Strata councils fall prey to promises of high returns on risky deals

Lena Sin
Province

Owners of two B.C. condo complexes have lost substantial amounts from their reserve funds after making risky investments.

The strata councils — one in Vancouver and the other in the Okanagan — were lured by the prospect of high returns and now have to answer to condo owners about huge losses caused by the global financial meltdown.

In the Okanagan case, the strata council lost nearly $100,000 of the condo owners’ contingency fund.

Tony Gioventu, executive director of the Condominium Home Owners Association, says only these two cases have come to his attention over the past six months, but it’s possible there are more.

“It’s been going on for years,” says Gioventu. “The first time I had to deal with it was nine years ago. People get greedy and look for shady deals. But nine years [ago], we had a pretty big drop in mutual funds and we had stratas investing in mutual funds. That was probably the first time it popped up on the radar screen.”

Legislation limits the type of investments in which condo reserve funds can invest.

The Strata Property Act Regulations, Section 6.11, says permissible investments include government bonds, GICs or simply holding the money in a bank account.

In most cases, investing in equities is not permitted.

The strata council in the Okanagan, however, alleges it was misled by an investment adviser.

“Our strata council has done something rather stupid,” wrote one strata member to Gioventu’s Condo Smarts column, published every Sunday in The Province.

“In 2005, our treasurer invited a broker from an investment firm to talk to our council about managing reserve funds. We took advantage of the advice and decided to place our contingency funds with the investment broker to gain the highest yield possible. Unbeknown to us, the funds were extremely risky.”

While the strata earned more than 10 per cent in 2006, the portfolio is now worth half its value, said the strata member.

Gioventu said the strata council’s lawyer is recommending the council sue the investment firm for misleading them.

“The financial adviser — they need to know what they’re doing. They had to have known what they’re doing,” says Gioventu.

“I can’t tell you which investment house it was, but they either had someone who was totally negligent or decided to willingly neglect to comply with the legislation.”

There’s little recourse for condo owners.

Mari Worfolk, a Vancouver strata litigator, says the first step would be to speak to a lawyer with a background in both the Strata Property Act and investment regulations.

Gioventu said strata councils may try to recoup some of the money by making an insurance claim under the “errors and admissions insurance of strata corporations.”

Or condo owners may consider suing their strata council.

In some cases, the best option might be to just absorb the loss.

© The Vancouver Province 2008

Tony Gioventu
Province

Dear Condo Smarts: We just closed the sale of our retirement condo in Kelowna and were appalled to be hit with over $450 in fees for documents from the strata corporation. I used a real estate agent and lawyer that advertise as condo specialists for purchases and sales, and never expected such a high fee. How is the strata corporation and its manager permitted to charge such fees in B.C.?

— FP

Dear FP: There is only one document that is a mandatory requirement for the completion and conveyance of the strata lot, the Form F Payment Certificate. The form basically ensures the seller cannot skip town without paying money owing to the strata. The Form F is valid for 60 days from issue.

The maximum amount that the strata corporation, or their agent, is permitted to charge is $15 for the Form F and 25 cents per page per copy. The other document requested may be a Form B Information Certificate. That form represents information about the strata lot and strata corporation and is valid for the date it was issued. The Form B is often requested before a sale is finalized, as buyers make their decisions based on financial, legal, and governance conditions of the strata and liabilities of a strata lot.

This form must also be provided within seven days, and a charge of $35 may be imposed along with 25 cents per page per copy. However; this is where it gets costly. If the strata or their agent receives a minimum seven days notice, they may charge only that prescribed amount for the Form F or B, but if you, your agent or lawyer or notary requests the form, with less than seven days notice (48 hours notice for example), the strata may charge a premium for the cost of rush requests.

If the amount is being charged by the manager, that amount must be disclosed to and approved by the strata corporation, and if the strata is charging that amount they often set rates for rush charges, but there are no restrictions.

This might be an important matter to raise with your sales agent or your lawyer, especially in your case. You removed the subjects on July 15 and closed the sale the last week of October. Why did your agents wait until one day before the closing to request the documents? What should have cost $47 ended up as a $469 charge.

Tony Gioventu is executive director of the Condominium Home Owners’ Association

[email protected]

© The Vancouver Province 2008

 

Tony Gioventu
Province

Dear Condo Smarts: What does the strata corporation do when an owner refuses to repair damage to their townhouse? We have one owner who recently backed up into his unit and broke off the water tap and tore off a section of siding. He is refusing to fix the damage, and with winter approaching we’re concerned that the damage to the siding and the plumbing could make matters much worse.

— AC, Mission

Dear AC: There’s a line that sums up strata living for all types of strata buildings shown on the strata plan. “In a strata, your home is not your castle.”

The walls, windows, doors, decks, balconies and roofing systems are all part of the common assets and they form part of the insurable interests of the strata corporation.

When someone causes building damage in such an accident, it is quite possible that this would be a claim on your strata corporation insurance.

The most common mistake many strata corporations make is assuming that because damage to the common building assets was caused by a particular person, the strata insurance would not cover the claim or the home-owner insurance would cover such a claim. As the area damaged is common property and a common asset, the strata corporation can execute the claim to ensure the damage is remedied. They may also execute the repairs themselves and then recover the cost of those repairs against the person who caused the damages.

Owners, tenants and guests need to beware. No matter what was damaged, if you caused or are responsible for the claim or associated costs to the strata corporation, you may likely be responsible for the cost of the deductible. For the best interest of the strata corporation, it is also best for the strata to co-ordinate the claims to ensure the repairs are executed properly and you’re not left with a disaster years down the road.

A very common building damage complaint we receive relates to damage to parkade gates. Drivers are often impatient for the gate to entirely life or careless in passage and run into gates. So who pays? The strata executes the repairs and recovers the costs from the owner or relating strata lot that caused the damages. Remember: you break it, the strata probably fixes it, but you still pay.

Tony Gioventu is executive director of the Condominium Home Owners’ Association.

Email: [email protected]

© The Vancouver Province 2008

 

Tony Gioventu
Province

Dear Condo Smarts: Our strata council has done something rather stupid, and now we’re about to face the owners admitting we’ve probably lost almost $100,000 of their money.

Our strata has always been self- managed and extremely well run. Local agents often refer to us as the model community.

Unfortunately, we let our guard down. In 2005, our treasurer invited a broker from an investment firm to talk to our council about managing our reserve funds.

We took advantage of the advice and decided to place our contingency funds with the investment broker to gain the highest yield possible.

Unbeknown to us, the funds were extremely risky.

They did pay a great rate over 10 per cent in 2006, but now with the current challenges in the markets our broker has advised us that our portfolio is worth half its value due to devaluation.

Here’s our dilemma: Do we tell the owners and admit the loss or wait and see if this is recoverable? My fellow council members are concerned that we may be personally at risk for this loss.

— G.G., Okanagan

Dear G.G.: Unfortunately, your strata is not the first to report this error in the past few weeks.

While no investment is an absolute guarantee, our legislation in B.C. is specifically designed to significantly limit the types of investments that strata corporations can invest to reduce the risks.

You have received some incorrect advice regarding the investment of your reserve funds.

You need legal advice regarding the liability of your council members, and the actions of your investment broker, who may also have incurred liability if he or she knowingly invested contrary to the Strata Property Act and the Regulations.

You will also need to advise your owners that it may be necessary to convene a special general meeting and seek their instructions.

The owners may very well consider a court action against the council members for this error, and if your directors and officers liability policy does not cover the loss, or the investments don’t recover, you may well be personally facing the costs.

Go to www.choa.bc.ca and click on the Strata Property Act, then follow the link to the regulations and print off Regulation 6.11.No matter what, every strata needs to confirm that all of its investments are in trust in their name and comply with that regulation.

Tony Giventu is executive director of the Condominium Home Owners’ Association.

Email: [email protected]

© The Vancouver Province 2008

Don Cayo
Sun

B.C.’s Strata Property Act is 10 years old — young by the standards of often-mouldy old laws — but it’s due, or overdue, for revision.

A quarter of all homes in B.C. — half in some cities — are strata units, and the strata councils that administer them can wield immense power over the owners’ lives. The councils are a de facto fourth level of government that may decide details as personal as the number, type and size of your pets — even if you can keep your home and have kids. Not to mention a host of factors that affect the value of the largest investment many of us ever make.

While it’s true that many of us strata-unit dwellers enjoy our homes and live in harmony with our neighbours, there are myriad tales of strata corporations — and strata communities — that become mired in disputes and dysfunction. Neighbours turn nasty, lawsuits grow acrimonious and expensive, and dreams are shattered and property values wither as some owners spar or stall over needed repairs.

The Vancouver Island Strata Owners Association has long been lobbying for a public review of the laws governing strata ownership and occupancy — something promised by then minister of finance Gary Collins back in 2003, but never acted on. So the association has produced a report, based on a series of meetings with and written submissions from various strata-owners groups.

Although the association’s focus is Vancouver Island, the issues at the report’s core will resonate across the province. And while some will take issue with specific recommendations, they’re all prime topics for debate and discussion.

Among the things it wants new legislation to address are:

– Governance issues such as clear rules on what information strata councils must provide, better and cheaper dispute resolution, penalties for non-compliance, and better ways to ensure buildings are kept in good repair.

– Clearer rules for licensed strata managers, including standards of care, provisions to deal with conflict of interest, and simpler mechanisms to cancel a strata management contract.

– Financial reporting matters including reporting standards, audit provisions, tougher requirements for contingency funds, and access to strata meetings and minutes.

– Several related measures to redefine the relationship between developers and the people who buy into early phases of a development. The aim is to shift the balance from a perceived advantage for developers, and to protect buyers from everything ranging from fraudulent misrepresentation to getting stuck with the full cost of amenities that are later shared by subsequent buyers.

– A provision to protect strata buyers from paying twice when a strata corporation contracts out for services such as garbage collection, yet the municipality taxes the owners at the full rate.

– An end to a requirement for unanimous consent to change how fees or assessments are shared among owners, in order to better reflect the cost of amenities or problems that affect some strata homes more than others in the same development.

I don’t imagine this list to be the be-all and end-all. I suspect, for example, that many developers would want to weigh in with a different perspective on how the law should deal with the relationship between the people who buy strata units and those who build them. And lots of other people might have different issues or different views.

But that’s exactly the kind of back-and-forth that a public process invites. And I see this report as a good starting point for a full and healthy discussion.

I don’t know why this issue fell off the provincial government’s agenda — possibly because it was Collins’s project and he resigned from government before it made it to the top of his priority pile. But, whatever the reason, it’s time for a new champion to take it up again.

© The Vancouver Sun 2008

 

Tony Gioventu
Province

Dear Condo Smarts: I received a letter from our property manager advising that if I don’t pay my outstanding balance of fees and special levies, the strata corporation is going to hand over the file to a lawyer and my home is going to be sold to collect the funds. I admit, I am in arrears since I lost my job in May, but can the strata actually sell my home?

— AV

To all Condo Owners: Your strata fees and special levies that are duly authorized are no different from property taxes and income taxes. You must pay them — and on the prescribed time scheduled. Bottom line: If you don’t pay your fees, the rest of the strata is carrying your obligations. Strata corporations have an obligation to collect the fees, and the legislation gives them excellent support to ensure delinquent fees are easily recovered. I followed up with AV’s strata and discovered he owes $12,094 in back fees and a roofing levy. The strata has been more than cooperative in that it has not even filed a lien for the amounts.

This is a serious problem for the strata corporation. If they do not file liens, or proceed with further collection actions, the strata could find it difficult to collect the funds if the property ends up in a forced tax sale or bank foreclosure.

To ensure the strata can collect these funds, they must file a lien against the title once they have issued a proper demand notice to the owner. If the owner continues to decline payment, the Act permits the strata corporation to proceed to the Supreme Court to seek an Order for Sale of the strata lot.

So, yes, the strata corporation can seek a court-ordered sale of AV’s strata lot. My advice to stratas is not to wait till the receivables are $10,000 and six months in arrears. Take action before you risk your strata’s ability to collect the funds.

Seminars on Council Operations, General Meetings and Collections are running in October and November. Go to www.choa.bc.ca for dates.

Tony Giventu is executive director of the Condominium Home Owners’ Association Email: [email protected]

© The Vancouver Province 2008

 

Tony Gioventu
Province

Dear Condo Smarts: In July, we bought an investment condo to rent out. We contacted the property manager and obtained a Form B (Information Certificate) before we decided to go ahead with the purchase.

At the time, our agent told us this was sufficient information and that once we had a firm signed deal we could get the minutes and financials and take our time reading them. We rented our unit out on Sept. 1. On Sept. 5, we received a bylaw-violation notice form our strata council advising us that rentals were not permitted in our building according to the bylaws filed in 2006, and that we must evict our tenant or face a fine of $500 per week until the tenant is evicted. We did receive the minutes for the prior three years, after the sale was firm, but never read them. However, the Form B Information Certificate we received, as confirmed by the manager, did not include the bylaw amendments in 2006.

Because the strata, through their manager, disclosed the wrong bylaws, are we still bound to the new bylaws? If we cannot rent we will be forced to sell at a substantial loss. Do we have any recourse?

— EP, Richmond

Dear EP: The real question you should be asking here is: “Before a buyer enters into an agreement, what documents should they obtain, and from what source?”

A Form B Information Certificate is an important document that includes the items you will not find in the land title registry. However, it does not require past bylaw amendments to be included. Only bylaws that are about to be voted on if the strata has sent notice for them, or bylaws that have passed but have not yet been filed must be included. Reading past minutes of council meetings, and annual and special general meetings can give you some significant insight into the operations of the property.

There are other documents that are also critical. Make sure a copy of the registered strata plan and all of the bylaws that apply to the strata corporation are printed from the Land Title Registry. Read the bylaws and request copies of reports such as inspections, engineering and roofing that may impact your future investment. As a buyer or strata council , if you find yourself in a situation like EP’s, seek legal advice.

© The Vancouver Province 2008

 

Many technicalities need to be addressed first

Tony Gioventu
Province

Dear Condo Smarts:

Our strata corporation is a 147- unit apartment complex on south Vancouver Island. We have been planning re-roofing and a major re-piping for some time. The most recent bids have come in about $300,000 over our projections.

To avoid any special levies, the council has proposed selling our caretaker’s suite. This means we will lose our long-term asset and our resident caretaker.

Owners are insisting that the sale of the suite and the termination of the caretaker require a unanimous vote, but we cannot find anything in the legislation.

Are there some limitations set out in the Act to direct us in selling our property ?

— SW

Dear SW: There are two possible answers to your question.

If your caretaker suite is a strata lot shown on the registered strata plan, then yes the strata corporation by a duly passed 3/4 vote at an annual or special general meeting can proceed with the sale of the lot.

There are many technical requirements in the resolution that are necessary to protect the interests of the corporation.

The listing price, any negotiating flexibility for the council, the identified real estate sales agent, the terms and conditions of the sale, and the eventual use of the proceeds should all be established in the resolution before you vote.

The last thing anyone needs is a secret deal, with a council member’s brother acting as the agent and a secret transaction process.

Strata corporations proceeding with the sale of strata assets that require a 3/4 vote need to contact their legal counsel and ensure they have properly created resolutions and contractual listing agreements.

If your caretaker suite is common property and not a strata lot with title, then it is likely going to require a unanimous resolution to create a strata lot and amend the registered strata plan before you can decide whether or not you will sell the lot.

This change may also require a local government permit because this suite may not have been created for the purposes of occupancy and sale.

As common property it would not be generating property taxes.

There is another issue concerning resident caretaker suites that strata corporations also face: Who is authorized to exercise the vote for the suite when it is a strata lot?

The strata council is the authorized representative of the strata corporation. However, the representation of the strata lot on issues such as bylaw amendments, special levies and the sale or purchase of common assets has the potential to be quite contentious in most strata corporations.

Talk to your lawyer before you proceed.

Tony Gioventu is executive director of the Condominium Home Owners’ Association (www.choa. bc.ca). E-mail him at [email protected].

© The Vancouver Province 2008

Tony Gioventu
Province

Dear Condo Smarts: With the call of the election in September, many owners started erecting signs on the common property for their preferred parties and candidates. We received a notice from council last week advising that they all had to come down. Owners are now sending notices around threatening to sue each other and take a physical stand if anyone touches their signs.

Can you help us quickly put an end to this dispute before it gets out of hand?

— MB, Delta

Dear MB: Over the next eight months we have three elections: federal, municipal and provincial. Elections legislation regarding signs is covered in the Canada Elections Act. Provincial legislation is silent on the matter of signage, but with respects to strata lots, does anyone really want to test the waters on limiting freedom of expression and risk a human-rights complaint?

The strata can prohibit or limit signage on common property; however, it does require a bylaw to do so. In cases where there is no such bylaw, council is beyond its scope of authority to order sign removal.

According to Canada Elections Act 322. (1): No landlord or person acting on their behalf may prohibit a tenant from displaying election advertising posters on the premises to which the lease relates and no condominium corporation or any of its agents may prohibit the owner of a condominium unit from displaying election advertising posters on the premises of his or her unit. Permitted restrictions: (2) Despite subsection (1), a landlord, person, condominium corporation or agent referred to in that subsection may set reasonable conditions relating to the size or type of election advertising posters that may be displayed on the premises and may prohibit the display of election advertising posters in common areas of the building in which the premises are found.

To sum up: Election signage bylaws may limit or prohibit the size, type and location of signs on common areas. They may also reasonably limit the size of a sign displayed from a strata lot, but not prohibit signs displayed from the strata lots. My advice: Avoid disputes and the competition of “whose sign is bigger.”

Tony Gioventu is executive director of the Condominium Home Owners’ Association (www.choa. bc.ca). E-mail him at tony@ choa.bc.ca.

© The Vancouver Province 2008

Ask lawyer to study bylaws, liability before you sign

Tony Gioventu
Province

Dear Condo Smarts:

I bought a two-bedroom condo on First Nations land a few years ago.

It was the right price, location and the management worked incredibly well. Other owners who had been there for two years happily endorsed the place. My real estate agent said it was just like any other condo except it was a lease for a long-term period.

Well, here I am four years later, and our maintenance fees have exploded to more than $650 a month, everyone is arguing over who has responsibility over different repairs, we never receive any minutes of meetings or information from our managers, and several building emergencies have been left unattended for days, resulting in serious damage.

Is there anyone we can go to for help or intervention on behalf of all of our owners?

— LM

Dear LM:

Buying or leasing property on First Nations settlements is complicated and comes with risks that each buyer must evaluate before they enter into an agreement.

An apartment or condo on a First Nations development, in most circumstances, is not like buying any other condo.

You are not buying a piece of property; you are leasing a home that is not regulated by provincial laws that apply to strata properties. The developments are often created as associations or societies or companies under the Business Corporations Act.

They are regulated by the constitutions and bylaws of that act, which is your limited protection to operations and governance.

In one particular First Nations project I recently reviewed, the annual costs of operations, management and financial planning is conducted solely by the elected board, not by the collective owners.

Owners were surprised when the board decided to hire an administrator for $90,000 a year, hiking up monthly fees by $100 a month.

You and your fellow owners need to contact a lawyer who is experienced with real estate transactions, contract relationships and the governance function of the companies or associations that were created to operate your development.

Potential buyers need to seek legal advice regarding the transactions, contracts and operational governance of the development before they sign on the dotted line.

It can be difficult and costly to fix a problem after you have completed the deal.

Closely review the bylaws for items that many of us take for granted. Check the procedure on financial approvals; who has the authority to change or alter the agreements; who controls the decision making; and how frequently financial information is reported to the owners.

Find out what happens when a dispute arises and how it will be settled. Don’t forget insurance issues. Clearly understand who has the insurable interest in the property and who has liability.

Not all lease agreements are created equal. Many First Nations developments function extremely well, but don’t assume they all operate under the same bylaws and regulations.

Tony Gioventu is executive director of the Condominium Home Owners’ Association (www.choa. bc.ca). E-mail him at tony@ choa.bc.ca.

© The Vancouver Province 2008