299 Burrard Management Ltd. v. The Owners, Strata Plan BCS 3699, 2014 BCSC 390
Strata hotels are a frequent source of precedent-setting cases when it comes to interpreting the lesser known sections of the Strata Property Act. In this case, which involved Vancouver’s landmark Fairmont Pacific Rim development, the developer sued the strata to recover payments it made to settle a dispute over a contract that the developer had entered into an assigned before the first annual general meeting (AGM).
Developers commonly enter into contracts with third parties during the course of a development and then assign those contracts to the strata after the deposit of the strata plan. The theory is that the developer can “lock-in a good deal” and then pass “the savings” on to future owners. The Act imposes certain statutory duties on the developer to protect the strata and future owners from unfair deals during this period. In this case, the Court examined the developer’s duty under s. 20 of the Act. Section 20 requires the developer to place certain documents before the ownership at the first AGM, including “all contracts entered into by or on behalf of the strata corporation”.
The contracts in question were for “electronic concierge services” and an “assignment and assumption agreement”. The assignment agreement provided that the strata would assume all liability for any contracts assigned by the developer and that it would indemnify the developer for any claims made against the developer in respect of those contracts. Both contracts were referenced in the developer’s disclosure statements given to all purchasers, and the strata ratified both contracts by a unanimous resolution shortly after the deposit of the strata plan. It is perhaps important to note here that the developer owned all the strata lots at the time of the unanimous resolution.
Although the evidence before the Court showed that the property manager had a copy of the contracts before the first AGM, neither contract was formally “presented” at the first AGM as required by s. 20 of the Act. The strata refused to pay the invoices under the concierge contract so the service provider sued the developer. The developer invited the strata to participate in the resolution of the suit but it did not do so. The developer then settled the claim with the concierge company and sued the strata to recover its payments and legal fees (about $53,000) pursuant to assignment agreement.
The strata advanced a number of defenses, including the developer’s failure to formally present both contracts at the first AGM. The strata argued that the developer’s failure to comply s. 20 invalidated the assignment agreement.
The Court rejected this argument and held that although s. 20 requires a developer to place all contracts before strata at the first AGM, there is nothing in the Act that renders such contracts unenforceable if the developer fails to do so. To the contrary, the Court found that the Act expressly authorized the owner developer to enter into such contracts on the strata’s behalf. The court found that the assignment agreement was enforceable in accordance with its terms under the basic principles of contract law. There was also full disclosure by the developer and no evidence that the developer had entered into the contracts in “bad faith”. The strata were ordered to pay the developer, but the developer’s claim for costs was reduced because the Court found that the developer was not entitled to full indemnity for its legal costs under the assignment agreement.
This case sheds light on how the Court views technical non-compliance with the Act by the owner developer. Although there is a line of cases in which developers’ “pre-incorporation” contracts have been set aside, this case confirms that a Court is unlikely to interfere with such contracts unless it can be demonstrated on the evidence that the developer was acting in breach of its fiduciary duties while it controlled the strata corporation. The evidence must show that the contract benefitted the developer at the strata’s expense, or that the developer was reckless as to its benefit to the strata.
WHAT WE DO: Lesperance Mendes advises strata corporations and owners on disputes with owner-developers, including warranty claims, misrepresentation claims, and condominium pre-sale contracts. To find out more about our strata law practice, contact Paul G. Mendes at 604-685-4894 or at pgm@lmlaw.ca.
A note to the reader: this case comment and any other publications on this website are intended for general informational purposes only and should not be relied on as legal advice. Every case depends on its own facts. If you have a legal problem, you should seek the advice of a qualified lawyer.
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