Buyer beware: The Perils Of Cost Sharing In Hotel And Mixed Use Strata Developments

The Owners, Strata Plan BCS 3165 v. KBK No. 11 Ventures Ltd., 2014 BCSC 2276

By Alex Chang, Associate: ajc@lmlaw.ca, 604-685-1255

The Supreme Court of British Columbia in The Owners, Strata Plan BCS 3165 v. KBK No. 11 Ventures Ltd., 2014 BCSC 2276 recently upheld an award of more than $1 million for shared building costs against the Strata Corporation known as the Shangri-La in favour of its developer, KBK No.11 Ventures Ltd.

The Strata in this case is made up of two residential estate parcels, a hotel parcel, and a remainder parcel which consisted of commercial space. KBK owns the hotel and remainder parcels.

The dispute was about the cost sharing arrangement between the Strata Corporation and the two parcels owned by KBK.

The cost sharing arrangement was set out in a Reciprocal Easement Agreement (REA). KBK filed the REA with the Land Title Office on the same day that the strata plan was filed, bringing the Strata Corporation into existence.

Until a strata council was elected, KBK was then required to exercise under perform the duties of the council. During that time KBK caused the Strata Corporation to enter in to an agreement whereby the REA was assigned to the Strata Corporation.

Soon after control of the Strata Corporation passed from KBK to the newly elected council, the Strata Corporation began raising concerns and disputing the cost sharing arrangement under the REA. Later, KBK commenced an arbitration claim against the Strata Corporation for its share of costs.

In response, the Strata Corporation claimed, that KBK breached its fiduciary duty to the Strata Corporation by entering it into the REA. However, the Supreme Court upheld the decision of the arbitrator that KBK had not breached its duty to the Strata Corporation because it had provided adequate notice of the cost sharing arrangement through the disclosure statements and by filing the REA with the Land Title Office. The Court held that since notice was given, it could not be said that the owners did not freely accept the cost sharing arrangement in the REA.

The message from this case is that so long as a state of affairs with respect to a Strata Corporation is disclosed, it will be upheld by the court, even if the arrangement is improvident or unfair. The practical problem with this is that most condo buyers typically don’t read, understand or care about disclosure statements or agreements registered on title.

They ought to start or they may end up paying more than they bargained for.

 

WHAT WE DO:  Lesperance Mendes advises and represents strata corporations and owners on all aspects of condominium government including disputes over cost sharing agreements and easements.  For more information about our strata law practice, or to make an appointment with one of our experienced strata lawyers, please contact Paul G. Mendes, Partner, at PGM@LMLAW.CA or 604-685-4894.