In the March/April 2000 edition of Industry News my colleague Bonnie Elster wrote of a number of changes that will occur as the result of the Strata Property Act becoming law July 1, 2000. By the time you read this article that Act will be in place. While we can opine with respect to the changes to condominium management as the result of the new Act, I think it is quite safe to say that there will be a number of issues that arise that we cannot possibly have forecast. After all, property managers are deeply involved in a project where to steal a phrase “the rubber meets the road”. I encourage all readers to call Industry News if there are burning issues encountered that you would like the writers of this column to address in future issues.

In this article I hope to address issues that Bonnie did not raise in her article, issues that will affect property managers directly. Of course, this article cannot do that subject justice because there would not be the space nor the experience until we have lived and breathed the new Strata Property Act. I am receiving calls from managers wondering whether a certain action should be taken so that the condo being managed can be “grandparented” for the purposes of the new Act. Even the transition clauses can be confusing.

Because leaky condos continue to be the bane of a property manager’s portfolio, I will deal with how those situation can be addressed by managers. The obligation to fix the building envelope has not changed – both the old Condominium Act and the new Strata Property Act provided that is an obligation of the strata corporation. Funding of a fix is somewhat different based upon the 3/4 vote which was addressed in Bonnie’s article. There is a major change however with respect to the collection of levies from those owners in arrears of special assessments passed in order to fix buildings. Under the new Act, a strata corporation cannot lien a strata lot until two weeks notice is given to the defaulting owner. Once liened, under the new Act the strata corporation cannot proceed against a defaulting owner unless the strata corporation has passed a 3/4 vote to commence action against the owner. Under the old Act, no such resolution was required. If the strata corporation had included an amount for legal expenses in its budget, then such action could be taken through instructions from the Council. This could have sufficient ramifications for a strata corporation. For example, if it was difficult to pass a 3/4 vote to fix the building, those owners voting “no” could choose not to pay their unit entitlement special assessment and then getting the 3/4 vote passed to begin action against those owners could be very difficult.

Assume that the 3/4 vote to fix the building envelope has been passed, there are owners in arrears, liens have been filed against their strata lots and actions have been taken prior to July 1, 2000. Under the old Act, there is case law that suggests that only the principal in arrears has priority over a mortgage. The owner owes the interest, penalties and perhaps legal fees, but in reality if the owner has defaulted there is likely little chance of collecting in addition to the amount ranking in priority with respect to the mortgage. To an extent the new Act takes care of that problem but not satisfactorily. There is no doubt that fines and legal fees do not have priority over mortgage holders. A reasonable amount for the filing of the lien has priority – there is no change to the Acts in that respect. However, the new Act provides that interest payable on a late payment of strata fees forms part of the strata fees for the purpose of a lien. The regulations of the new Act provide that the maximum interest rate on unpaid strata fees is 10 % per annum compounded annually. There is no companion section regarding interest for special levies. Strata fees are a special form of common expenses. Hence a special levy is not a strata fee and technically does not attract interest for the purposes of a lien and priority. It is this author’s view that this lack of interest attributable to arrears of special levies is an oversight and that a strata corporation should attempt to collect those interest payments in priority to mortgage lenders. However a Court case may be necessary to finalize the matter. Taking action under the old Act, to avoid the 3/4 vote requirement may result in the inability to collect even interest on monthly arrears should the mortgage lender take the position that the lien and action was under the old Act, hence the priorities should be determined under the old Act. The transition sections of the new Act are extensive, but they do not cover this eventuality. I am sure there will be many more not covered that we have been unable to forecast until we meet them head on.

The new Act requires much more input from the owners collectively with respect to situations in which there may be considerable expenses incurred. The need for a 3/4 vote regarding taking action against a defaulting owner is one example. Another example involves taking action against a developer and others regarding leaks and deficiencies. Under the old Act a special resolution was necessary if an action was with respect to strata lots as well as common property. However, under the old Act a strata council could commence action on behalf of the owners with respect to common property (the building envelope) without the need for a special resolution as long as the cost of same was less than $500, it was budgeted for or there was an emergency. Under the new Act, the strata corporation must obtain a 3/4 vote. This could be very difficult if there are owners who are “developer friendly” or “developer related”. Although the new Act, like the old Act, provides that an owner who has caused the strata corporation to be sued for a breach of an obligation under the Act can be added as a defendant, there is no “obligation” to sue for deficiencies. Hence the club that was available against owners voting “no” will exist for funding repairs, but it will no longer exist for funding law suits attempting to recover the cost of repair. For that reason many strata corporations will have commenced deficiency law suits before June 30, 2000 – too late to allow property managers to instruct their clients as the result of reading this article.

Another example of this need for a 3/4 vote to fund action is that part of the new Act dealing with arbitrations. If a strata corporation wishes to fund an arbitration against an owner then it requires a 3/4 vote to do so. Although the past recent experience of the author is that arbitrations are expensive and not necessarily speedy, the intent is that they are less expensive and faster. Look at reality. The strata corporation issues a notice for a Special General Meeting to pass a 3/4 vote to arbitrate a dispute with an owner. That owner will definitely get notice of the meeting. That owner upon receiving notice can immediately take Court action against the strata corporation. The new Act provides that a dispute cannot be referred to arbitration once a court proceeding has been commenced. Will this occur? I suspect so. Was it contemplated by the Legislature in passing the new Act? I suspect not.

It is these types of situations that property managers will be dealing with on a daily basis. The property managers will encounter issues that nobody had dreams about – the nightmares that result will need to be addressed. Property managers can help themselves and others by communicating the situations and assisting each other. The new Act will not go away!