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The British Columbia Court of Appeal Finds Strata Council’s Allocation of Strata Fees Based on Unit Entitlement Significantly Unfair

In King Day Holdings Ltd. v. The Owners, Strata Plan LMS3851[1], the general rule that strata owners are “all in it together” gave way to fairness considerations and King Day Holdings Ltd. (“King Day”) reigned supreme in its claim that the strata council’s allocation of strata fees based on unit entitlement was significantly unfair.

Strata Plan LMS3851 consists of 228 strata lots in the building known as the Westin Grand (the “Building”). The Building contains a hotel, commercial properties and an underground parkade. Twelve of the strata lots are parkade lots, nine are commercial lots and 207 are hotel lots.

In 1998, King Day purchased all of the parkade lots in the Building. From the outset, King Day objected to paying strata fees based on unit entitlement (its share would be 29.82%) because most of the Building’s common property was designated for the exclusive use of the hotel and commercial lots. Negotiations between King Day and the strata council regarding the appropriate allocation continued over the years and in 2011, they reached an agreement that 18% of operating expenses and special levies would be allocated to the parkade lots.

Unfortunately for King Day, in 2014, the majority of hotel lots owners sold their lots to Retirement Concepts Ltd. (“Retirement Concepts”). Retirement Concepts also tried to purchase the parkade lots from King Day but its negotiations were not successful. Immediately after it purchased the hotel lots, Retirement Concepts replaced the property manager and elected their own representatives to the strata council. At the next annual general meeting, the new strata council proposed an operating budget based on unit entitlement, with 29.82 % of the common expenses and two special levies allocated to the parkade lots. The special levies related to elevator modernization and hotel renovations, both of which were for the exclusive use of the hotel lots. King Day objected to the increased allocation, but since representatives of Retirement Concepts held the majority of votes, the operating budget and special levies were approved.

King Day commenced a petition under s. 164 of the Strata Property Act, S.B.C. 1998, c. 43 (the “SPA”), which permits a strata owner to apply to the Supreme Court to remedy an action or decision of a strata corporation that is significantly unfair. In its Petition King Day sought an order that the strata fees and special levies levied against it by the strata corporation based on unit entitlement was significantly unfair. The strata corporation’s main argument in response was that since its apportionment of common expenses based on unit entitlement complied with the cost allocation scheme in the SPA, this could not amount to a significantly unfair action.

King Day was successful in its petition - the judge found that allocating operating expenses based on unit entitlement was significantly unfair. The judge noted numerous facts that demonstrated the unfairness of the strata council’s allocation based on unit entitlement. For example, when King Day and the developer were negotiating the purchase of the parkade lots, the developer agreed to pass bylaw amendments that would allocate strata fees to the parkade lots on a “fair and equitable basis” rather than on unit entitlement (although this never came to pass). In addition, over the years King Day had reached a number of agreements with the strata council, which showed a compromise on the allocation of strata fees to the parkade lots. Based on the factual background, the judge found that King Day had a reasonable expectation that its share of operating expenses and special levies would be 18% and that the unilateral change carried out by Retirement Concepts using its majority of votes was significantly unfair. It also was not lost on the judge that Retirement Concepts was attempting to purchase the parkade lots at the same time it was using its votes to force King Day to pay a larger portion of the Building’s operating expenses. In the result, King Day maintained its allocation of 18% of operating expenses and special levies and the judge ordered that the special levies at issue be allocated solely among the owners of the hotel lots and commercial lots.

Retirement Concepts’ appeal of the decision to the British Columbia Court of Appeal was unsuccessful. In its reasons the Court of Appeal clarified the interpretation and application of s. 164 of the SPA. First, the Court of Appeal confirmed that s. 164 of the SPA is a remedial provision that empowers the court to provide a remedy when the outcome of majority decision making yields results that are significantly unfair to the interests of a minority owner. The Court of Appeal also found that as a general rule, conduct that is in compliance with the cost allocation scheme in the SPA will not amount to significantly unfair conduct, it is possible to have exceptions to this general rule and that the circumstances of the case warranted such an exception.

If you have any questions regarding stratas, please contact a member of our Litigation & Dispute Resolution Group.

[1] 2020 BCCA 342 [King Day].

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