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What can Stratas do if a Resolution for Urgent Repairs is Defeated?

There are many benefits to living in a strata, but there can also be problems. One such problem can be raising money to pay for building repairs. This is usually done by way of a special levy requiring owners to pay their proportional share of the expected cost.  A special levy is in addition to monthly dues and can, in serious cases, be a lot of money.  The imposition of a special levy requires a special majority vote: either a ¾ vote or a unanimous vote of all strata members, depending on the nature of the proposed expenditure.  What happens when urgent repairs are needed but the strata members refuse to pass the required resolution authorizing a special levy?

Until December 2013, there was very little a strata could do.  The only legal remedy available was under section 165 of the Strata Property Act (the “SPA”) pursuant to which a court could order a strata council to perform its duty to repair and maintain common property.  This was a cumbersome route and the courts are reluctant to force strata’s to do things against their collective will.

In December 2013, the SPA was amended to add provisions that gave the courts greater authority to compel a strata to carry out a defeated resolution for a special levy.  Until recently, these new provisions had not been considered by the courts. That changed with the decision in The Owners, Strata Plan VIS114 v. John Doe.  In this case, a multistory strata property in Victoria had a compromised building envelop in need of urgent repair.  The council held a special general meeting seeking approval of a $1.7 million special levy to pay for the repairs.  The resolution was defeated in what was described as a “very fractious battle”. Only 63% of the owners, not the required 75%, voted in favour. As the strata council considered the repairs urgent, it applied to court under the new sections 173(2) to (4) of the SPA for an order authorizing the imposition of the special levy, despite the absence of a ¾ vote. Many owners opposed the application, arguing the repairs were not urgent, the cost was too high and a more modest spot repair program would suffice.

The court granted the order sought. The decision provides guidance on the application of these new SPA provisions. First, the strata bears the onus of establishing that the maintenance or repair of common property is “necessary to ensure safety or to prevent significant loss or damage, whether physical or otherwise.” The repairs do not need to be “immediately necessary” or “crucial”, but they should be “necessary” to ensure safety and prevent loss and damage.  In determining the reasonableness of a strata’s proposal, the Court will typically consider the professional advice a strata received regarding the timing, extent and method of repairs. If the Court finds the repairs necessary, then it will leave it to the strata to implement the repairs based on that professional advice. A lot of deference will be given to the strata in choosing the solution. The Court will not micro-manage the construction.

In this particular case, there was evidence that water ingress to some units was causing interior damage and the prospect of mould with related medical issues. That was sufficient to establish the required risk to safety and significant physical damage, both actual and prospective.

The Court also considered whether there was “non-physical loss or damage” sufficient to justify the order sought. The Court accepted a broad definition of this type of loss and noted it could include the effect on both common property and individual units. The strata argued that this type of loss included the loss in market value of many units, the potential waste of money in continuing “spot” repairs and the likelihood of increased remediation costs if the repairs were delayed. The Court accepted each of these points as establishing “non-physical loss or damage” justifying the Court’s intervention.

Another issue the Court addressed was the financial ability of the owners to pay a special levy. Many owners argued the cost was too great for them personally. While sympathetic to these individuals, the Court held that the matter “must be looked at globally and no one owner’s personal situation should dictate the result”. In making difficult decisions, a strata must consider the impact on all owners. A strata must act in the best interests of all and try to achieve the greatest good for the greatest number. The strata must implement repairs within a budget that the owners as a whole can afford. If the strata is or has done that, the Court will not prevent the strata from acting as it sees fit.

If you live in a strata that may need significant repairs, this case illustrates how to break the log jam where more than 50% of the owners, but not 75%, are prepared to pay for those repairs. The SPA can overcome the unfairness of a small minority of owners thwarting the efforts of others to look after the strata buildings properly. While a powerful tool, section 173 of the SPA requires you to marshal the right evidence if you are to be successful. The Owners, Strata Plan VIS114 v. John Doe illustrates how detailed that evidence needs to be and provides guidance on how to achieve a successful outcome.  One last word of advice is not to wait too long to seek a remedy under section 173. If the professional advice is that repairs are needed in the next few years, that is likely sufficient to invoke section 173 if there is disagreement among owners. After all, if there is going to be a fight over such an issue, it is probably better to take it on sooner rather than later.  As a general rule, repairs do not usually get cheaper as time passes and the damage being caused will likely only get worse.

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Our Real Estate Law Blog provides brief commentary on current legal trends and developments affecting your business. The topics addressed in Lawson Lundell’s Real Estate Law Blog are of interest to commercial real estate developers, real estate and strata agents, investors, landlords and tenants, as well as a variety of industry groups. 

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