Consumer Protection is an Objective of Strata Law When it Comes to a Developer’s Obligations in a Phased Strata Development
Case Comment: The Owners, Strata Plan LMS 1495 v. 0753874 B.C. Ltd., 2015 BCSC 2124
Alex Chang, Associate
Phone: 604-685-1255
Email: ajc@lmlaw.ca
In the recent decision of The Owners, Strata Plan LMS 1495 v. 0753874 B.C. Ltd., 2015 BCSC 2124, the Supreme Court of BC reconfirmed that one of the objects of the Strata Property Act is consumer protection.
The case centered on whether an owner developer was liable to a phased strata corporation for common expenses. The Strata Property Act says that an owner developer must contribute to the common expense in proportion to the unit entitlement of the strata lots of the phases of the strata corporation that have not yet been completed. For example, if Phase 1 of 2-phase strata has been completed but Phase 2 has not, then the owner developer must pay the common expenses of Phase 2 just like the eventual owners of Phase 2 when that phase is completed and sold.
In The Owners, Strata Plan LMS 1495 v. 0753874 B.C. Ltd., 2015 BCSC 2124, the original owner developer built and sold 3 of the 4 proposed phases. However, Phase 4 remained undeveloped. The original owner developer then transferred its interest in the bare Phase 4 land to another company, who in turn sold it to a third company (“Developer #3”).
The strata corporation sued Developer #3 for its share of expenses attributable to common facilities, which worked out to about 28.8% of the total. Developer #3 claimed that it was not an owner developer within the meaning of s. 1 of the Strata Property Act, which defines an owner developer as the owner of the land when the application is made to deposit the strata plan and owns more than 50% of the strata lots. Developer #3 argued that it did not meet this strict definition because it did not meet these criteria.
The court rejected Developer #3’s argument, stating that the Strata Property Act must be given a large and liberal interpretation that best ensures its objectives. Specifically, one of the objects of the Strata Property Act is consumer protection for purchasers of strata lots. The court observed that:
If a developer can simply transfer its interest in any undeveloped phases […] to another developer, and thereby avoid payment under the expense sharing scheme […], there is some potential for mischief. What would prevent a developer from transferring its interest to another company it held, and thereby enjoy a payment “holiday” while it decided whether it was profitable to proceed with any remaining phases? […] Even if the transfer was to another developer, why should this new developer enjoy this payment “holiday” at the expense of the existing owners?
To return to my example, the purchaser who thought they would only be paying $454 per year for the common facilities would now be faced with a payment of $632. This increase, if known to the consumer at the outset, might well have affected that person’s decision to buy that strata lot in the first place.
The court concluded that the clear intention of the Strata Property Act was to protect strata lot purchasers from this kind of potential mischief by developers by giving them some certainty regarding their contribution to common expenses. Thus, the court ruled that Developer #3 was an “owner developer” within the meaning of the Strata Property Act and liable to contribute to the strata’s common expenses.
This article is meant as legal commentary and is not legal advice. If you or your strata corporation is in a dispute with a developer over common expenses, contact a lawyer right away. For more information about the strata property legal services offered by Lesperance Mendes, contact Paul G. Mendes, partner, at 604-685-4894 or by email at pgm@lmlaw.ca.
Lesperance Mendes Lawyers
900 Howe St #550, Vancouver, BC V6Z 2M4
(604) 685-3567