Proxies put tenants in a pickle

Tony Gioventu
Times Colonist

Dear Tony:

Our strata council has put owners in a serious conflict. The council proposed a special levy of $100,000 to remodel our lobby and the owners passed it at a special general meeting last week.

No one is objecting to the price. A good specification was written and we had four bids for the work, which includes new marble flooring, new elevator cabs, new entry doors, lighting and new windows.

The problem that has arisen stems from procedures at the meeting. A council member was holding proxies for 35 units. The vote only passed by three. The next day, at least five owners came forward advising they did not authorize proxies held by this person.

Our council deemed that the vote was still valid and proceeded to sign the contract and issue a deposit to the successful company. Because it was a three-quarters vote, more than 50 per cent of the owners petitioned to reconsider the vote.

Martin D.

Dear Martin:

The Strata Property Act sets out specific conditions to reconsider three-quarters votes. If a three-quarters vote is passed at a special general meeting by individuals holding less than 50 per cent of the strata corporation’s votes, the strata corporation must not take any action to implement the resolution for one week following the vote, unless there are reasonable grounds to believe that immediate action is necessary to ensure safety or prevent significant loss or damage.

Within one week following the vote, individuals holding at least 25 per cent of the strata corporation’s votes can, by written demand, require that the strata corporation hold a special general meeting to reconsider the resolution. The demand must be signed by each person making it.

After receiving a demand for a special general meeting, the strata corporation must not take any action to implement the resolution unless there are reasonable grounds to believe that immediate action is necessary to ensure safety or prevent significant loss or damage.

The strata corporation must hold the meeting within four weeks after the demand is given to the strata corporation. The president of the council can call the special general meeting without holding a council meeting.

At the meeting, the resolution being reconsidered is the first item on the agenda and must be dealt with before any other matter about which notice has been given. If a quorum is not present within a half hour of the start of the meeting, the meeting must not proceed and the resolution stands and can be implemented only if one of the following conditions is met: a) a demand for reconsideration is not made b) the resolution is approved by a three-quarters vote at the special general meeting held c) the meeting held does not proceed for lack of a quorum.

Even without the proxy errors, your strata council did not have the authority to proceed and deem the resolution passed and deny the petition.

Out of 178 votes in your strata, there were only 82 votes represented in person and by proxy. Your strata corporation must hold the petitioned meeting to reconsider this vote.

This problem occurs frequently in strata corporations that are eager to get on with the work and assume they have the authority to proceed.

Your strata council should consult with an experienced strata lawyer to look at its options. Holding the meeting is the first step. Depending on the outcome of the decision, your strata might be required to negotiate with the contractors.

The process certifying the proxies should be closely reviewed. Registration and issuing of voting cards can be done by your manager, a council member or volunteer, but only the chairperson of the meeting has the elected or appointed authority to determine whether a proxy is valid.

There is an ironic twist to this situation. Your strata corporation has more than $1.4 million in its contingency fund and these repairs are recommended in your depreciation report. It only required a majority vote to approve the $100,000 expense from the contingency fund and all of this could have been avoided.

© Copyright Times Colonist

Unfair to make owners pay for hotel pool

Tony Gioventu
Times Colonist

Dear Tony:

We have an issue of fairness in our strata that is dividing our community. Our strata is divided into two basic types of units. The first 10 floors are hotel use, and floors 11 to 16 are residential condos.

The hotel has a pool that has always been included in the common expenses of the strata corporation, even though the strata corporation only has access to the hotel if we pay a club membership fee.

No one in our strata feels we should pay the membership fees, and the pool is identified on the strata plan as limited common property for the exclusive use of the hotel. We challenged the payment schedule, but were told by the property manager that we are required to either have a bylaw that allocates expenses by type, or a bylaw where we create sections to segregate our common expenses.

How is it possible to create an exclusive use where one owner benefits but everyone pays for it?

 Charlie Mc.

Dear Charlie:

The Strata Property Act and Regulations have specifically addressed this issue. Regulation 6.4 identifies a formula that allocates operating expenses for limited common property to only those strata lots that benefit from the expense.

In your strata, this requires that the operating expenses of the pool, hot tubs and saunas be allocated to only those strata lots that have been identified as limited common property designates.

The key qualifying condition in this formula is that the expense must solely benefit the limited common property. The pool servicing and maintenance are obviously exclusive expenses, as your residential owners do not have a pool, sauna or hot tubs. The gas and electric bills may also be expenses of the hotel if they are metered separately. You do not require a types or sections bylaw for these allocations.

If the owner of the hotel wishes to set up a membership for the pool services, that is at their discretion. However, your strata should also seek legal advice on the imposition of user fees if they are charged by the strata corporation, and whether the fee structure is valid, as it is neither a rule nor a bylaw in your strata.

The same types of expense allocations can be found in a variety of strata corporations across the province — for example, strata corporations with marinas where only the waterfront units have access to the marina facility, which is limited common property, and those designated areas are an expense that can be solely attributable to the waterfront strata lots.

Unfortunately, the act does not make reference to the limited common property expense allocation; it is only a part of the regulations. It helps to read the whole book.

© Copyright Times Colonist

Condo Smarts: Better to find solutions before a crisis occurs

Tony Gioventu
The Province

Dear Tony: 

Our strata discovered that a pipe in a wall between my unit and a neighbour’ s unit had developed a leak.

They hired a plumber who came out and had to cut a three-by-three-foot hole in both of our walls to replace the pipe. The cause was obvious: the pipe had been angled around a cable and stressed to the point of failure. 

When the plumber was gone, he gave us a card to call to have our walls repaired. We both arranged for a drywall company to come in and fix our walls.

At no time did the strata or anyone else indicate we would have to pay for the repairs. Each of us had to pay $1,500, which is horrendous.

The strata argued it was a repair to our strata lot and the strata was not responsible, but it was not a claim under the insurance deductible and it was damage caused by the strata corporation’s contractor to actually repair common property. Is this common? 

Agnes W., White Rock

Dear Agnes:

Under the Strata Property Act in B.C., strata corporations must maintain and repair common property.

Under the definitions of the act, pipes, wires, ducts and cables that are in walls, ceilings and floors that are between two strata lots, or between a strata lot and common property, are deemed to be common property.

The strata corporation was correct that it had to repair the pipe as it was common property; however,  in order to repair the common property, the strata corporation was required to enter your strata lot and remove a section of wall to repair the common property.  

While we have no definitive court decisions on this process, it is logical to assume that a party who causes the damages will be responsible for the repairs in the same manner as an owner who hammers a nail into a wall to hang a picture and causes a leak would be responsible for the cost of the repairs. 

Allyson Baker, a lawyer at Clark Wilson LLP in Vancouver, advises strata corporations to also consider bylaws that address these types of issues. According to Allyson: “Strata corporations are frequently required to access strata lots and conduct repairs. It may be a simple repair, or a complete re-piping of the building due to age, but the strata corporation would generally maintain the responsibility to replace the existing standard finishing with the same repairs.

“Where it gets complicated is when the strata corporation finds they have a repair behind a wall of custom marble or granite that was not original, and there is now a major cost associated with reinstating the alteration. A bylaw that clearly defines the limits of the repairs undertaken by the strata corporation to original finishes and construction only informs owners they are obliged to insure their improvements for any losses and provides a great deal of clarity for the strata corporation. It is always easier to find solutions before they become a crisis.”  

Bylaws are not only about solving problems; they can provide great clarity on liability and operations before an incident occurs. Well-written bylaws that comply with the act will often resolve many problems before your strata corporation is embroiled in a conflict, and are well worth the investment.   

© 2017 Postmedia Network Inc.

Find the right fit with rental bylaws

Tony Gioventu
The Province

Dear Tony: Our strata is considering a rental bylaw that limits the number of rentals to 10 out of 100 units. We are slowly seeing the number of rentals and Air BnB’s increase to the point where less than 50 per cent of the residents are owners and their families. 

An owner brought a realtor to our last general meeting who advised rental bylaws would harm our property values and prevent buyers from looking at our property. On a side note, this person also acts as the agent for a number of the rentals, so his opinion was entirely self-serving.

Is there any data that indicates rentals have an impact on property values or use of property?

Neil Millar

Dear Neil: A rental bylaw restricting the number of rentals may not by itself impact value or use of property either positively or negatively. Like all housing affordability issues, there are layers of conditions that combined, may result in either a negative or positive outcome. 

In my experience, regardless of the type of bylaws and restrictions, if your strata corporation is well managed, well maintained, well funded and operates under an enforceable set of bylaws, your community can be assured of the best property values and demands. CHOA has many members across the province that meet those conditions with buyers on waiting lists. 

Before you adopt a rental bylaw, look at your disclosure statement. Your strata was filed in August 2010, so I suspect there is a rental disclosure exemption on your strata lots anyhow.

In 2016, CHOA undertook a direct survey of 16 buildings in Vancouver to identify if there was any impact on housing affordability, occupancy and rental bylaws. Eight of the buildings were constructed since 2010 with no rental restrictions and eight buildings were constructed before 2010, with seven out of eight with rental bylaws. 

The year 2010 was selected as the legislation changed, permitting the developer to adopt a rental disclosure that essentially prevented rental bylaws.

The results were rather surprising. The buildings constructed since 2010 or with no rental bylaws had the highest vacancy rates, between 19 and 39 per cent, and the highest turnover of sales. From the information volunteered by owners, they also boasted the highest rental rates and the highest use by Air BnB and other short-term services. 

The buildings constructed before 2010 that had rental restrictions and limited the number of rentals (none prohibited rentals) had the lowest vacancy rates of one to four per cent. They provided stable affordable housing to both owners and tenants and had the lowest turnover of owners of market sales and the lowest use by Air BnB and short- term accommodations.  

From the data, it was evident the difference was rental bylaws are limiting real estate speculation in communities with rental bylaws. In comparison to market sales for both classifications of properties, neither type of property experienced negative impact on property values or market sales.

A 2017 update of the data has not indicated any substantial shift in the data, but there is one significant impact that several strata councils identified. By maintaining their rental bylaws, they have built communities with lower transiency in both tenancy and ownership and have been capable of maintaining the integrity of the nature of their communities.

As one council also pointed out: “The rental bylaw discouraged an investor speculator from dropping in and buying out 25 per cent of our units as they would not be able to rent, while having to maintain the expenses on vacant units.” 

Do rental bylaws affect property values? Possibly, but they may also protect your properties from speculators and ensure predictable affordability.

No two strata communities in B.C. are identical. Adopt bylaws that are relevant to the interests of your community, and don’t be pressured by external self-interested parties.

© 2017 Postmedia Network Inc.

Gas appliances can present a vexing issue for strata

Tony Gioventu
The Province

Dear Tony:

Our strata is debating the safety of outdoor gas appliances and considering a bylaw to completely ban their use.

Since 2001, we have had two incidents involving gas barbecues: One, an exploded glass balcony wall and another where there was over $20,000 in damage caused by a fire on the balcony of a unit with wicker furniture.

We have a group of vigilant owners who claim it is their right to have a barbecue and gas patio heater and the strata cannot prevent their use.

We contacted our local fire marshall who advises it is up to us to set bylaws that regulate this activity. How do other strata corporations in the province manage this issue? 

Corinne P.

Dear Corinne:

Ever have this experience: Your gas barbecue was left on overnight and the dials are now so hot you cannot touch them or they are starting to melt?

This happens all too frequently and often owners just wait for the appliance to run out of gas as opposed to calling 911 for assistance or risking their own injury.

These appliances are not intended to run for endless periods at high temperatures in restricted areas. With over 30,000 strata corporations across the province in every type of climate zone and construction design, it is impossible to provide any example that could be a standard. Each strata has to take a close look at the design and construction materials in its buildings, the locations where outdoor gas or fired appliances may be used and the potential where life safety issues or property damage may arise. 

A backyard gas fireplace may be acceptable in a townhouse complex where the fire pits are a safe distance from buildings, structures and trees and ensure a safe escape route in the event of an emergency. The same conditions are unlikely to apply to a townhouse backyard that is 10-by-10 feet and covered with a wood deck and building overhangs. 

Overhead heaters may be safely operated if there is sufficient clearance above the heater, but with a six-foot heater in a seven-foot balcony area in a wood-frame building, it is simply a matter of time before someone forgets the heater is on and torches the building.

Your example of gas barbecues on highrise balconies pops up constantly. There is is not only the potential of damage to balcony walls or windows facing the balcony areas, but the constant smoke and grease produced by the barbecues is one of the most frequent complaints of nuisance that our office receives every summer.  

Your bylaws could prohibit all types of gas for solid fuel appliances used for cooking and heating. It could also specifically limit location, hours of use and even maximum size (BTU).  This is ultimately the voting choice of your owners.

To live in a strata, we are sharing each other’s space and liability. In a strata, your home is not your castle. If the strata adopts news bylaws prohibiting barbecues, they will apply to everyone. 

A bit of sobering perspective: Is a $20 cooked for five minutes outdoors really worth a million-dollar insurance claim and the possible risk of safety to your fellow residents and their property?

© 2017 Postmedia Network Inc.

Tony Gioventu
The Province

Dear Tony:

Who is responsible for pest removal from a strata property?

We have an apartment building and 12 townhouses in our strata. The townhouse owners have been complaining about chronic wasp nests and the apartment owners have complained about the sound of mice in the walls and attics.

We had the same issues last year and everyone took care of their own problems, but this year several owners have refused to pay for the exterminators or pest control, so the problems are much worse.

We would appreciate some guidelines for how to address these issues. 

Cedar Gardens Strata Council

Dear council members: 

In most infestations of rodents and insects, access begins outdoors and through the common property. It could be through vents, foundations, walls, balconies, windows and doors left open in the warm season, or failures in the building envelope system. 

The point of access is common property unless you are a bare-land strata where owners are responsible for their own buildings that are not shown on the strata plan.

Understanding access is the first step to understanding responsibility. While strata councils often refuse to pay for the costs of pest control, in most instances it is a common expense. The sooner the strata corporation takes responsibility and coordinates the removal and control of pests, the greater chance of protecting property and preventing future issues. 

Raccoons that attempt access to roofing areas are generally looking for a place to nest, but the quick and safe relocation of our masked friends is possible while minimizing damage to our buildings. Pests that invade our living spaces will cause serious building damage to electrical and mechanical infrastructure, as well as nesting in wall cavities and contaminating insulation. 

It is unlikely the infestation in your walls and ceilings are mice and most likely rats, as we have seen a significant increase of rat infestations this year.

Wasp nests, bees that hive in walls and attics, bird infestations, cockroaches, bed bugs, carpenter ants, terminates, mice, rats, raccoons, possums and bears are all part of environment. Residents and strata councils need to be vigilant and report any infestations or incidents and address them as soon as possible.

We also need to ensure our environmental surroundings are not encouraging infestations.  Bird feeders, feeding of wild animals, hoarding in crawl spaces, garages and carports, barbecues left with food debris, unattended wood piles, unsecure composters and rotting wet wood all attract pests and animals. Owners and tenants need to be aware that if they do not maintain and repair their strata lots or contribute to the problem by bringing in pests, the strata corporation may be seeking those damages and costs against your strata lot. 

If there is any sign of a pest or animal problem contact your strata council immediately. It can arrange for a qualified pest control service to manage the problem quickly and prevent property damage or health risk to your residents.  

© 2017 Postmedia Network Inc.

Depreciation reports just estimates

Tony Gioventu
The Province

Dear Tony:

Our strata corporation has a depreciation report that projected our roof replacement in 2017 at $95,000. We hired a licensed roofing inspector and had the roofing project put out for bids. The lowest bid we received was for $155,000, plus we need some funds for the inspector and legal work.

At our AGM in May, our owners approved up to $95,000 for the roofing replacement from the recommendation of our depreciation report. Does council have the authority to spend the additional funds without calling a meeting of the owners? Our property manager told us the majority was just a formality and we’re not required to have another vote.  

Jason M., Port Coquitlam

Dear Jason:

The values in the depreciation report are simply estimates. Depending on the depreciation report contract a strata corporation agrees to, the variance in cost could easily be up to 50 per cent.

In your case, your contract estimates subject to market conditions, the projections within the three- year period are estimated to be within 30 per cent.

Approving the funds recommended by the depreciation planner before you have retained a consultant to provide current market estimates is premature. In addition to ensuring all bidders are competing for the same product, services, technical requirements and conditions set by the specifications, the consultant will be able to provide you with a much closer market cost.

The strata could include a contingency for cost estimates to ensure it has sufficient funds and approve up to a specified amount rather than just the fixed projection cost of $95,000. 

The Strata Property Act and Regulations do not require the amount is restricted to what is in the report. The act permits a strata to vote by majority vote for a contingency expense if the renewal is related to the repair, maintenance or replacement of a component recommended in the most current depreciation report. 

If the strata corporation did not approve sufficient funds, either by majority vote for a contingency expense or a three-quarters vote for a special levy, your strata corporation will be required to hold another general meeting and obtain the approval of the owners for the additional funds.  

The depreciation report was not intended for strata corporations to simply approve funds by majority vote. The report is a planning tool to project when components need to be maintained or replaced, how much life is remaining in the components, how much the projected cost may be, and options for how the strata corporation may choose to fund the future requirements. 

© 2017 Postmedia Network Inc.  

Exterior revenue sources may be taxable

Tony Gioventu
The Province

Dear Tony:

Do strata corporations pay income tax?

Our strata negotiated an agreement with a communications provider to lease our rooftop for $50,000 a year, plus 25 per cent of any sublease agreements it negotiates. We are in year three of a 10-year agreement, and just received a notice of assessment from CRA.

Our strata corporation also has a public parking area that is rented out to the public daily, weekly and monthly.

We were under the impression that we were tax exempt as a non-profit association and could not be taxed. If that is correct, how could we be taxed for this revenue? Has this ever occurred to other strata corporations? 

Sebastian R., strata council president  

Dear

Sebastian and council members:  

Strata corporations qualify as tax-exempt non-profit organizations, provided they are not generating revenues for profit.

The portion of a strata corporation revenues that are deemed to be non-taxable are strata fees, special levies, fines and penalties, and interest that may be earned on investments of contingency or special levy funds that are permitted by the act.

Since a residential condominium corporation is organized as a requirement of the Strata Property Act, and is normally not operated as a business, it will usually be considered to be nonprofit and operated for other than commercial or financial reasons.

All those conditions may change when a strata corporation chooses to create profit from exterior sources that are not exempt. Public signage revenues, public parking fees, marinas, golf courses and leases such as communications services may all be considered revenue and taxable. Yes, you may be required to pay tax on your revenues.   

Every condo/strata association in Canada is required to file an annual tax return and a director’s information form. For strata corporations that generate revenue other than the considered exemptions, CHOA always recommends the strata corporation have their tax prepared by a qualified, certified accountant who has experience with the classification and status of strata corporations.

If you do not owe taxes and have never filed a return, it is never too late. There have been no penalties imposed for strata corporations in B.C. that have voluntarily started filing and have no outstanding taxable income.

An excellent source of information is the CRA guide specifically for condo corporations in Canada. Go to https://www.canada.ca/en/revenue-agency.html and search Income Tax Guide to the Non-Profit Organization (NPO) Information Return. Strata corporations generally file a T-2 short return and complete a 1044 form included with the guide. One thing you can be sure of, if CRA requires more information, it will be in touch! 

© 2017 Postmedia Network Inc.

Borrowing is not without its risks

Tony Gioventu
The Province

Dear Tony:

Our strata corporation is trying to attempt a major project that includes our roofing and/or balcony deck renewals. 

We have had the project detailed and prepared by an engineering company and the estimate of costs will be around $2.7 million. We have $1 million saved so the owners will have to pay a special levy of $1.7 million or an average of $24,000 per unit.

We have tried twice in the last six months to get the owners to approve the special levy, but have been unsuccessful. Everyone agrees the project is necessary, but owners are claiming they cannot pay the levies because of high mortgages relating to high property values. The closest we have managed is 40 per cent of the owners voting yes at a meeting. 

Several who are opposed to the repairs have to come to us with the option of the strata corporation taking out a loan for the repairs and the payments could easily be absorbed by the owners who need to participate in the loan. We have investigated the option of loans, but don’t see how anyone benefits from the strata corporation taking a loan. 

If we approve the loan, and only half of the owners participate, what happens if someone defaults on their payments? The payments for a five-year term are high, so we expect this is likely. Those owners who have paid their levies are concerned about the liability of delinquent owners. 

Cynthia W. 

Dear Cynthia:

When a strata corporation takes out a loan, it is assessed as a commercial client or comparable risk. Because strata corporations cannot mortgage common property, the lender has less security; however, the lender can negotiate by contract the priority of receipt of payments for the loan.

This basically secures their loan to ensure they get paid first by the strata corporation. The interest on commercial loans is substantially higher and depending on the ratio of the loan and the risk, the strata corporation may be paying anywhere from 6.5- to 9.5-per-cent interest at this time.

It is important to clearly understand the amortization period, the period the loan must be paid back, and the term of the loan, the period for which the rate of interest is fixed.

It could be possible to have a 10-year amortization and pay the loan back over 10 years; however, the maximum term will only be five years at a fixed rate of interest. At the end of the first five-year period, the interest is renegotiated to reflect market values at that time.

Amortization that is longer than the term leaves the rate of interest unpredictable. This also creates complications for sellers and buyers because the strata corporation cannot fix a definite amount of payout for a seller. 

 You are correct about the risk for those owners who have paid their special levy. If the strata corporation takes the loan, every strata lot owner in the strata corporation, based on unit entitlement, is liable for the payment of the loan. It is the strata corporation that is assuming the liability for the loan repayment and the costs of interest.

The strata corporation will contract with owners who require the loan to cover security, debt and interest penalties, but if an owner defaults, the strata corporation still has to pay the monthly loan fees and will be paying for the legal and court costs if they have to make an application to the courts for a sale of the strata lot. This does not dissolve the future cost of interest or penalties that are still owed by the strata corporation for the balance of the amortization period.

Before you consider a voluntary loan for some strata owners, retain a lawyer experienced with strata law and borrowing. Make sure you know the answers and procedures to: “What happens when an owner defaults on their loan payments?”

It is also advisable for the owners at a general meeting to have the same information so they can make an informed decision when they approve the special levy and the borrowing of the funds on behalf of some of the owner.   

© 2017 Postmedia Network Inc.

Use formal council approach

Tony Gioventu
The Vancouver Sun

Dear Tony:

We are having some serious issues with two of our council members who are benefitting from their council involvement.

One works for the developer and constantly pushes any issues away from the developer’s responsibility and the other is an employee of the management company that we currently employ that manages other property of the same developer.

In a new building, we were fortunate to elect several council members who have engineering and legal backgrounds, so we have a very real sense of our duties and the essence of deadlines.

How do we deal with these individuals? They are constantly attempting to bully the council and threatening they will have the owners remove us for a more cooperative council.

Ron L.

Dear Ron:

The best solution for all business of a strata corporation is to make decisions official and operate by the book. The downfall of many strata corporations is the informal approach where no motions are made at council meetings, no decisions are recorded in the minutes, and whenever there is an issue over potential conflict of interest, the strata does not identify the conflict in the minutes or require the council member to leave the meeting during those discussions.

A potential for conflict exists whenever a council member may have a direct or indirect interest in a contract, transaction with the strata corporation or a bylaw violation complaint. To compound the problem, council members are asked if they have a conflict, to which most claim they do not, or they deny any such involvement.

It is not up to the council members to determine whether they have a conflict. They have a duty to disclose any such involvement and the remaining council members determine whether a conflict is possible. Self-adjudication of conflict status is often the first symptom of a problem.

The most common conflicts generally arise from bylaw violations or financial debts. If there is a matter relating to a council member and a bylaw complaint, the council member must recuse themselves during those discussions once the information has been gathered and must refrain from voting on the outcome.

The same consideration should be made for matters such as whether a council member is responsible for an insurance deductible, whether a lien is imposed on the council member’s strata lot for collection purposes or whether damages were caused by the owner or their tenants and occupants.

If the council member has any relationships to a contractor, if they are an employee of the strata corporation, or if they work for a developer or management company to which the strata is in negotiations, they should also recuse themselves from the portions of the meetings where decisions have to be made that may affect or benefit the companies.

For the protection of your strata corporation and the council members, check that you have included the disclosure of any conflict in the minutes and the time the member recused themselves allowing for unfettered discussions.  Transparency has no shadows. 

© 2017 Postmedia Network Inc.