Strata Alert: Top 5 Issues For New Strata Corporations – #3 Amounts Owing By Developer for Expenses

Alex J. Chang, JD
P:  604-685-1255

Top 5 Issues For New Strata Corporations – #3 Amounts Owing By Developer for Expenses

This ongoing countdown series of Strata Alerts reviews the five most urgent matters a new strata corporation should address.

The first article in this series discussed the importance of owners taking control of the strata corporation by ensuring the developer calls the first annual general meeting (AGM). The second article dealt with ensuring that the developer provides the documents and records needed to manage the strata corporation at the first AGM, including financial documents.

This third article will address some of the things you should be looking for in those financial documents, the obligation of the developer to pay for certain expenses and the potential remedies owners and strata corporations have for underestimating expenses when marketing the strata lots.

The Strata Property Act (SPA) requires the developer to prepare an interim budget for the strata corporation for a 12-month period beginning on the first day of the month following the first conveyance of a strata lot. After the interim budget comes into effect, the owners, including the developer, contribute to the common expenses through their strata fees as set out in the budget.

The interim budget must include the estimated operating expenses of the strata corporation for 12 months and the minimum contribution to the contingency reserve fund (CRF) for the same period.

In the case of strata developments built in phases, separate interim budgets must be prepared for subsequent phases. Interim budgets for subsequent phases have special rules under the SPA and Strata Property Regulation.

Under the SPA, if the expenses accrued by the strata corporation while the interim budget is in effect are greater than the operating expenses estimated by the developer in the interim budget for that period, the owner developer must pay the difference to the strata corporation within 8 weeks after the first AGM. Under s. 14(5) of the SPA, if the actual expenses are 10% or more than what was estimated in the interim budget, then the developer would be liable to pay penalties equal to 2 to 3 times the overage.

Budgets, including interim budgets, are typically included in the disclosure statements provided by the developer to buyers under the Real Estate Development Marketing Act (REDMA). If the estimated expenses disclosed in the developer’s disclosure statement provided under REDMA contained misleading or insufficient information, the owners that purchased from the developer (the “Original Owners”) may also have claims for damages against the developer for misrepresentation under REDMA.

These rights exist to discourage developers from underestimating the common expenses to market strata developments to buyers.

Phased developments also have special requirements for developers to contribute to the cost of maintaining “major facilities” in a phased strata plan, including a laundry room, playground, swimming pool, recreation centre, clubhouse or tennis court (SPA, s. 227).

To ensure the developer has paid what they should, the strata corporation should ensure that they have complete financial records from the developer (see the second article in this series). The strata corporation should review those records promptly with a professional to confirm if the actual expenses exceed the estimated expenses or if the developer has otherwise failed to contribute to pay the correct amount towards the operating fund, CRF or applicable penalties.

We recommend you speak to an experienced strata lawyer if you think that the developer might have underestimated the common expenses or not paid their full share.

Limitation periods may cause some of the above claims to expire if not addressed promptly. By seeking legal advice early, strata corporations and owners can improve the chance of preserving their rights.

Lesperance Mendes has been representing and advising British Columbia strata corporations, strata owners, and strata managers since 1997.  To find out more about our strata property law practice, contact any member of our strata property law practice group: Paul Mendes, Sat Harwood, Alex Chang, or Amanda Magee.


THIS ARTICLE IS NOT LEGAL ADVICE:  This article provides general information and should not be relied upon without independent legal advice with respect to the specific facts of your case.