BC Supreme Court confirms that commercial use restriction bylaws are enforceable and not an unreasonable restraint on trade
Amanda M. Magee, Associate
Phone: 604-685-5438
Email: amm@lmlaw.ca
In a recent decision The Owners, Strata Plan LMS1590 v. Yip, 2018, the BC Supreme Court confirmed that commercial use restriction bylaws are valid and enforceable.
The case stemmed from a dispute between the owner and tenant of a commercial strata lot in the Richmond Public Market. The Market, which is a strata corporation comprised of commercial strata lots, had a use restriction bylaw in place that required each strata lot to conduct the business or trade specified in the purchase agreement between the developer and initial purchaser of the strata lot. To conduct any other type of business or trade, the owner would have to obtain approval from the strata council for a change in use.
In this case the owner’s strata lot was restricted to the sale of “ginseng products and ginseng-related gifts”. When the owner’s tenant expanded the products sold in his store beyond ginseng products, the Market began fining the owner for a contravention of the use restriction bylaw.
The owner argued that the use restriction bylaw was unenforceable because it violated the common law rule against unreasonable restraint in trade. Section 121(1)(a) of the Strata Property Act provides that a bylaw is unenforceable to the extent that contravenes the Act, the regulations, the Human Rights Code or “any other enactment or law.” The owner argued that this includes common law rules, and that by violating the common law rule against unreasonable restraint in trade, the bylaw must be unenforceable. The Court disagreed, and found that the use restriction bylaw was a legitimate and reasonable restraint on trade. In reaching this decision the Court explained that it was commonplace for mall leases to contain use restriction clauses that are designed to avoid competition between stores within the mall, which can hurt the mall’s overall success.
The owner further argued that the use restriction bylaw was unenforceable because it restricted the right of an owner to freely lease a strata lot. Section 121(1)(c) of the Act provides that a bylaw is unenforceable to the extent that it prohibits or restricts the right of an owner to freely sell, lease, mortgage or otherwise dispose of his or her strata lot. The Court found that while the use restriction bylaw may have made the strata lot less desirable to potential tenants or purchasers, it did not actually prohibit or restrict the transfer or lease of a strata lot, and was therefore not unenforceable.
Having rejected both of the owner’s arguments, the Court found the owner to be in contravention of the bylaws.
Strata corporations should keep in mind that while commercial use restriction bylaws are enforceable, they must still be passed by the requisite ¾ approval of the owners. In the case of a mixed-use strata corporation (i.e. both residential and commercial strata lots), section 128 of the Act requires any bylaw amendments to be passed by separate ¾ vote resolutions of the residential and commercial owners. This means that even if the commercial strata lot owners are vastly outnumbered by the residential strata lot owners, they will still have a say in what commercial use restrictions are passed that would affect their business.
WHAT WE DO: : Lesperance Mendes has been advising strata corporations on strata governance issues since 1997. If your strata corporation requires legal advice with respect to bylaws and their enforceability, please contact Amanda M. Magee, Associate, at 604-685-5438 or by email at amm@lmlaw.ca.