            Additionally, the ability of an Owner to provide free use of a Unit to third parties does not mean that the appropriate contributions need not be made as are required under the Agreement.  It is necessary for the Owner to remit the appropriate contributions whether or not that Owner receives the funds from the third parties.

[63]            Even assuming that not all rental income was being collected on Units owned by 453 because its Units were in separate rental pools, it is clear that the revenue would not be available to allow 453 to pay what needed to be paid pursuant to the Agreement, including 25% of the gross revenue for Strata Fees, 5% of the gross revenue for the IRM fund, 2% of gross revenue for Marketing Fees, and 33% of gross revenue payable either to the Owners as a whole or to the Owners of the particular unit type constituted by the Units owned by 453.  Any failure to pay the amounts established under the Agreement would be other than in accordance with the obligations of 453 as an owner of Units.

[64]            Presently, it is impossible to ascertain what sums have been lost to the various funds as a result of 453 allowing the receivables to amount to what is set out in the Affidavit of Ms. Webb.  There is nothing in evidence to allow me to conclude that 453 has paid the contributions set out above despite the fact that income was not received from the Units which were used by third parties without those third parties paying rent for those Units or without 453 collecting the rentals owing.  As well, it is not clear whether the amounts that are owing are receivables of 453 or whether they are receivables of the Strata Corporation.

[65]            It should also be noted that the $34,139.49 owed by Pro Digital, the $6,323.89 owed by 586519 B.C. Ltd., the $233,024.45 owed by Mr. Dacyk personally, the $52,578.58 owed by Orchard Breezes Property Development, the $13,078.17 owed by Reinhold Consulting, and the $3,000.00 owed by Rock Heights Care Home continue to be shown on the accounts of 453 as receivables reflecting rentals that should have been available to 453.  It may or may not be correct to show these amounts owing from companies or individuals associated with 453 as receivables of 453 as opposed to receivables of the Strata Corporation.  In any event, there is nothing in evidence which would allow me to conclude that appropriate collection proceedings have been commenced by 453 in order that room rentals would be available for the Rental Pool if all rentals should be deposited into the Rental Pool or in order that 453 would be in a position to make the necessary contributions from the revenue available to it as is set out in the Agreement if the amounts are owing to 453.

(F)       CONDUCT OF THE JANUARY 26, 2008 ANNUAL GENERAL MEETING
AND THE FEBRUARY 2, 2008 ANNUAL GENERAL MEETING

[66]            The Minutes of the January 26, 2008 AGM contain the following statement:

The Strata Council did not recognize a quorum.  Jim Duke explained that this was due to interpretation of the 2002 Strata Property Act by Strata’s legal counsel that since there are no financial statements to use to determine if strata fees are paid for any unit, then it is not possible to determine voting eligibility.  Shareholders eligible to vote: NONE.

Therefore, an actual Annual General Meeting cannot be held at this time.

In the spirit of the Strata Property Act, this meeting is being held to meet the Annual General Meeting requirement, and then an informal meeting would be held for information exchanges and discussion.

[67]            In his February 27, 2008 Affidavit, James Duke states that the Owners met for the AGM on January 26, 2008 but the:

… Strata Council would not, under its Bylaws, recognize any eligible voters nor recognize a quorum and thus no voting took place.  Because there could not ever be a quorum of eligible voters until the Court had the opportunity to intervene … the AGM was in the view of all in attendance excepting Messrs. Davis and Uhlemann was adjourned generally pending a Court Order which indeed was already the subject of the application; …. On February 2, 2008, Messrs. Davis and Uhlemann purported to carry out an AGM and elected themselves onto council and naturally removed all of the current Strata Council except Bill Campbell who quickly resigned within days ….  All of this purported to be done notwithstanding the obvious conflict of interest, the fact that there are no eligible voters recognized by Strata Council, there could be no quorum established, and notwithstanding that all other Owners expressed agreement that no AGM could proceed without the said Court orders.

[68]            In his February 26, 2008 Affidavit, Sydney Pawlowski stated that, because the financial statements were not available, the “… Strata Council could not know what if any dues had been paid, we could not know who was in good standing to vote – the very point made at the AGM in December 2006 the situation created by the Defendant D. Davis and the numbered company [453] ….”

[69]            In his March 4, 2008 Affidavit, Mr. Davis states:

… at the AGM of January 26, 2008, I advised all present that section 48 of the Strata Property Act specifies that if there is no quorum present (the position taken by Mr. Duke as chair) then it is adjourned to the same time and date a week later.  A copy of minutes taken by Deborah Webb (which have yet to be approved and do contain some inaccuracies and miss some matters) … show the general outline of that meeting.

I attended at the same time and place one week later and also present were Derek Uhlemann and Deborah Webb.  We proceeded with the continuation of the Annual General Meeting.  The minutes of that Annual General Meeting (yet to be approved) are …. accurate as to what occurred.

Three council members were chosen.  They were Derek Uhlemann, William (Bill) Campbell and me.  All of us had agreed to stand for election, although Mr. Campbell could not be there.  Following the meeting I attempted to set up a first strata council meeting with them.

[70]            The question of who is eligible to vote at an AGM is complicated by the change in legislation and the transition provisions dealing with the standard bylaws of this and other strata corporations. 

            (A)       PROVISIONS UNDER THE REPEALED CONDOMINIUM ACT

[71]            Under s. 26(2) of the Condominium Act, the bylaws of a strata corporation were the bylaws set out in Part 5 of the Act “… until they have been altered or repealed ….”  In an August 31, 1994 filing in the Land Title Office as a “Notification of Change of Bylaws”, the Strata Corporation stated that the bylaws of the Strata Corporation “shall be the following:  “Part 5 of the Condominium Act subject to the following amendments, deletions or additions: ….”  Amendments were then set out to ss. 115(e), 115(h), 117 to add a sub-section (1), 131(1) to add a sub-section (d), and to 131(1) to add a sub-section (e).  None of those amendments dealt with an amendment to the provisions dealing with who was eligible to vote at an annual general meeting.  

[72]            Pursuant to s. 124(3) of the Condominium Act, a quorum was one-third of the persons entitled to vote and present in person or by proxy.  Pursuant to s. 125 of the Condominium Act, unless a motion required an unanimous resolution, an owner was not entitled to vote at a general meeting unless all contributions payable for his or her strata lot had been paid.  Pursuant to s. 124(4) of the Condominium Act, if a quorum was not present then the meeting stood adjourned to the same day in the next week at the same place and time when persons who are present at that meeting and eligible to vote then constituted a quorum.  The provisions set out under s. 124 of the Condominium Act were repeated in s. 30 of the Standard Bylaws.  However, the provisions of the Condominium Act were repealed by R.S.B.C. 1998-43-294 effective July 1, 2000 (B.C.R. Reg. 43/00).

(B)       PROVISIONS UNDER THE STRATA PROPERTY ACT

[73]            Under bylaw 17.11(2) of the Strata Property Act Regulations, a strata corporation bylaw existing under the Condominium Act including a bylaw under Part 5 of the Condominium Act:  “… continues to have effect despite any provision of the Act or this regulation”.  However, Regulation 17.11(2) is subject to what is set out in Regulation 17.11(3) through (5).  Regulation 17.11(3) provides that, as at January 1, 2002, the “Standard Bylaws” created under the Strata Property Act are deemed to be the bylaws for all strata corporations “except to the extent that conflicting bylaws are filed in the Land Title Office.”  Under Regulation 17.11(3)(b), any bylaws under Part 5 of the Condominium Act which were deemed to be bylaws of a strata corporation, ceased to have effect.  Pursuant to Regulations 17.11(4) and 17.11(5), if a bylaw filed in the Land Title Office conflicts with a Standard Bylaw as established under the Strata Property Act, the filed bylaw prevails except to the extent that it conflicts with the provision in Parts 1 through 17 of the Strata Property Act or the Regulations.

[74]            Therefore, I summarize these provisions as follows:

(a)        under the Condominium Act, the bylaws set out under Part 5 of that Act prevailed unless they had been altered or repealed;

(b)        the “Standard Bylaws” created under the Strata Property Act are deemed to be the bylaws of all strata corporations except to the extent that conflicting bylaws were filed in the Land Title Office;

(c)        any bylaws under Part 5 of the Condominium Act which were deemed to be bylaws of a strata corporation cease to have effect as at January 1, 2002 and are replaced by the “Standard Bylaws” created under the Strata Property Act subject to one exception;

(d)        if a bylaw previously filed in the Land Title Office conflicts with a Standard Bylaw established under the Strata Property Act, the filed bylaw prevails unless it conflicts with the provisions set out in Parts 1 through 17 of the Strata Property Act or the Regulations.

[75]            I am satisfied that the provisions which are in place for this Strata Corporation regarding the quorum at an AGM or special general meeting are set out under s. 48(3) of the Strata Property Act.  First, there was no filing in the Land Title Office of bylaws which altered the standard bylaws as set out under Part 5 of the Condominium Act.  Second, the provisions relating to a quorum are exactly the same under both the Condominium Act and the Strata Property Act

[76]            Even if I could conclude that there had been a filing in the Land Title Office of both Part 5 of the Condominium Act as well as the amendments noted above, I would conclude that the Part 5 of the Condominium Act amendments are no longer in effect as they have been replaced by the “Standard Bylaws” created under the Strata Property Act.  I find that the bylaw dealing with a quorum does not conflict with the Standard Bylaws established under the Strata Property Act so that it cannot be said that the “filed bylaw prevails”.  In dealing with what occurred at the January 28, 2008 AGM and the February 2, 2008 AGM, s. 48(3) of the Strata Property Act applies.

[77]            Pursuant to s. 48(3) of the Strata Property Act, if a quorum is not present within one-half hour from the time appointed for an AGM or special general meeting, the meeting “… stands adjourned to the same day in the next week at the same place and time, but if on the day to which the meeting is adjourned a quorum described in s-s. (2) is not present within 1/2 hour from the time appointed for the meeting, the eligible voters present in person or by proxy constitute a quorum.”

[78]            Messrs. Davis and Uhlemann were correct in their interpretation that the meeting was adjourned to the same day in the next week at the same place and time.  Those who were of the view that the AGM could be adjourned generally were not correct.  The provisions in the bylaws of the Strata Corporation are clear, they require that the meeting should stand adjourned not generally but to the same day in the next week at the same place and time.  However, I cannot agree with the interpretation given by Messrs. Davis and Uhlemann regarding whether the adjourned meeting should proceed.

[79]            As to who is eligible to vote, s. 53(2) of the Strata Property Act provides that a strata corporation may, by bylaw, provide that:  “… the vote for a strata lot may not be exercised, except on matters requiring unanimous vote, if the strata corporation is entitled to register a lien against that strata lot under s. 116(1).”  At the same time, s. 53(3) of the Strata Property Act provides that, if such a bylaw has been passed under s. 53(2) of the Act so that a vote for a strata lot may not be exercised, the vote must not be considered “… for the purposes of determining a quorum in accordance with s. 48 or for the purposes of ss. 43(1), 46(2) and 51(3).”  Pursuant to s. 48(2)(a) of the Strata Property Act, but subject to the bylaws of the strata corporation, a quorum for an annual or special general meeting is “eligible voters holding 1/3 of the strata corporation’s votes present in person or by proxy ….” (emphasis added).  Pursuant to s. 48(3) of the Strata Property Act, if an annual or special general meeting is adjourned because a quorum is not present, it is adjourned but on the basis that a quorum is constituted by:  “... the eligible voters present in person or by proxy ....”  (Emphasis added).

[80]            The meeting on February 2, 2008 could proceed with those present constituting a quorum.  However, only “eligible voters” constituted the quorum and it was only “eligible voters” who could vote at the meeting.  I find that there were no eligible voters present in person or by proxy to constitute a quorum on February 2, 2008.  First, because the necessary financial statements were not before the meeting on February 2, 2008, it was impossible to ascertain whether there were any eligible voters as it was impossible to ascertain which Owners had failed to pay strata fees thus enabling the Strata Corporation to register a lien under s. 116(1) of the Strata Property Act.  In this regard, the Strata Corporation placed a $6,000.00 lien on each of the Units of 453 based on the findings of Robert Lamb and because the mortgage against the Units of 453 was subject to foreclosure proceedings.  It is not clear whether the funds which were subsequently paid to the solicitor for the Strata Corporation and subsequently released to the Strata Corporation brought current the Strata Fees owed by 453.  As well, what is in evidence does not allow me to conclude that all of the Strata Fees for 2007 and 2008 have been paid by any of the Owners.  Because that is the case, there is nothing in evidence which would allow me to conclude that anyone was eligible to vote on February 2, 2008.  Second, because the bylaws of the Strata Corporation provide that the vote of a strata lot may not be exercised if the Strata Corporation is entitled to register a lien under s. 116(1), the vote of any such strata lot could not be considered for the purposes of determining a quorum (s. 53(3) of the Strata Property Act). 

[81]            Accordingly, the meeting should not have proceeded on February 2, 2008 in the absence of the financial statements being available which would show that at least some of those who were present on that date were eligible to vote.  As that was not the case, I conclude that the business transacted on February 2, 2008 was null and of no effect.  The election of Messrs. Uhlemann, Campbell, and Davis to the strata council was null and of no effect so that the previous members of the strata council were not replaced.  The members of the previous strata council were improperly removed.  The Strata Council proceeded with a number of agenda items which are critical to the future success of Tiki Shores.  First, steps were taken to prepare a budget.  Second, an agreement was reached to retain a properly licensed strata manager to replace the one that had resigned.  Regrettably, I find that these steps were also null and void by virtue of the improper replacement of the previous Strata Council.

SHOULD AN ADMINISTRATOR BE APPOINTED?

[82]            Under paragraph 10 of the Agreement each of the Owners can terminate their particular Agreement if the “Manager shall be guilty of any fraud or dishonest or serious misconduct” or if the “Manager shall commit any serious breach or non-observance of the provisions of this Agreement and such breach or non-observance shall continue for at least fifteen (15) days following receipt of a notice in writing from the Owner to cure same”.  While that option would be available to each of the 20 Plaintiffs, it is probably unlikely that 453 would terminate the Agreement that it has with itself.  It would be economically and logistically unrealistic to have two Managers for Tiki Shores.  As well, a termination of the Agreement under paragraph 10 might well require an Owner to pay three months of management fees to compensate 453 for “additional administration costs involved” with any such compensation and termination being “… without prejudice to the right of the Manager to claim for further damages arising out of such a wrongful termination.”  In view of the perception by the 20 Plaintiffs that 453 has not properly managed, I would anticipate that the possibility of having to make such a payment would be repugnant to the 20 Plaintiffs.  As well, the last thing that all of these Owners require is further litigation regarding the management of the Tiki Shores.

[83]            I cannot be satisfied that termination pursuant to paragraph 10 of the Agreement would be in the interest of any Owner who elected to terminate the Agreement or of any of the Owners.  Accordingly, the issue which arises is whether an Order should be made appointing an Administrator to exercise the powers and perform the duties of the Strata Corporation and whether the other relief sought by the Plaintiffs should be granted.  This involves a consideration of whether the Plaintiffs should be granted orders pursuant to ss. 164 and 174 of the Strata Property Act.

SECTION 174 OF THE STRATA PROPERTY ACT

[84]            The factors to be considered about whether there should be an appointment of an administrator under s. 174 of the Strata Property Act were summarized in Lum v. Strata Plan VR519, [2001] B.C.J. (QL) No. 641 (B.C.S.C.):

… [the] factors to be considered in exercising the Court's discretion whether the appointment of an administrator is in the best interests of the strata corporation include:

(a)        whether there has been established a demonstrated inability to manage the strata corporation,

(b)        whether there has been demonstrated substantial misconduct or mismanagement or both in relation to affairs of the strata corporation,

(c)        whether the appointment of an administrator is necessary to bring order to the affairs of the strata corporation,

(d)        where there is a struggle within the strata corporation among competing groups such as to impede or prevent proper governance of the strata corporation,

(e)        where only the appointment of an administrator has any reasonable prospect of bringing to order the affairs of the strata corporation.

In addition, there is always to be considered the problem presented by the costs of involvement of an administrator.

I also take into consideration the comments of Huddart, J. in Cook, … [Cook v. Strata Plan N-50 [1995] B.C.J. (QL) No. 2882 (B.C.S.C.)], that the democratic government of the strata community should not be overridden by the Court except where absolutely necessary. (paras. 11-2)

[85]            In Aviawest Resort Club et al v. Chevalier Tower Property Inc. et al (2005), 254 D.L.R. (4th) 67 (B.C.C.A.), Smith, J.A. on behalf of the Court gave this interpretation of s. 174 of the Strata Property Act:

Section 174 of the Act authorizes the court to appoint an administrator to exercise the powers and perform the duties of the strata corporation.   He can do no more than the strata corporation could do.  In particular, if the strata corporation could not act without the authority of a resolution, the administrator is equally restrained.  The owners are members of the strata corporation.  It is the members who vote on and pass resolutions at meetings of the strata corporation.  Allowing the administrator to act without resort to the owners at all, as the impugned orders do, abrogates the rights of the owners to vote on actions requiring their authorization by resolution.  The Act does not authorize such a result.  (at pp. 77-8)

[86]            There is overwhelming evidence to allow me to conclude that 453 has been unable and will continue to be unable to manage the Strata Corporation in accordance with the provisions of the Agreement and with the support of the Plaintiffs.  While I am not prepared to conclude that the acts of 453 in withdrawing funds from the bank account of the Strata Corporation amount to fraud as is urged upon me by the Plaintiffs, I can conclude that there has been massive mismanagement in relation to the affairs of the Strata Corporation.  The affairs of the Strata Corporation are presently in chaos.  The competition between the two groups has effectively prevented proper governance of the Strata Corporation:  the proper governance of the Strata Corporation is impossible given the current struggle between the 20 Owners who are the Plaintiffs and 453 as the Owner of 21 Units.  I am satisfied that it is necessary to appoint an Administrator under s. 174 of the Strata Property Act in order to bring some semblance of order to the affairs of the Strata Corporation.  I am satisfied that this is one of those occasions where the governance created by the bylaws of this Strata Corporation should be overridden by the Court.  Accordingly, it is appropriate to make an Order that an Administrator under s. 174 of the Strata Property Act be appointed.  The Plaintiffs will be at liberty to provide the name of the Administrator and submit an Order incorporating the name, occupation or business, and the address of the Administrator they choose.

[87]            In order that the Administrator will be in a position to take control of the affairs of the Strata Corporation, I make the following Order restraining the Plaintiffs and the Defendants from:

(a)        dealing with or depositing any further Rental Pool Income monies except into the account of the Administrator;

(b)        removing or destroying any documentation or computer hardware or software from the Office at Tiki Shores;

(c)        interfering in any manner with the exercise of the powers and the performance of the duties of the Strata Corporation by the Administrator.

[88]            I also make the following Orders:

(a)        within 48 hours, the Defendants, their officers, employees and Directors shall deliver any property of the Strata Corporation to the Administrator;

(b)        within 21 days, 453 shall provide and deliver to the Administrator a full accounting for the years 2004, 2005, 2006 and 2007 to include the following:  a statement of all revenues, income or funds received by the Defendants in the operation of Tiki Shores; a statement of all expenditures incurred and paid from the monies received as revenue or income in the operation of Tiki Shores; a detailed summary of those payments to Owners which remain outstanding under the Agreement; the standing of each of the Owners regarding payment of Strata Fees and any outstanding levies; all financial information including draft or final financial statements; and the General Ledger of the Strata Corporation;

(c)        the Administrator will be at liberty to change the signing authorities for any bank accounts maintained on behalf of the Strata Corporation and will be at liberty to have access to any and all banking records relating to the Strata Corporation since January 1, 2004;

(d)        pursuant to s. 174 of the Strata Property Act, the Administrator will exercise or perform all of the powers and duties of the Strata Corporation until further Court Order.  Those powers and duties of the Strata Corporation shall include the ability to perform those functions under the Agreement previously performed by 453 as the Manager of Tiki Shores.

[89]            The Administrator will make recommendations to the Strata Corporation regarding whether the accounting of the Strata Corporation shall reflect one Rental Pool or eight Rental Pools reflecting the eight Units set out in the Agreement.  The Administrator will also make recommendations to the Strata Corporation whether a new Agreement regarding the management of Tiki Shores should be prepared for the signature of all Owners to include any necessary amendments to reflect the current needs of Tiki Shores and its Owners.  The Administrator will prepare a budget for the necessary repairs and maintenance required for all Units at Tiki Shores and will arrange for a Special General Meeting to seek approval from all Owners regarding the budget and for a Special Levy to fund that portion of the budget which will not be available from funds available in the Inventory, Replacement and Maintenance fund.  At the same meeting, the Administrator will present a budget of anticipated revenues and expenditures for the Strata Corporation to be presented for those Owners present or by proxy who are eligible to vote.  The Administrator will be entitled to reasonable remuneration and reimbursement for any of his or her expenses.  Those amounts to be paid by the Strata Corporation.

[90]            In order to give effect to the powers and duties available to the Administrator, the Administrator will be at liberty to apply for further Directions.  I will be seized of any applications in this regard.  The question which then arises is whether the other orders sought by the Plaintiffs should be granted pursuant to s. 164 of the Strata Property Act.

SECTION 164 OF THE STRATA PROPERTY ACT

[91]            Orders sought pursuant to s. 164 can only be granted if I am able to conclude that the actions to date are “significantly unfair”.  A number of decisions have considered the effect of s. 164 of the Strata Property Act.  In Vold v. Strata Corp. 202, [1993] B.C.J. (Q.L.) 344 (B.C.S.C.), the Court dealt with a company that owned a majority of the units, a proposal that the company would commence work, and a vote in favour of the work being conducted.  The Court held that the conduct of the strata council demonstrated bad faith and oppressive conduct:

Oppression has been the subject of a number of judicial comments, mainly in the context of litigation between shareholders in a corporation.  In my view, the analogy between the strata corporation owner and shareholders of a corporation is appropriate (see s. 224 of the Company Act).

In Elder v. Elder & Watson, Limited, [1952] S.C. 49 at p. 60, Lord Keith stated:

Oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder.

C.J.S.C. (as he then was) stated:

… as pointed out by Lord Keith in Scottish Co-op.  “oppression … may take various forms”, implying that the concept is fairly open-ended.  At a minimum, however, it seems there must be an element of lack of probity (adherence to the highest principles and ideals) or fair dealing to a shareholder in the matter of his proprietary rights as a shareholder: per Lord Keith in Scottish Co-op. [[1958] 3 All E.R. 66 (H.L.)

“Good faith” according to Black’s Law Dictionary, 5th ed. (1979), has no technical meaning but is a term used “to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one’s duty or obligation”, or “An honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render a transaction unconscientious”.  This definition leaves little room for a lack of probity or fair dealing and it therefore appears that there may be no “oppression” remedy open to the injured minority shareholder when the directors have acted in good faith.

[92]            In Reid v. Strata Plan LMS 2503 (2003), 12 B.C.L.R. (4th) 67 (B.C.C.A.), Ryan J.A. made the following statement regarding the phrase “significantly unfair” used in s. 164 of the Strata Property Act:

As was noted by the Chambers judge, the meaning of the term "significantly unfair" in s. 164 of the Strata Property Act had not been judicially considered at the time the matter was heard.  As a result, Sinclair Prowse J. looked to s. 42 of the former Condominium Act to find a definition for the term.  Under s. 42 of the Condominium Act, an owner could apply to the court to remedy behaviour of the strata corporation that was "oppressive" or acts or resolutions that were "unfairly prejudicial" to the owner.  A review of how these terms had been defined by the courts can be found in the case of Blue-Red Holdings Ltd. v. Strata Plan VR 857 (1994), 42 R.P.R. (2d) 49 (B.C.S.C.).  In that case, the court found that oppressive conduct had been defined as conduct that is burdensome, harsh, wrongful, lacking in probity or fail dealing, or has been done in bad faith and that unfairly prejudicial conduct had been defined as conduct that is unjust or inequitable.  In the case at bar counsel for both parties submitted that the meaning of "significantly unfair" would encompass, at the very least, oppressive and unfairly prejudicial conduct and the judge agreed with them.  Counsel continue to take that position on this appeal.

A number of subsequent decisions from the B.C. Supreme Court have cited Sinclair Prowse J.'s definition of "significantly unfair" with approval.  Most recently,  Masuhara J. in Gentis v. The Owners, Strata Plan VR 368, 2003 BCSC 120, referred to Sinclair Prowse J's decision as authority for the definition of significantly unfair.  The judge, however, added the following comment:

[28] I would add to this definition only by noting that I understand the use of the word 'significantly' to modify unfair in the following manner.  Strata Corporations must often utilize discretion in making decisions which affect various owners or tenants.  At times, the Corporation's duty to act in the best interests of all owners is in conflict with the interests of a particular owner, or group of owners.  Consequently, the modifying term indicates that court should only interfere with the use of this discretion if it is exercised oppressively, as defined above, or in a fashion that transcends beyond mere prejudice or trifling unfairness.

[29] I am supported in this interpretation by the common usage of the word significant, which is defined as "of great importance or consequence": The Canadian Oxford Dictionary (Toronto: Oxford University Press, 1998) at 1349.

I agree with Masuhara J. that the common usage of the word "significant" indicates that a court should not interfere with the actions of a strata council unless the actions result in something more than mere prejudice or trifling unfairness.  This analysis accords with one of the goals of the Legislature in rewriting the Condominium Act, which was to put the legislation in "plain language" and make it easier to use (British Columbia, Official Report of Debates of the Legislative Assembly, Vol. 12 (1998) at 10379).  I also note that the term "unfair" is defined in the Canadian Oxford Dictionary as "not just, reasonable or objective."  It may be that this definition of "unfair" connotes conduct that is not as severe as the conduct envisaged by the definitions of oppressive or unfairly prejudicial.  However, counsel argued this appeal on the basis that "significantly unfair" has essentially the same meaning as "oppressive and unfairly prejudicial".  For the purposes of this appeal the distinction between the definitions makes no difference.  On either definition, the resolution passed by the strata council cannot be said to be significantly unfair to Mr. Reid. (at pp. 74-5)

[93]            In the case at bar, the difficulty with the submissions made on behalf of the Plaintiffs is that, with one exception, 453 as one of the members of the Strata Corporation has not taken actions which can be described as oppressive nor has the Strata Corporation taken actions which can be described as oppressive.  Rather, all but one of the inappropriate actions of 453 have been in the context of 453 acting as Manager of Tiki Shores.

[94]            The one exception is the vote by 453 at the February 2, 2008 AGM which allowed the election of Messrs. Davis, Campbell, and Uhlemann to the Strata Council when it could not be said that 453 was an eligible voter.  The lack of accounting which has been provided to Owners, the funds improperly withdrawn from the bank account of the Strata Corporation, the failure to pay the strata fees of Owners, the failure to pay Owners, and the failure to maintain an appropriate repair and maintenance program are all actions by 453 in its capacity as Manager.  While I have concluded that the actions of 453 were wrongful and other than in accordance with the Agreement, those actions or that inaction were by 453 in its capacity as Manager.  The provision of complimentary rentals by 453 was either in its capacity as Manager or in its capacity as one of the Owners of Units.

[95]            If I cannot conclude that there has been significantly unfair oppressive behaviour by the Strata Corporation or by 453 exercising its aggregate voting entitlement of 52.3% of the voting entitlement of all Owners, then the 20 Owners who are the Plaintiffs cannot succeed in their motion that there be an order of the Court to remedy behaviour which is unfairly prejudicial to them.  While many of the acts of 453 as Manager lack probity or fair dealing, those acts are as Manager.  However, I make the following Order to remedy what I do find to be oppressive and unfairly prejudicial activities of 453 with votes in excess of 50% of the votes which potentially could be cast at an annual or special general meeting:

453 will be prohibited from voting at any AGM or Special General Meeting convened to consider the question of those who will be elected to serve on the Strata Council; to consider the question of whether the Strata Co

Penticton, Tiki Shores: (Part 2) Frustrated investor condo owners convince Court to order apointment of administrator to fix governance, management, accounting and repair problems

 

EXCERPT FROM:

2008 BCSC 534 The Owners, Strata Corporation KAS 1490 v. 453842 B.C. Ltd.

 

[24]            I cannot be satisfied that paragraph 22 of the Agreement governs the matters raised in these two Actions.  First, this “dispute” involves the question of whether the Manager has or has not been performing as required and whether funds have improperly been removed from the monies that would ordinarily be available to pay strata fees or to provide the Owners with a return on their investment.  Second, the dispute involves the question of whether 453 has acted in an oppressive manner.  Third, this is not a dispute in respect of the “amount of” or the “entitlement to” or the “time of payment”.  Rather, the dispute relates to what should occur if no payments are being made at any time.  I am satisfied that paragraph 22 of the Agreement is limited to situations where there is an accounting issue which can be referred to the firm of chartered accountants retained by 453.

[25]            It is not an abuse of the process of the Court for these proceedings to have been commenced.  In any event, I am of the opinion that the provisions of paragraph 22 do not present an adequate alternative remedy.  Only a resolution of the matters raised in these Actions will allow the parties to seek a resolution of all of the issues which have been raised.

COMPLAINTS OF THE PLAINTIFFS

(A)       LACK OF ACCOUNTING TO THE OWNERS

[26]            The year end for both the Strata Corporation and 453 is November 30.  Under the bylaws, the AGM must be held by January 31 in the following year.  In his February 27, 2008 Affidavit, James Duke states that the “… accounting had never been a problem prior to 2006.” when Albion sold its shares in 453.  The financial statements for the AGM held on December 2, 2006 were not available.  Accounting information was not available at the 2007 meeting of the Strata Council so that the Strata Council was forced to repeat the previous year’s budget because a new budget was not available. 

[27]            In his February 26, 2008 Affidavit, Sydney Pawlowski states that he and his family members:

… did not receive any financial information after December 2006.  We require this financial information on a timely basis in order to file our required American and Canadian tax return.  We the US owners still do not know if NR6 or NR7 have been sent to revenue Canada for 2007 taxes nor do we know what to do with our GST report for 2007.  At this point it appears we will have serious problems with Canadian government agencies which is extremely troubling as we are all subject to penalty and other jeopardy.

[28]            In her February 26, 2008 Affidavit, Lois Duke states that, once 453 was purchased and then operated by Dede Dacyk and Jack Dacyk, there were considerable problems:

Monthly revenue cheques and statements were not delivered to the owners of the strata units in compliance with the bylaws.  After numerous complaints by the various minority owners of the strata units, including … [Mr. Duke and Ms. Duke, Mr. Davis] continued to provide late monthly revenue cheques and statements.  The June 2006 rental revenue cheques were never delivered to several owners of strata units, ….  After the June 2006 monthly revenue cheques and statements were not delivered to many of the owners of the strata units … [we] contacted the bookkeeper of Deri Holdings, Deborah Webb.  At that time, she advised us that she had delivered all cheques and disbursements for the signature of … [Mr. Davis to Mr. Davis] on the 15th of every month.

[29]            Deborah Webb was the bookkeeper for the Strata Corporation and for 453 for the period November 24, 2005 through April 10, 2007.  Ms. Webb describes her difficulties with completing the bookkeeping accurately as a result of the following factors:

(i)         in part because I did not receive paper backup from Messrs. Davis and Uhlemann in a timely manner (bank reconciliations were behind as bank statements and cancelled cheques were delayed in coming to me for June, July and August 2006, for example);

(ii)        in part because of incomplete training from the former bookkeeper. I had made some mistakes in the allocation of the rental revenues to owners during low season months, as I did not realize at first that there were different rules for owner’s usage during low season (something not covered in the 6 hours of training I received from Cathy Lamb in December 2005 at her home in Calgary); and

(iii)       in part because I caught the fact that Mr. Davis was trying to rent his rooms to staff from ProDigital by claiming owner’s usage, which would have reduced the net revenue to share with other owners in the same rental pools with him;

[30]            Regarding the possibility of separate accounting and separation of funds by separate bank accounts for 453, Ms. Webb states:  “However, the separation could not take effect until the Strata Bylaws were changed, as this was how the bylaws set it all up originally.  I also suggested that, with the much greater deterioration of some owner’s unit than of others, that it might be prudent to put everyone into one single rental pool, to share revenues and to share the loss of revenues until those units in poor condition were repaired and refurbished ….”

[31]            In his January 31, 2008 Affidavit, Mr. Davis describes the difficulty with the accounting as follows:

For several years, while the Rental Pool Agreement [“RPA”] called for several accounts (the Inventory, Replacement and Maintenance [“IRM”] account, the owners/revenue account, the Strata Fees account, a Management account, the contingency fund and the Marketing Fund account) there were only two bank accounts.  One was a strata account and the other a pooled account in the name of Deri Holdings.  This pooled account received all the income and paid all the expenses of the resort.  It appeared that the bookkeeper allocated the funds in the pooled account at the end of each year to the various account categories.

However, there was no control or records of the contingency fund account.  I later learned that Colin Laver, who had been the principal of Deri Holdings prior to it being bought in 2004 by Mr. Dacyk, was still the only signatory on that account, even though he had no involvement with the resort after selling to Mr. Dacyk.  Despite this being raised at general meetings, the strata council did not take control of the contingency fund until early 2007.  This is reflected in the minutes of the general meeting of April 28, 2007 …

The different accounts of the RPA, including the Strata Fees account, were collected and calculated as percentages from the monthly revenue.  Due to the seasonal usage of the Resort, the fall, winter and spring months do not provide enough revenue for the expenses allocated to these different accounts, especially with the Strata Fees.  In the winter months, the monthly utility bill for the resort, which is supposed to be paid from the Strata Fees, was greater than the Strata Fees collected in RPA.

Thus, as monies were collected in this pooled account, and with expenses of each RPA account being greater than the collection of the revenue for that account, the over-spend in the different accounts had to come from one of the other accounts.  The result was that, when the Owners were paid their revenue cheques and the utilities were paid, if there were any substantial maintenance expenses, there was only the Management Fee account and Deri Holdings’ share of the owner’s cheques to cover the shortfall.  Developing a proper budget (which had never been done) and collecting strata fees to fund it, was urgent.

The strata corporation was not in compliance with Division 2 of the Strata Property Act in its calculation or collection of strata fees and had not been since the new Act became law in 2000.

There was little money in the bank accounts.  According to the minutes of the 2006 AGM … there was only some $26,000 in the strata account, $113 in the Deri Holdings’ account and the IRM account was overspent by over $18,750.  These figures are based on information we received at that time from Ms. Webb.

[32]            Mr. Davis also states in his January 31, 2008 Affidavit that he initially retained Deborah Webb to take over the bookkeeping but that, as a result of problems she was having with the bookkeeping system, he retained Murray Swales to “take over completion of the book-keeping”.  Mr. Davis further states:

In preparation for delivering the book-keeping records to him, Ms. Webb discovered many posting errors such as posting wages that should have been posted in the IRM account in the management account and no separation between IRM materials used or Strata maintenance materials used.  This significantly decreased the amount due to the Strata by Deri Holdings and increased the amount of money owed from the Owners to Deri Holdings from the number5s noted by Mr. Lamb.  These corrections continued well into March 2007, and delayed the delivery of the bookkeeping records to the accountant.

As noted in the 2006 AGM minutes, around early 2006, Mr. Dacyk had withdrawn funds from the Deri Holdings account and the strata account.  At the request of the strata council, a financial review was made by Robert Lam (a retired accountant married to Catherine Lamb).  It was based on information he received from Deborah Webb, who was still having difficulties with completing the bookkeeping accurately.  It indicated that there were three debts outstanding.  One was from Deri Holdings to the Strata for some $104,000, a second was from Deri Holdings to the owners and the third was to the IRM account that was overspent by some $8,000.  I felt the alleged debt from Deri Holdings to the Strata not accurate and engaged my own accounting.

Due to the problems the book-keeper was encountering and the fact that the owners owed back money to Deri Holdings for the IRM over-spend that I felt Deri Holdings had covered, owners had not been paid from summer or fall of 2006.  Ms. Webb had determined the amounts due to the owners and I was comfortable she had them reasonably correct, so I agreed at the 2006 AGM to see that the owners were paid up to date and did so after the meeting.  Only Deri Holdings was not paid either for its 21 unit share or for the amount of the IRM over-spend.

My desire was to work with the Strata to make the business and all our investment in Tike Shores successful.  As the majority owner, it was only in my interest to see this happen.

In order to maintain a working relationship with the other strata owners, I agreed to pay half of the money identified by Mr. Lamb to the Strata and the balance into a lawyer’s trust account while we waited for the accounting to determine who owed what to whom.  I had arranged financing to do so and worked toward completing those arrangements in 2007.

I felt that once the bookkeeping was completed and reviewed by accountant for accuracy we could then sort out any differences in what was owed as between Deri Holdings and the Strata.  I hope that with this sign of good faith the strata council in turn would work with us on addressing the financing of repairs, maintenance and upgrading, as I to my knowledge there was money in the contingency fund for at least part of this work.

This did not happen.  It is my belief that the current strata council has not tried to understand any of the accounting complexities and problems.  They have chosen to ignore all the maintenance issues and will not work with the management company.  As examples, we have only been able to replace 3 or 4 hot water tanks, doing so when they failed or started leaking.  Nothing has been done to the roof.  The details of the difficulties in getting any direction is set out in the affidavit of Derek Uhlemann.

[33]            Murray Swales is a Chartered Accountant.  Mr. Swales states that, in February 2007, Mr. Davis asked him to take over the accounting and get the accounting records in an accurate and up-to-date condition.  He further states:

After commencement of a book-keeping engagement I encountered many difficulties relating to misallocation of expenses on accounts and confusing, book-keeping procedures.  The set up with one pooled account also made it difficult to separate the various accounts that were to be maintained.

[34]            Mr. Swales also met with Derek Uhlemann and Ms. Webb.  Mr. Swales describes the bookkeeping difficulties being due to:  (a) Ms. Webb, Mr. Davis and Mr. Uhlemann having some communication difficulties; (b) the set-up of the books by the prior accountant; and (c) Ms. Webb not being able to get adequate assistance from the prior bookkeeper and/or accountant.  Mr. Swales states that he has now completed the accounting to November, 2007 and he believes that the accounting summaries are true and correct.  In his opinion, that Strata Corporation owes $34,114.26 to 453 after taking into account the $60,000.00 paid by 453 to the Strata Corporation and the sum of $52,000.00 held in trust.  Of the funds held in trust, Mr. Swales is of the belief that the sum of $34,114.26 should be paid to 453 and the balance to the Strata Corporation.

[35]            As to the various accounts of the Strata Corporation, Mr. Swales states:

Also, as shown on the IRM accounts, the Marketing accounts and the Owners’ accounts, as at October 31, 2007, Deri Holdings is shown as owing the owners the sum of $84,187.60, which in conjunction with an under-expenditure of $25,802.45 in the Marketing account (funded by the owners) totals the sum of $109,990.05 as owed to the owners.  However, this is offset by an over-expenditure in the IRM account, (which is also the owners’ responsibility to pay, but which was paid by Deri Holdings), of $86,814.96, leaving a balance owing to the owners of $23,175.09, which if deducted and paid from the $34,114.26 leaves the sum of $10,939.17 payable to Deri Holdings.

[36]            While the accounting difficulties experienced by Ms. Webb may justify the delay and failure to forward financial statements, it is clear that 453 is in violation of the Agreement.  First, paragraph 6.7 requires 453 to provide quarterly financial statements which accurately reflect on an accrual basis the financial operations of the Rental Pool within 15 days.  Second, paragraph 6.6 requires an allocation of income and expenses to each of the owners.  That has not been done.  Third, arising out of the general obligations of 453, 453 would be obligated to prepare a budget for approval at the AGM and at meetings of the Strata Council and to provide the necessary statements for tax purposes in order that Owners would be in a position to report to Canadian or U.S. authorities.  None of those things have been done in accordance with the Agreement.

(B)       FUNDS IMPROPERLY WITHDRAWN

[37]            In his February 27, 2008 Affidavit, James Duke states that he has been the President of the Strata Council since 1998 and that Mr. Dacyk “… arranged the removal of approximately $40,000.00 from the Strata account on a bank draft through Mr. Davis.”  Recorded in the Minutes of the Strata Council under “New Business” is what Mr. Duke describes as a description that “accurately reflects this withdrawal”:

In 2006, the pool was opened and heated for the May long weekend for the first time ever.  Jack meanwhile withdrew money from both the Deri and Strata bank accounts, saying he would repay.

[38]            Some banking records of the Strata Corporation were in evidence indicating a number of cheques payable to 453, including the following:  (a) May 25, 2005 - $10,280.52; (b) January 10, 2006 - $5,000.00; (c) January 19, 2006 - $10,000.00; (d) June 6, 2006 - $10,000.00; (e) June 7, 2006 - $12,170.00; and (f) June 23, 2006 - $1,000.00.  At the same time, there are a number of deposits reflecting “Transfer from Deri [453]” including the following:  (a) February 8, 2005 - $17,164.97; (b) October 29, 2003 - $61,053.63; (c) August 16, 2005 - $11,902.46; and (d) September 28, 2005 - $41,755.32.

[39]            In his February 27, 2008 Affidavit, James Duke states that, prior to the arrival of Messrs. Dacyk and Davis, the Strata Corporation and 453 were able:  “… to pay for the utilities and other common expenses during the winter season and “shoulder” season months from the funds that had accumulated during the higher revenue summer months.”  “The current revenues are estimated to be the same or greater than before, although without proper accounting it is impossible to tell.”  In this regard, there is some indication that hotel taxes were not paid so that a lien was filed against Tiki Shores and that utility amounts owing to the City of Penticton were not paid.

[40]            In his February 27, 2008 Affidavit, Robert Lamb states that he was an accountant for the Plaintiff from 1998 through 2005 and that his wife was the bookkeeper for 453 and Strata Corporation since its inception until the end of 2005.  The Plaintiffs commissioned a “revenue and expense review report” from Robert Lamb who conducted a financial review of the books and records of Strata Corporation which revealed that 453 owed the Strata Corporation a sum of $104,239.00.  In his October 29, 2006 report, Mr. Lamb found the records to be accurate and “in order”.  Under the category “Due to Deri Holdings” Mr. Lamb states:

A detailed analysis was performed on the entries made into the Strata bank account.  The monthly transfers were not being made from Deri.  This was due to the fact that Deri was very short of funds.  Most of these entries were offset to the Due to Deri Holdings account.  In fact during the period between Dec 1/05 and June 30/06 Jack Dacyk virtually stripped all the cash from the Strata bank account.  At a couple of points he had to transfer funds back to the Strata to cover the overdraft in the account.  All bank service charges were charged to Deri due to this irregularity.  It has also been brought to our attention that in the transfer between Jack Dacyk and Darone Davis, Jim Duke’s name was dropped as a signing authority which means the only person able to access the account is Darone Davis.  The amount Due from Deri to the Strata at Oct 28/06 is $112,129.88.  We have included a Summary Schedule (Schedule 8) of the net amount due from Deri in the amount of $104,239.  This is the offsetting of the Strata account and the I/R/M account.

[41]            Deborah Webb was of the view that the sum of $10,874.69 was owing by the Owners to 453 “prior to the November 2005 year end adjusting entries” and that, after the year end adjusting entries, as at December 31, 2005, 453 owed $18,005.91 to the Strata Corporation while the I/R/M fund was overspent by the revised amount of $12,889.35.

[42]            In his March 4, 2008 Affidavit, Murray Swales states that he has completed the 2007 year end statements for the Strata Corporation including the Owners’ Accounts Summary, the Tiki Shores Revenue and Expenditures Account; the Marketing Account; the IRM; and the Owners’ Accounts.  He states that the following accounting summaries are to the best of his knowledge, information and belief true and accurate:

(a)        Income was made up from the monies put in by 453 ($118,454.50), the strata fees ($171,931.62) and some smaller amounts from laundry and other income.

(b)        The funds paid out by 453 on behalf of the Strata Corporation including accounts payable from the prior year and the opening balance for the year of $100,709.89 and that 453 is owed $33,403.90.

(c)        The IRM account was overspent by $86,646.99, with this money owing to 453 that paid expenses due to insufficient IRM funds (as the amount collected was $34,386.99 while total expenditures were $121,033.98).

(d)        Marketing fees were $26,515.66 more than expenditures with this money owing back to the strata account.

(e)        The monies due to owners totals $91,023.24.

(f)         453 was owed $2,511.99 as at the 2007 year-end.

[43]            There are a number of problems of how 453 was operating as Manager. 453 should not have been paying the expenses of the Strata Corporation directly and then seeking reimbursement from the Strata Corporation by transferring funds directly from the Strata Corporation bank account to itself.  Paragraph 9 of the Agreement requires the maintenance of a separate bank account for the “Rental Pool” in order to assure that all “Pooled Income” is deposited into that account and that all “Pooled Expenses” are drawn on that account.  Pursuant to paragraphs 6.2 and 6.5 of the Agreement, all costs and expenses are to be paid out of the account maintained for the deposit of all “rents and other monies payable by the renters” of various units in the Strata Corporation.  Pursuant to paragraph 6.10 of the Agreement, any available funds should have been invested in an interest-bearing trust account.

[44]            While it may have been expedient for 453 to pay the expenses directly and then seek reimbursement from funds of the Strata Corporation once available, doing so was in violation of the Agreement.  It is also the case that the removal of funds to repay 453, the suggestion that monies withdrawn by Mr. Dacyk on the basis that “he would repay” the funds, the considerable accounting costs which has been incurred in order to ascertain what is presently owing by either the Strata Corporation to 453 or by 453 to the Strata Corporation and what is owing for strata fees, what is owing to the Owners, the placing of funds in trust by 453 to replace the funds that it had removed, and the payment of $60,000.00 by 453 to the Strata Corporation have resulted in a complete lack of confidence in the 20 Owners about the ability of 453 to act as Manager under the Agreement.

(C)       LACK OF PAYMENTS MADE TO THE OWNERS AND/OR
THE STRATA CORPORATION FOR STRATA FEES

[45]            Pursuant to paragraph 6.8 and paragraph 6.9 of the Agreement, the “Pooled Cash Flow Surplus” is to be used to pay all Strata Fees in respect of the Units of Owners and to pay to the Owners any monies not required out of the “Pooled Cash Flow Surplus” to pay the Strata Fees.  It is clear that this has not been done.  It is also clear that some Owners rely on these funds for income and that significant hardship has resulted as a result of the lack of payments being forwarded.

[46]            In his Affidavit, Donald Gordon states that his monthly rental income cheque for July, 2006 was received on August 29, 2006, his November 2006 cheque was received on February 5, 2007, his December 2006 and January 2007 cheques were received on March 9, 2007, his February 2007 cheque was received on April 16, 2007, his March 2007 cheque was received on May 1, 2007, his April 2007 cheque was received on August 15, 2007, his May 2007 cheque was received on August 28, 2007, and his December 2007 cheque was received late in January 2008.

[47]            Lois Duke in her February 26, 2008 affidavit states that monthly revenue cheques or statements for June through November, 2006 were not received but, “As a result of the outrage of the minority owners of the strata units ….”, Mr. Davis attended to the payment of all of the monthly revenue cheques to December 2, 2006.  Ms. Duke indicates that April revenue cheques and statements were received in late July, 2007 and May revenue cheques and statements were received in late August, 2007.  She states that the December, 2007 cheque and statement was delivered in February, 2008 following the January 26, 2008 AGM.  As at the December 2, 2006 AGM, monthly revenue cheques or statements for June through November, 2006 were received.  April and May, 2007 revenue cheques and statements were received in late July and August, 2007.  The Plaintiffs have not received any monthly rental income cheques for the months of June through November, 2007, or from January 2008 to the present.

[48]            The lack of funds available to pay the Strata Fees owed by Owners and the lack of funds available to make payments to the Owners is stated by 453 to be as a result of lack of profitability and the need to undertake repair and maintenance issues.  In his February 27, 2008 Affidavit, James Duke states that the question of repair and maintenance issues became a “huge challenge” which:  “… emerged very quickly as monies due to the Strata Corporation and the Owners suddenly and for the very first time stopped flowing.”  “Mr. Davis at no time asked the Strata Council or any of the Owners, certainly not my wife or me, if it was okay to withhold our money, or what hardship that might cause – he just kept the money.”

[49]            Murray Swales in his March 4, 2008 Affidavit notes that the funds presently owed to Owners totals $91,023.24.  Whether or not that amount is correct, it is clear that very few payments have been received by Owners after November, 2006.  On the basis of the accounting provided by Mr. Swales, it is clear that some balances are owing to the Owners.  The failure to make those payments was other than in accordance with the obligations of 453 as the Manager.

[50]            Whether or not the Strata Fees of the Owners have been paid or not also creates considerable problems.  First, it is not clear which Owners are current in paying their Strata Fees so that is impossible to ascertain who is eligible to vote at an AGM.  Second, it is not clear that all monies relating to the rental of Units have been collected and remitted to the Strata Corporation by 453.

(D)       LACK OF REPAIRS AND MAINTENANCE

[51]            In his February 27, 2008 Affidavit, James Duke states that:

… the matter of repairs and maintenance were an ongoing issue which we addressed on a regular timely basis.  I am bound to say, unfortunately, that repair and maintenance issues quickly became frustrated by the financial mess and loss of trust created by the Defendants ….  This issue has elapsed all of the other important issues facing the Strata Corporation as indeed no other issues can be addressed.

[52]            In his January 31, 2008 Affidavit, Mr. Davis states:  “For several years, the Strata and prior Managers had not kept up necessary repairs and maintenance and, as a consequence the resort was in a bad state of repair and there were insufficient funds set aside for repairs and maintenance ….”  He also states that he wrote “a detailed letter to all the other owners” pointing out that the repair and maintenance account was maintained at only 5% of revenue so that the repairs and maintenance that were required would exceed the funds available.  His October 13, 2006 letter to Owners states in part:

Allow me to be perfectly blunt.  I am not going to sugar coat this.  The condition of most of the units is terrible and a couple of the units are un-rentable.  We lost revenue this year because of it.  When I took over management in mid February, we had to hire a crew of people to try and get caught up with some of the work that was needed with the money that was available.  I read through the minutes of the previous years’ AGM and read the same complaints year after year, and have heard them repeated from the owners that I met over the summer.  This is a serious concern.  It will cost us all a lot of money if we have to start living down a bad reputation caused by sub-standard rooms.  Our maintenance crew believes that there has been no major maintenance for the three years previous other than just cosmetic repairs (band aids).  For example, most of the beds in the units look like bowls and need to be replaced, most of the carpets need replacing due to stains, burn marks from cigarettes or dropped hot irons, most of the rooms need the walls patched and a complete repainting, the floor tile in the rooms needs replacing, the tile surrounding the showers and tubs needs major attention as most of the grout is either missing or black with mildew or mold.  Another serious problem started when the tile was installed in the bathrooms—the toilet’s were removed, the thicker tile installed and the toilet replaced without placing an additional or appropriate seal.  This caused leaking toilets and over time this has cause extensive floor damage to some units.  In one room, when a tile was stepped on, water would squirt out from between the tiles where the grout should have been.  Our dilemma is that the IRM is 5% of the total revenue.  If we have revenue of $600K for the year, this gives us only $30K to do maintenance and repair of 40 units.  At the start of this season we needed to order new linen for all of the units including blankets.  We had to order more towels because there were not enough towels to put a set in every unit.  Derek is preparing a comprehensive list of required work to give us a complete picture of the job ahead of us.

The outside of the motel is a little better of a story.  Although a paint job was suggested at the last AGM, a review of account balances and new repair budgets, and a review of painting quotes, it was suggested by the painters that a professional power wash of the entire exterior could yield something close to the same results.  When it was finished, the result was a huge improvement.

There is unfortunately a large bill heading our way that has gone undetected or ignore.  The Tiki Shores has 22 hot water tanks servicing the rooms.  All but one of those tanks was manufactured in 1987.  The life expectancy of a hot water tank in residential use is approx 10-12 years and less in a commercial use.  This means that all of our tanks are a good 5 years past replacement age.  We discovered this in February when one of the tanks started leaking—and it was the newest one.  Since then, five more tanks failed this summer, and rooms had no hot water.  This cost us revenue as concessions to our guests had to be made.  The cost to replace all of these tanks is approximately $23,000.

During the Spring, we found damage due to freezing and non-proper winterizing of the pool and hot tub.  One of the large filters, and pipes were cracked and needed to be replaced.  Although, it started with a set back, the pool was cleaned, painted, filled and usable by the May long weekend-the soonest that the pool has ever been available to the May long weekend guests.  During the summer, our pool was the only pool not to be shut down on the entire Sunset Strip by Interior Health.  Interior Health did however order us to comply (in August) with some new and expensive alterations, including the installation of an automatic chlorination device, additional railings and ladders and re-tiling of the perimeter of pool.  All of these changes are mandatory and are to be done before Interior Health will “pass” us next season.

The fundamental problem is that the amount allocated to IRM costs is completely inadequate.  For years the owners have been drawing out monies while the physical plant of the Tiki Shores complex has deteriorated.  In addition, there is no budget for upgrading and renovation, and a review of the minutes shows that there has never been a plan for renovations as is standard for this type of industry every 6-7 years.  This resort is over 14 years old now.  The building complex is in a disastrous condition, as noted in the affidavit of Derek Uhlemann.

[53]            In his March 4, 2008 Affidavit, Mr. Davis states that, after he purchased 453:

… I learned after that purchase that all owners are now in a crisis situation, as for years those in control of the strata council and the management company simply “milked” money out of the revenues of the strata corporation without regard for the need to properly budget for and undertake necessary repairs, maintenance and upgrades to the Tiki Shores complex.

… They have either deliberately and with wilful blindness done this since 2000 in contravention of the requirements of the Strata Property Act.  As a result, and as I believe has been shown in the material filed in that action [SO77454], it is clear that the strata councils up to now have created the problem that these owners, in fact all owners now face of having to invest significant funds into the Tiki Shores if that complex is to remain a viable business and we will all have to anticipate limited if any returns on our investments for some time while that occurs.

[54]            There is a clear obligation under paragraph 6.3 of the Agreement for 453 to “clean, maintain or repair the Unit(s) as required” and under paragraph 6.11 to establish the “Inventory, Replacement and Maintenance Fund (IRM)” using 5% of the gross revenues in order to ensure that the Units are kept:  “… in a state of good repair”.  It may well be that 5% of gross revenues does not produce sufficient funds to keep all Units in a state of good repair.  However, no attempt has been made by 453 to seek an amendment to the Agreement to increase the percentage allocated to the “IRM” fund.  If the Agreement was not to be amended, a special levy should have been sought to allow sufficient funds to be received to bring the Units into a state of good repair.

[55]            While it is the responsibility of the Owners to provide sufficient funds so that necessary repairs and maintenance can be undertaken and while the expenditures undertaken by 453 may well have been justified in relation to what was required to maintain the Units as rentable, there was no authorization for 453 to undertake the expenditures which resulted in 453 being owed almost $87,000.00.

[56]            Another issue which has created confusion amongst all of the Owners is the question of whether 5% of all gross revenues is available so that all Units can be kept in a state of good repair or whether it is only 5% of the gross revenues of units within one of the eight “unit types” that can be used to keep the particular Units within one of those eight unit types in good repair.  That issue has not been resolved as between the Owners and no initiative has been taken to amend the Agreement if an amendment is required.  453 submits that its Units are in a separate Rental Pool.  This submission came as a considerable surprise to counsel for the Plaintiffs.  As is outlined in the context of the allowance of complementary rentals, I am satisfied that there is a requirement for an amendment of the Agreement in order to clarify this issue.

(E)       THE ALLOWANCE OF COMPLIMENTARY RENTALS

[57]            In her Affidavit, Ms. Webb states that her examination of the Balance Sheet as of February, 2007 showed that 453 had many outstanding receivables due or current assets that were actually receivables which “severely impacted Deri Holdings’ bank account”.  She described those receivables as follows:

(i)         due from Pro Digital $34,139.49, another company owned by Mr. Davis which was renting rooms but carrying them on account rather than paying the billings;

(ii)        due from 586519 B.C. Ltd (Surfside) $6,323.89, a company owned by Jack Dacyk;

(iii)       due from Jack Dacyk $233,024.45;

(iv)       due from Orchard Breezes Property Development $52,578.58, another company owned by Mr. Davis, to which he was advancing funds;

(v)        due from Reinhold Consulting $13,078.17, (Derek Uhlemann’s company for Piggy’s BBQ restaurant) which did not include all utilities charges to have been rebilled to this company;

(vi)       due to Mr. Davis ($74,892.89), that is, Deri Holdings owed to Mr. Davis for cash deposits to the Deri Holdings bank account by Mr. Davis;

(vii)      due from Rock Heights Care Home, $3,000.00, another company owned by Mr. Davis which was renting rooms but not paying for them, just carrying them on account.

[58]            In her Affidavit, Deborah Webb also states that one of the difficulties she had regarding the bookkeeping for 453 and the Strata Corporation was the following:

in part because Jack Dacyk was “comping” rooms to friends (ie. the practice of providing rooms as complementary, without charge) and not even notifying of owners usage, basically keeping even owners usage fees for I/R/M, Strata Fees etc. off the books. I had to go back and correct these differences, but I did catch them and correct them or, in the case of the low season corrections, had already identified them and was about to make the corrections when I was asked to give the books to Robert Lamb for a review in September 2006. He and his wife Cathy made those final corrections for me, as well as some minor posting errors regarding 1/RIM and Strata expenses made by me that they stated would be preventable in the future through additional training from them. I had been asking Cathy for this training as we did not have time in December 2005 to do so and then as my email indicated, I gave up in July 2006 since Cathy had no time to do so with me.

[59]            In his March 4, 2008 Affidavit, Mr. Davis deals with the issue of “comping” as follows:

Any person given a room on a corporate account of Pro-Digital or Rock Height Care Home was given one that was in a separate rental pool of Deri Holdings.  Further, if a guest was disgruntled due to a problem with a room or a booking then we would offer that guest free drinks or a meal at Piggy’s BBQ and Pro-Digital or Deri was billed for it.  This was regardless of whether the problem was with a room of another owner.

[60]            It is the position taken on behalf of 453 that the Units owned by 453 are in a separate rental pool.  Parts of the Agreement support this submission and parts do not.  The definition of “Pooled Income” in paragraph 1 of the Agreement states that pooled income means “all rent and other monies received from time to time by the Manager to the credit of the Owners of the Units of the project from time to time constituting the Rental Pool from tenants of the Rental Pool ….”  There is nothing in evidence which allows me to conclude that the accounting provided to the AGM’s and to the Strata Council sh

Penticton, Tiki Shores: (Part 1) Frustrated investor condo owners convince Court to order appointment of administrator to fix governance, management, accounting and repair problems

 

 EXCERPT FROM:

2008 BCSC 534 The Owners, Strata Corporation KAS 1490 v. 453842 B.C. Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners, Strata Corporation KAS1490 v. 453842 B.C. Ltd.,

 

2008 BCSC 534

Date: 20080429
Docket: S077454 and S081185
Registry: Vancouver

No. S077454

Between:

The Owners, Strata Corporation KAS1490

Plaintiff

And

453842 B.C. Ltd. doing business as Deri Holdings
and the said 453842 B.C. Ltd.,
Jack Dacyk and Darone M. Davis

Defendants

- and -

No. S081185

Between:

Barry Holdings Ltd.; Charles Keith Waters;
William Phillip Campbell and Maureen Ellen Campbell;
James Gordon Haigh; Sydney Zbigniew Pawlowski and
Katarzyna Maria Pawlowski; Henryk Lech Ludowicz and
Danuta Bronisiawa Ludowicz; Edwin Albert Skaley;

Frank David Wilson and Elizabeth Janina Wilson;
Antonietta Matilda Mucci-Oliverio and Francesco Oliverio;
Kenneth Randall Gula; Tara Michelle Patterson; Lisa Nguyen;
Victoria Emilia Pawlowski; Lois Eleanor Duke and Ronald James Duke;
Marian Boguslaw Strutynski and Barbara Janina Strutynski;
California Marine Enterprises Ltd.; Rufus Resource Consulting Inc.;
514932 B.C. Ltd.; Dan Roger Larry Walker and Vicki Marlene Walker;
and Rodney Karl Sveinson and Elizabeth Ann Sveinson

Plaintiffs

And

Darone M. Davis, 453842 B.C. Ltd. doing business as Deri Holdings,
and the said 453842 B.C. Ltd., and Derek Uhlemann

Defendants


Before: The Honourable Mr. Justice Burnyeat

Reasons for Judgment
(In Chambers)

Counsel for Plaintiffs in both actions

M.D. Tatchell

Counsel for all Defendants in both actions except the Defendant Jack Dacyk in Action No. S077454

M.F. Welsh

Date and Place of Hearing:

March 6 and 7, 2008

Vancouver, B.C.

[1]                Pursuant to Rules 45 and 57 of the Rules of Court, s. 39 of the Law and Equity Act, R.S.B.C. 1996, c. 253, and the inherent jurisdiction of the Court, the Plaintiffs in Action S081185 (Vancouver Registry) apply for interim orders enjoining the Defendants from exercising the voting rights of 453842 B.C. Ltd. (“453”), disqualifying the Defendants or any of them from acting further as the manager of the 41 strata lots comprised in Strata Plan KAS1490 also known as the Tiki Shores Condominium Beach Resort located at 914 West Lakeshore Drive, Penticton (“Tiki Shores”), disqualifying the personal Defendants or any of them from being nominated or being elected as members of the Strata Council of Strata Plan KAS1490 (“Strata Council”), appointing a replacement manager to manage and administer the Rental Pool Agreement (“Agreement”) on behalf of all owners including the Defendants, and an interlocutory injunction restraining the Defendants and each of them from dealing with or depositing of any further income monies from Tiki Shores except into the trust account of the replacement Trustee, entering into the Office of the Trustee or the Office of the Rental Management Company at Tiki Shores, removing or destroying any documentation or computer hardware or software from the Office at Tiki Shores, and interfering with the Strata Corporation or the new manager at Tiki Shores in any manner.

[2]                Pursuant to Rules 18A, 44, 45, 46 and 57 of the Rules of Court, ss. 39 and 57 of the Law and Equity Act, and ss. 164, 171, 173 and 173.1 of the Strata Property Act, R.S.B.C. 1996, c. 43, the Plaintiff in Action S077454 (Vancouver Registry) applies for judgment against the Defendants and for an order that the Counterclaim of the Defendants, 453 and Darone M. Davis (“Mr. Davis”) be dismissed, and an interim order that 453 and/or its agent(s) be restrained and prohibited from exercising its voting rights at any Annual or Special General Meeting with respect to (a) the appointment or election of Strata Council members; (b) the distribution of Strata Corporation monies; and (c) the ratification of the commencement of this Action; and (d) regulate the conduct of the Strata Corporation’s future affairs to the extent deemed necessary by the Strata Council.  In the alternative, the Plaintiff seeks the following interim orders:

(a)        Court appointment of an interim replacement Trustee and Manager, nominated by the Plaintiff, to manage and administer the Agreement on behalf of all Owners, including the Defendants until trial;

(b)        an interlocutory prohibitory injunction restraining the Defendants from:

(i)         dealing with or depositing any further Rental Pool Income monies except into the trust account of the replacement Manager;

(ii)        acting as the Manager;

(iii)       removing or destroying any documentation or computer hardware or software from the Office at Tiki Shores;

(iv)       interfering with the Strata Corporation or the Manager/Trustee in any manner;

(c)        an interlocutory mandatory injunction that:

(i)         the Defendants refrain from calling any Special General Meetings without Court approval;

(ii)        the Defendants be restrained from voting at any AGM or SGM which calls for ratification of this lawsuit;

(iii)       within forty-eight (48) hours of a court order the Defendants, their accountants and banks/financial institutions deliver their files and computer data to the replacement Trustee and Manager;

(iv)       the Defendants within twenty one (21) days of a court order provide and deliver to the interim replacement Trustee and Manager a full accounting for the years 2004, 2005, 2006 and 2007 for the following:

(A)       statement of all revenues, income, or funds received by the Defendants in the operation of Tiki Shores;

(B)       statement of all expenditures incurred and paid from monies received as revenue or income in the operation of Tiki Shores;

(C)       detailed summary of those payments to Owners which remain outstanding under the Agreement;

(D)       the standing of each of the Owners as regards payment of strata fees and any levies;

(E)       all financial information including draft or final financial statements;

(F)       General ledger;

(d)        the Defendant Jack Dacyk deliver and provide full authorization for access to his bank accounts and investment activities for the last five years;

[3]                In Action S077454, the Defendants apply for orders that the claim of the Plaintiffs be struck out and/or the action be dismissed, the Defendants be granted judgment on their Amended Counterclaim, and such “further and other relief as to this court seems just and meet”.

BACKGROUND

[4]                The Plaintiffs in Action S081185 are the registered owners of 20 of the Strata Lots comprised in Strata Plan KAS1490.  453 is the registered owner of 21 of the 41 Strata Lots.  As the registered owner of 21 Strata Lots, 453 carries an aggregate unit entitlement of 1003/1918 and aggregate voting entitlement of 43.61/83.39 or 52.3% of the total unit entitlement or the voting entitlement.  In addition to owning 21 Strata Lots and possessing 52.3% of the voting entitlement, 453 carrying on business as Deri Holdings acts as the Manager for the Owners of the Strata Corporation.

[5]                The Defendant, Derek Uhlemann is an officer of 453 and the caretaker/manager at Tiki Shores.  Mr. Davis is the principal shareholder, President and a Director of 453.

[6]                Tiki Shores was formerly a motel which was transformed into a Strata Corporation by Albion Resources Limited (“Albion”).  By a June 29, 1994 agreement filed in the Kamloops Land Title Office on August 24, 1994 under Number KH084174 with the strata plan, the City of Penticton was granted a restrictive covenant by Albion (“Restrictive Covenant”) over all of the strata property (“Property”).

 (More)

1 2 3 ... 38 39 40  Next»