- Before Any Strata Lots Are Conveyed
- After the First Strata Lot is Conveyed
- Developer Continues as Strata Council
- Contracts With Developer
- Interim Budget
- Contingency Reserve Fund
- First Annual General Meeting
- Business at the First Annual General Meeting
- After the First Annual General Meeting
The Strata Property Act uses the term “owner developer” to refer to the person who develops the strata project. The Act defines the owner developer as the person who, as at the date he or she applies to deposit the strata plan at the Land Title Office, owns the underlying land, or who leases the land from a public authority for a term of at least fifty years. 1 In this book we call the “owner developer” the developer.
The Strata Property Act prevents a developer from avoiding his or her obligations through a bulk sale of strata lots to someone else. According to the Act, if a person acquires all of the developer’s interest in more than 50 per cent (50%) of the strata lots in the strata plan, that person is also a developer under the Act. 2 Otherwise a developer, for example, might sell all the strata lots in a bulk sale to an affiliated corporation, which could then market the units without regard to the developer’s obligations under the Act, arguing instead that it is a buyer who is simply reselling the strata lots.
At the time the strata plan is filed and the strata corporation is created, the developer owns or, in the case of a leasehold strata plan, leases, all the strata lots in the development and is responsible for the governance of the strata corporation. 3 Somewhere in the course of the strata lot sales, a transition occurs. Governance of the strata corporation shifts from the developer to the buyers, who hold their first annual general meeting (“AGM”) and elect the first strata council.
The Strata Property Act imposes various duties on the developer at different stages of the cycle, effectively creating three stages:
1. before any strata lots are conveyed,
2. after the first strata lot is conveyed, and
3. the first AGM.
Before Any Strata Lots Are Conveyed
From the time a strata plan is deposited at a Land Title Office, the Strata Property Act establishes a standard of care for the developer. In the first stage, the Act also gives the developer broad discretion to pass resolutions, including those required to amend bylaws.
Developer as Strata Council
Until eligible voters elect a strata council, the developer must manage the strata corporation. Section 5 of the Strata Property Act specifically provides that, in the interim, the developer must exercise the powers and perform the duties of the council. Section 6 of the Strata Property Act sets out the standard of care by which the developer must manage the strata corporation:
6. (1) In exercising the powers and performing the duties of a council, the developer must
(a) act honestly and in good faith with a view to the best interests of the strata corporation, and
(b) exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances.
This means, among other things, that the developer must make reasonable efforts to pursue any remedies under warranties in existence respecting construction of the common property or common assets of the strata corporation.
Before the first strata lot is conveyed to a purchaser, the developer may pass any resolution of the strata corporation, including amending the strata corporation’s bylaws. During this period there are no restrictions on the types of resolutions a developer may make. 4
In one case, a special resolution purportedly passed by the developer on behalf of a strata corporation was invalid because the strata corporation did not yet exist. 5 Before filing the strata plan, the developer purported to pass a special resolution of the strata corporation authorizing the yet-to-be-created corporation to grant an option to the developer to purchase a common property area. At about the same time, the developer, apparently purporting to act as strata council, executed an option agreement granting an option from the soon-to-be-created strata corporation to the developer to purchase the common property area in question. Once the strata corporation was created, there was no evidence of the usual steps that might be taken to show the corporation’s intention to be bound by the pre-incorporation option agreement. For example, there was no evidence that the strata corporation partly performed the pre-incorporation option agreement by accepting payment of money from the developer under the pre-incorporation option agreement. Similarly, there was no evidence that the corporation entered into a new contract with the developer on the same terms as the earlier pre-incorporation option agreement. Since the developer had not deposited the strata plan, no strata corporation yet existed when the developer purported on behalf of the strata corporation to pass the special resolution and to execute the option agreement. The developer could not enforce the option to buy the strata corporation’s common property because the pre-incorporation resolution and option agreement were invalid.
The developer must pay the actual expenses of the strata corporation until the last day of the month in which the first strata lot is conveyed to a buyer. 6
After the First Strata Lot is Conveyed
In the second stage, the Strata Property Act restricts some of the developer’s powers and creates new obligations for the developer. This stage begins when a developer conveys the first strata lot to a purchaser. The first conveyance involves an actual transfer of ownership. The first conveyance, for example, does not occur merely because the developer enters a contract to sell a strata lot to a buyer.
Developer Continues as Strata Council
As before, the developer continues to serve as the strata council until the first annual general meeting (the “first AGM”). The developer’s powers, however, are restricted after the first conveyance of a strata lot to a purchaser.
The Strata Property Act gives eligible voters the power to hold special meetings to pass resolutions by majority vote to direct or restrict the developer in the performance of his or her council duties. 7
As long as the developer owns the majority of strata lots that remain unsold, the developer can exercise a voting advantage at special general meetings. To prevent abuses pending the first AGM, the Strata Property Act effectively gives each owner a veto on important matters.
As a general rule, important decisions within the strata corporation normally require the support of 3/4 of eligible voters present at a meeting. For example, a 3/4 vote is required to approve a significant change in the use or appearance of common property. 8 Section 11 of the Strata Property Act provides that, before the first AGM, resolutions at any special general meeting that would normally require a 3/4 vote need unanimous approval.
There are a few exceptions. For example, before the first AGM, the developer need only obtain a 3/4 vote to change a Rental Disclosure Statement (Form J). 9 For the purposes of that 3/4 vote, the following persons are not eligible to vote: 10
- a person voting in respect of a non-residential strata lot;
- a person voting in respect of a residential strata lot which is currently rented;
- the developer.
Another exception involves the amendment of some bylaws. Before the first AGM, the Act requires only a 3/4 vote to amend a bylaw where the strata plan is entirely non-residential, or when amending a section bylaw in a non-residential section. If the non-residential section’s bylaws establish some other voting threshold, then that threshold will apply. 11
Contracts With Developer
The former Condominium Act lacked any effective restriction on the extent to which developers could, on behalf of strata corporations, enter into contracts with persons affiliated with the developer. For example, developers could easily award property management contracts to themselves or companies controlled by them.
After the first conveyance, section 10 of the Strata Property Act prohibits the strata corporation from entering contracts with the developer or persons who are not arm’s-length from the developer, with one exception. If the strata corporation wishes to enter such a contract, it must first hold a special general meeting and pass a unanimous resolution in favour of the transaction.
The first conveyance marks the point at which financial responsibility for the common expenses shifts from the developer to the strata corporation.
Prior to the first strata lot being conveyed, the developer must prepare an interim budget for the twelve months beginning the month after that conveyance occurs. The budget must include: 12
- the estimated operating expenses of the strata corporation,
- a contribution to the contingency reserve fund (“CRF”) that must be at least five per cent (5%) of the estimated operating expenses,
- each strata lot’s monthly share of the estimated operating expenses and contribution to the CRF, respectively.
The developer must deliver a copy of the interim budget to each prospective purchaser.
At this stage, the developer still serves as the strata council. After the first strata lot is conveyed, the developer must collect strata fees in respect of each lot for the strata corporation. Beginning on the first day of the month following the month in which the first conveyance occurs, the owners must start contributing financially to the strata corporation according to the interim budget. Each month, every owner must pay strata fees, being his or her strata lot’s share of the estimated operating expenses and contribution to the CRF. Like any other owner, the developer must pay strata fees strata lot belonging to the developer. 13
The owners must continue to pay their strata fees based on the interim budget until the date the first annual budget takes effect.
The Act encourages developers to budget accurately. As the strata council, the developer must ensure that the strata corporation pays its bills. 14 If there is a shortfall between the actual expenses for the interim period and those set out in the interim budget, the developer must pay the difference. If the shortfall exceeds 10 per cent (10%) of the estimated operating expenses, the developer is also liable to pay a penalty. 15
Section 3.1 of the regulations sets out the penalty. If the shortfall is more than 10 per cent (10%) and less than 20 per cent (20%), the developer must pay the shortfall, plus a penalty of two times the shortfall. If the shortfall is at least 20 per cent (20%) greater than the estimated operating expenses, the developer must pay the shortfall plus a penalty of three times the shortfall.
The transition provisions in the regulations relieve a developer of paying a penalty over and above a shortfall if the developer filed a prospectus or disclosure statement for the development under the former Real Estate Act, or otherwise met certain requirements, before July 1, 2000. 16
On the other hand, if actual expenses are less than those budgeted, the strata corporation must refund the excess to the owners in proportion to their respective contributions. If, however, none of the owners will individually receive a refund greater than $100, the strata corporation may put the excess into its CRF rather than returning those funds to the respective owners. 17
Contingency Reserve Fund
The former Condominium Act did not require developers to create a CRF. In most cases, strata corporations did not start saving money for contingencies until the passage of the first budget at the first annual general meeting. This often meant that strata corporations lacked any contingency reserve for at least several years after construction of the project.
Recall that the developer’s interim budget includes a component for contributing to the CRF. Out of each strata-fee dollar, a portion goes to the CRF. In addition, Section 12 of the Strata Property Act requires the developer to make a lump sum payment to establish the CRF when the first strata lot is conveyed to a purchaser. The timing of the first conveyance determines the amount the developer must pay. If it occurs within one year from deposit of the strata plan, the developer’s minimum contribution is five per cent (5%) of the estimated operating expenses in the interim budget. If the first conveyance occurs after one year from deposit of the strata plan, the Act requires the developer to contribute up to 25 per cent (25%) of the estimated operating expenses in the interim budget, depending on various factors. The transition provisions in the regulations, however, relieve a developer of the requirement to seed the CRF if the developer filed a prospectus or disclosure statement under the Real Estate Act, or otherwise met certain requirements, before July 1, 2000. 18
During this stage, the Strata Property Act prohibits the developer and the strata corporation from using funds in the CRF to pay the strata corporation’s operating expenses. 19
Every strata corporation must carry insurance on its common property, common assets, fixtures and buildings. 20
After the first conveyance of a strata lot, the Strata Property Act requires the developer to ensure that the strata corporation’s insurance coverage extends at least four weeks beyond the date of the anticipated first annual general meeting. 21 The Interpretation Act, however, requires that we calculate this four-week period by excluding the first and last days of the period. 22When Section 15 of the Strata Property Act and Section 25 of the Interpretation Act are read together, this means the developer must ensure that insurance coverage extends for at least 30 days after the anticipated date of the first annual general meeting. For example, if we anticipate that the first annual general meeting will be held on the first day of the month, that day must not count as part of the four-week period because the corporation must exclude the first day. Instead, the strata corporation looks to the next day, being the second day of the month, and then adds four weeks (being 28 days) from that date, for a total of 29 days. Since the Interpretation Act also requires us to exclude the last day, we must exclude the 29th day and add one more day, for a total of 30 days. In this example, the insurance coverage must extend until at least the 31st of the month, (being 30 days after the 1st of the month).
First Annual General Meeting
The strata owners take destiny into their own hands at the first AGM. This is the last step in the governance transition from the developer to the elected strata council.
Calling the First AGM
Section 16 of the Act requires the developer to call the first AGM within 43 days 23 of the earlier of the date on which 50 per cent (50%) plus one of the strata lots have been conveyed to buyers, or nine months after the date of the first conveyance. 24
[NEW] If the developer fails to call the first AGM, any owner may call the meeting by giving appropriate notice as described below. 25 If an owner holds the first AGM because the developer failed to do so, then the developer must pay a penalty to the strata corporation.
If the developer does not hold the first AGM within the appropriate time, the developer must pay a penalty to the strata corporation. 26 If an owner holds the first AGM because the developer failed to do so, then the developer must pay a penalty to the strata corporation. 27 Where an owner holds the first AGM, the penalty accrues up to the date of the meeting. If the developer delays calling the first AGM for a period up to 31 days from the date required, the developer owes the strata corporation $1,000. After that, the developer owes the strata corporation $1,000 for every additional eight-day delay.
The penalty provisions do not apply if the strata plan was deposited at the Land Title Office before July 1, 2000 and the developer holds the first AGM within the time required by the former Condominium Act. The statutory bylaws under Part 5 of the Condominium Act required the developer to hold the first AGM when 60 per cent (60%) of the strata lots were conveyed, or nine months after registration of the strata plan, whichever occurred first. 28
If the developer has delayed calling the first AGM for a period up to 31 days from the date required, the developer owes the strata corporation $1,000. 29 After that, the developer owes the strata corporation $1,000 for every additional eight-day delay. 30
The developer must give at least 20 days’ written notice in advance of the first AGM. 31
Section 45(1) of the Strata Property Act requires “at least 2 weeks’ written notice” of a general meeting. According to the Interpretation Act, the phrase “at least” requires that we calculate this two-week notice period by excluding the first and last days. 32 For example, if the developer wishes to send out notice on the first day of the month, that day must not count as part of the two-week period because the developer must exclude the first day. Instead, the developer looks to the next day, being the second day of the month, and then adds two weeks (being 14 days) from that date, which comes to the 15th day of the month. Since the last date is also excluded, the meeting can be held on the day after that, being the 16th day of the month. In other words, the developer must allow at least 16 days between giving notice and the date of the meeting.
If, however, the developer uses a method of giving notice which includes mailing, faxing, emailing, giving it to an adult occupant 33 other than the person who is required to receive notice, or putting it under a strata lot’s door, or in a strata lot’s mailbox, the Act deems that notice has not been given for four days. 34 Since these methods are often used to give notice of a meeting, the developer must add the four days to the 16 days. This means that the developer should allow at least 20 days (e.g., 16 + 4 = 20) between giving notice and the date of the meeting.
If the developer defaults, and an owner calls the first AGM, the same general notice requirements must be met, including delivery of the notice to the developer.
The notice must include a description of the matters that will be voted on at the meeting, including the proposed wording of any resolution requiring a 3/4 or unanimous vote. The notice of the first AGM must also include the first annual budget together with a financial statement. 35
The requirements for delivering a notice are described in Chapter 12, Meetings.
Budget and Financial Statements
The proposed budget must cover a 12-month period commencing on the first day of the month following the first AGM. The information to be contained in the budget and financial statement is set out in section 3.3 of the regulations. The requirements for the first annual budget are effectively the same as for all future budgets of the strata corporation. 36 The financial statement provided by the developer must cover the period from the first day of the interim budget until a day that is within the 43-day period before the date of the first AGM. 37
Business at the First Annual General Meeting
The developer, or his or her agent, serves as the chairperson for the first AGM. In practice, most developers seldom attend the first AGM. If the developer, or his or her agent, is unable or unwilling to act as chairperson, the eligible voters can elect an owner to serve as the chairperson of the meeting. 38
Election of Council
Delivery of Records
In 1998, the Barrett Commission acknowledged the complaints of participants who described their many difficulties in obtaining the necessary documents from developers to respond effectively to problems, including water damage. 40 The Strata Property Act addresses this concern by requiring the developer to deliver a great deal of information to the strata corporation at its first AGM, including copies of construction records. 41
In particular, the developer must deliver the names and address of all contractors and subcontractors primarily responsible for the supply of labour and materials to the project’s major components. For this purpose, the regulations identify the major components as the electrical system, the heating system, the plumbing system, the elevators, the exterior walls, window and doors on the exterior of the building, the roof and the building foundations. 42 The developer must also deliver the names and addresses of technical consultants, including any building envelope specialists, and the project manager, if any. 43
The developer must also deliver a long list of records, including
- all plans that were required to obtain a building permit, including any amendments,
- “as-built” plans showing the actual location of any pipe, wire, chute, duct or other facility for the passage of systems or services whose location does not appear on the plans filed in support of a building permit,
- all contracts entered into by the strata corporation,
- any disclosure statement filed by the developer under the Real Estate Act,
- the registered strata plan from the Land Title Office,
- all warranties, manuals, service guides and the like, and
- minutes of strata corporation meetings and books of account.
If the developer fails to comply with this requirement, he or she is liable to the strata corporation for costs incurred by the corporation to obtain such materials. 44
During the meeting at the first AGM, the proposed budget can be amended by majority vote before the budget itself is put to a vote. The eligible voters must approve the first annual budget by a majority vote. 45
If the eligible voters do not approve the budget, they must adjourn to prepare a new budget for approval at a special general meeting to be held later. Ordinarily, the special meeting must be held within 31 days; 46 however, the eligible voters can, by 3/4 vote, agree to hold the special general meeting beyond that time. 47
After the First Annual General Meeting
Within eight days following the first AGM, the developer must transfer control of the strata corporation’s money to the newly elected strata council. Similarly, the developer must also deliver to the newly elected council any keys, garage door openers and similar items. 48
Within 57 days following the first AGM, the developer must deliver updated financial statements. 49 The developer must update the financial statements to the date the first annual budget took effect or, if no budget is approved, to the date of the first AGM. While the Strata Property Act 50 says the developer must deliver the financials “within eight weeks”, under the Interpretation Act 51we must calculate this eight-week period by excluding the first day and including the last day. This translates into 57 days.
For the next two years, the developer must keep all the financial records relating to the strata corporation’s finances prior to the transfer in control. During that time, the strata corporation may inspect those records free of charge. At its own expense, the strata corporation may also copy or audit the developer’s financial records that relate to the strata corporation. 52
- Strata Property Act, ss. 1(1) (definition of “owner developer”), 199 (definition of “ground lease”) and 201(b). ↩
- Strata Property Act, s. 1(1) (definition of “owner developer”). ↩
- For information about leasehold strata developments, see Chapter 5, Freehold Versus Leasehold. ↩
- Strata Property Act, s. 8. ↩
- The Owners, Strata Plan VIS 2968 v. K.R.C. Enterprises Inc., rev’d in part, . ↩
- Strata Property Act, s. 7. ↩
- Strata Property Act, ss. 9 and 27. ↩
- Strata Property Act, s. 71. ↩
- Strata Property Act, s. 11(a),(b). ↩
- Strata Property Act, ss. 11 and 139(2),(3). ↩
- Strata Property Act, ss. 11(a),(b),