Phases

 

Developing in Phases

A developer who wants to add more strata lots and common property over time can develop the strata project in phases. This is called a phased strata development.

For example, suppose a developer has a piece of land large enough for five buildings, each one containing ten strata lots. To start, the developer may be able to afford to build only one building. The developer needs the proceeds from the sale of the ten units in the first building to finance construction of the second building, and so on. In this case, the developer proceeds with a phased development. With each phase, the developer adds a new building to the development, each involving more strata lots and common property. This way, the developer adds more strata lots and common property to the development with each new phase.

When a developer deposits the strata plan for the first phase of a development with the Land Title Office, the strata corporation is created. As the strata plan for each subsequent phase is deposited, the owners in the new phase become members of the strata corporation that was created when the first phase was deposited. 1

Condominium legislation in British Columbia has permitted phasing since the 1970s. For instance, the former Condominium Act  2 dealt with phasing in Part 2 of that Act. 3 The transition provisions in the regulations excuse a developer from various phasing requirements under the Strata Property Act if the developer deposited the first phase of the strata plan in the Land Title Office before July 1, 2000. 4 In such cases, the relevant provisions of the former Condominium Act still apply.

Legal Effect of a New Phase

The Strata Property Act applies to a phased strata plan, subject to the modifications in Part 13 of the Act, “Phased Strata Plans,” or the regulations. 5

A phased strata plan is a strata plan that is deposited in successive phases under Part 13 of the Strata Property Act. Each phase must be deposited in the Land Title Office in the order set out in the Phased Strata Plan Declaration. In other words, there is a single strata plan that is, in effect, modified as each phase is deposited. 6

The Strata Property Act distinguishes between the first phase of a strata plan and any phase other than the first phase. To simplify terminology, we use the term new phase to describe any phase other than the first phase.

Before depositing a strata plan, the developer must be the registered owner of the parcel, or parcels, of land to be used for the project. 7 When the developer deposits a phased strata plan, the land in that phase is subdivided from the rest of the parcel, or parcels, owned by the developer. Where the developer deposits the strata plan for a new phase (e.g., the Phase Two strata plan) the land in the new phase is consolidated with the land in any previously deposited strata plan of the same development. Although, technically speaking, the deposit of a new phase creates a new strata corporation, that strata corporation is automatically amalgamated with the strata corporation previously created when the developer filed the first phase of the strata plan. 8 Similarly, owners of strata lots in the new phase automatically become members of the strata corporation previously created when the developer filed the first phase of the strata plan. 9

The Strata Property Act requires the developer to immediately notify the strata corporation when each new phase is deposited at the Land Title Office. 10

The following schematic illustration shows how a developer’s parcel of land ultimately becomes a phased strata development that is subdivided into strata lots with common property. Suppose a developer owns a parcel of land that she intends to develop in two phases:

Figure 1
Registered Owner of a Parcel

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The developer begins by depositing the strata plan for Phase One at the Land Title Office.

Figure 2
Phase One and the Remainder

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This subdivides the developer’s parcel into two pieces: one used for Phase One of the strata development and the Remainder, being the land set aside for Phase Two. The developer owns the Remainder. By depositing the strata plan for Phase One, the developer creates a strata corporation. 11 Within the area covered by the strata plan, the developer subdivides any building, or in the case of a bare land strata plan, the land, into strata lots and common property. The Registrar of Land Titles will record the developer as the registered owner of each of the newly created strata lots in Phase One.

Until the developer deposits a strata plan for Phase Two, the Remainder is a single parcel of land that is technically not yet part of the strata development. Until the developer deposits a strata plan for Phase Two, the developer is free to sell the Remainder to someone else.

Suppose the developer then deposits the strata plan for Phase Two at the Land Title Office.

Figure 1
Phases One and Two

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Although, technically speaking, the deposit of a new phase creates a new strata corporation, that strata corporation is automatically amalgamated with the strata corporation previously created when the developer filed the strata plan for Phase One. When the strata plan for Phase Two is deposited, the land in that phase is consolidated with the land shown in Phase One. Similarly, the deposit of the strata plan for Phase Two subdivides any building, or in the case of a bare land strata plan, the land, in that phase into strata lots and common property. The Registrar of Land Titles will record the developer as the registered owner of each of the newly created strata lots in Phase Two. The developer, or any purchaser who buys a Phase Two strata lot from the developer, automatically becomes a member of the strata corporation that was created previously when the developer filed the strata plan for Phase One. 12

In this illustration, the developer’s parcel of land has now been subdivided in two successive phases into strata lots with common property.

Mandatory Meeting

Following the deposit of a new phase, section 230 of the Strata Property Act requires the strata corporation to hold an annual general meeting (“AGM”) within six weeks following: 13

  • the date on which 50 per cent (50%) plus one of the strata lots in the new phase have been conveyed to purchasers, or
  • the date that is six months after the deposit of the new phase,

whichever occurs first.

At this AGM, the eligible voters must elect two additional strata council members from among the owners in the new phase. The two additional council members will hold office until the next AGM of the strata corporation. If the bylaws contain a limit on the size of the strata corporation’s council, the limit is deemed to be increased to accommodate the temporary addition of extra members under these provisions. 14 If the new phase consists of only one strata lot, or of strata lots owned by only one or two owners, that owner(s) is deemed to be elected, if that owner(s) consents. 15

Why an AGM?

It is not clear why section 230 of the Strata Property Act characterizes the meeting as an AGM instead of a special general meeting. This characterization will cause some strata corporations to hold multiple AGMs in the same year with consequent inconvenience and confusion.

In the ordinary course of events, section 40 of the Act requires every strata corporation to hold an AGM within two months of the corporation’s fiscal year-end. In practice, this usually works out to one AGM per calendar year.

Suppose, in the ordinary course of events, that the eligible voters in the first phase hold their AGM on January 15 of a particular year. If, however, the developer deposits Phase Two on January 30 of that year, section 230 of the Act requires the corporation to hold another AGM at the latest by July 30, being six months after the new phase was deposited at the Land Title Office. In this example the strata corporation incurs the cost of two AGMs in the same year; one on January 15 and another on July 30.

Section 103 of the Strata Property Act requires a strata corporation to prepare a budget “to be passed by majority vote at each annual general meeting.” The notice for every AGM must also include a budget and certain financial statements, each of which must contain prescribed information. 16 In addition, the regulations suggest, but do not expressly state, that when a mandatory AGM is held under section 230 of the Act, the eligible voters will approve a budget at the meeting. 17 In the example above, section 230 of the Act caused a strata corporation to hold two AGMs in the same year, one on January 15 and another on July 30. Section 103 of the Act suggests that the strata corporation must go through the inconvenience and expense of preparing and approving a new budget twice in the same year, six months apart.

Characterizing a meeting under section 230 of the Strata Property Act as an AGM may also create confusion. Several examples come to mind.

Confusion may occur with regard to the election of strata council members. First, there appears to be a conflict between the Strata Property Act and the regulations. In the ordinary course of events, section 25 of the Act says that at each AGM the eligible voters must elect a council. The wording of section 25 of the Act does not recognize any exception for an AGM held under section 230 of the Act. By contrast, section 13.5(1) of the regulations says that at an AGM under section 230 of the Act, “two additional members of the council must be elected from the owners of strata lots in the new phase to hold office until the next AGM of the strata corporation.” If section 25 of the Act prevails, the eligible voters must elect a whole new council at each AGM, including an AGM under section 230 of the Act. If section 13.5(1) of the regulations governs, the voters will only elect “two additional members of the council.”

Second, the regulations fail to provide for the situation where there are multiple AGMs in a year under section 230 of the Strata Property Act. Section 13.5(1) of the regulations says that the two additional council members elected at an AGM under section 230 of the Act will, “hold office until the next AGM of the strata corporation.”

Recall how, in the example above, a strata corporation incurred the cost of two AGMs in the same year; one on January 15 and another on July 30. Suppose that on March 30 of the same year, the developer deposited Phase Three at the Land Title Office. With regard to the newest phase, section 230 of the Strata Property Act requires the corporation to hold yet another AGM by September 30 at the latest, being six months after Phase Three was deposited. In this illustration, the strata corporation has three AGMs in the same year; the first on January 15 in the ordinary course of events, the second for Phase Two on July 30 and the third for Phase Three on September 30. According to section 230 of the Strata Property Act, the two additional council members elected on July 30 at the AGM for Phase Two will only hold office, “until the next AGM of the strata corporation.”

What happens to those two council members on September 30, being the next AGM of the strata corporation? Do the two council members from Phase Two lose their council seats, while two additional council members are elected from among the owners in Phase Three? Only legislative amendments, or a judicial interpretation, will resolve this confusion.

Similarly, characterizing a meeting under section 230 of the Strata Property Act as an AGM may create confusion about the status of certain rules. The strata council may make rules governing the use, safety or condition of common property or common assets. 18 A rule ceases to have effect at the first AGM held after it is made, unless the eligible voters at the meeting ratify the new rule by majority vote. 19 In situations where section 230 of the Act causes a strata corporation to hold multiple AGMs in the same year, as in the examples above, some corporations may overlook the need to ratify a recent rule, in which case the rule ceases to have effect.

Does Phasing Affect Liability for Expenses, Including Repairs?

Phasing alone does not affect the liability of an owner for expenses, including repairs.

In the Strata Property Act, the general rule is that, in respect of each strata lot, every owner must contribute to common expenses according to the schedule of unit entitlement. 20 The general rule applies unless an exception to the rule exists.

Phasing alone does not constitute an exception to the general rule. In Terry v. The Owners, Strata Plan LMS 2153, there were three phases containing a total of 302 residential strata lots. 21 When the older buildings in Phase One needed building envelope repairs likely to cost more than $1 million, the owners in Phases Two and Three resisted contributing to the repairs. The court observed that as a phased strata development, the owners were “all in it together.” 22 In other words, the presence of phases alone did not displace the general rule.

In the Terry case, the owners in Phases Two and Three argued that it was significantly unfair to make them contribute to the Phase One repairs. The Strata Property Act permits the Supreme Court of British Columbia to prevent or remedy significant unfairness where certain conditions exist. If the court finds there is significant unfairness, the court may make any order it considers necessary to prevent or cure the problem. 23

In Terry, the court held there was no significant unfairness. Nothing about the repairs was kept secret; when they bought their strata lots, all the Phase Two and Three owners knew, or ought to have known, about the problem with the Phase One buildings. Nor did it matter, for instance, that the developer and a REALTOR® incorrectly gave a Phase Two owner the impression that the Phase One owners were solely responsible for their building repairs. 24 The court held that every owner had to contribute to the cost of the Phase One repairs according to unit entitlement, regardless whether an owner’s strata lot is in one phase or another.

Approving Officer

In a phased strata development, an approving officer plays an especially important role. An approving officer is an official appointed under the Land Title Act. Typically, an approving officer is a municipal engineer, a chief planning officer, or some other person appointed by local government to approve subdivisions, among other things. 25

In a phased project, the Strata Property Act requires an approving officer to endorse various approvals, including:

  • Approving the developer’s Phased Strata Plan Declaration (Form P);
  • An Endorsement for Common Facilities in Phased Strata Plan (Form R)
  • An Endorsement for Approval for Phased Strata Plan (Form Q)

Phased Strata Plan Declaration

A developer intending to build a development in phases must obtain the approval of an approving officer on a Phased Strata Plan Declaration (Form P) before filing the strata plan for the first phase in the Land Title Office.

Form P sets out a variety of information including:

  • the number of phases to be constructed,
  • the number of units,
  • the general type of residence or other structure to be built in each phase,
  • the unit entitlement for each phase,
  • the election date, being the date by which the developer will elect whether to proceed with each phase,
  • the schedule setting out the estimated date for the beginning and completion of construction for each phase.

Where an approving officer approves a Phased Strata Plan Declaration (Form P), that approval expires after one year unless before that time the developer deposits the first phase of the strata plan at the Land Title Office. 26 The developer must file the Form P together with the first phase of the strata plan at the Land Title Office.

Under previous condominium legislation, a developer deposited a form similar to the Phased Strata Plan Declaration (Form P). Under the former Condominium Act, for example, a developer deposited a Form E, Declaration of Intention to Create a Strata Plan by Phased Development. 27 Note that if before July 1, 2000, when the Strata Property Act came into force, a developer obtained approval for a Form E under section 77 of the Condominium Act, the transition provisions in the regulations excuse the developer from certain requirements governing the Phased Strata Plan Declaration (Form P). 28

Amending the Form P and Election Dates

A developer’s Phased Strata Plan Declaration (Form P), or Form E, as the case may be, is not written in stone. There may be many reasons why a developer wishes to alter his or her plans and, consequently, to amend the phased development declaration form.

Where a strata corporation is in dispute with a developer regarding the amendment of a Form P, or the completion of a phase, the corporation should obtain legal assistance. The issues are complex and may involve applications to the Supreme Court of British Columbia.

The Election Date

The election date is one of the most important features of a Phased Strata Plan Declaration (Form P) or, in the case of a declaration filed under the Condominium Act, a Form E. An election date is the last day by which the developer must choose whether to proceed with a phase.

The Phased Strata Plan Declaration (Form P), or Form E, as the case may be, expresses a developer’s intention to construct the development in phases. It is not a promise. Until the election date for each phase, the developer may elect not to build that phase.

The Strata Property Act and the former Condominium Act contain similar schemes governing election dates. The operation of the schemes is set out below.

The Developer May Elect Not to Proceed

If a developer wishes not to proceed with a phase, the Strata Property Act requires the developer to notify the strata corporation and the approving officer in writing of the developer’s election not to proceed. The developer must also register a similar notice against title to the developer’s remainder parcel, being the land previously set aside for the future phase. 29

The Strata Property Act permits a developer to amend an election date in a Phased Strata Plan Declaration (Form P). 30 The developer must apply to the approving officer to amend the Form P. The approving officer may not allow an extension greater than one year. Nor may the approving officer grant more than one extension. For all other extensions, the developer must apply to the Supreme Court of British Columbia.

If a developer fails to give notice electing to not proceed, or to otherwise amend the election date, the Strata Property Act conclusively deems the developer to have elected to proceed with that phase as set out in the Phased Strata Plan Declaration (Form P). 31 In other words, the developer is bound to proceed if the developer fails to elect in time to quit, or to otherwise extend the election date by amending the Form P.

The former Condominium Act contained substantially the same scheme. If the developer elected not to proceed with a phase, the Condominium Act required the developer to inform the strata corporation in writing and file a notice to that effect on title. 32

If a developer failed to give notice electing to not proceed, the Condominium Act deemed that the developer had elected to continue with the project. 33

Under the Condominium Act, however, a developer could apply to amend the election date, even where the Act deemed the developer to have elected to proceed because the developer failed to elect otherwise by the election date. In Lakewood Development Ltd. v. Surrey (City), 34 a developer was deemed to have elected to proceed with two unbuilt phases because the developer failed, before the election date, to notify the strata corporation of any plan to not proceed. Even though the election dates for the two phases had passed approximately three years earlier, the Supreme Court of British Columbia permitted the developer to apply to amend the Form E to extend the election dates for both unbuilt phases.

Where the Developer Elects Not to Proceed: A Developer’s Obligations for the Cost of Common Facilities

If a developer elects not to proceed with a future phase, the Strata Property Act provides certain remedies to a strata corporation to compensate for common facilities. There are at least two principal concerns.

First, suppose the developer incorporates an expensive common facility, such as a recreation centre, into Phase One of a ten-phase development. Suppose also the developer anticipates that each phase will contain ten strata lots for a total of 100 strata lots. Buyers in Phase One reasonably expect that the strata development will ultimately contain 100 strata lots, the owners of which will all contribute to the cost of maintaining this expensive common facility.

What happens if the developer elects not to proceed after Phase One? A relatively few strata owners now carry the burden of a recreation centre designed to be maintained by many owners.

Alternatively, suppose the developer of our ten-phase development promises to build a luxurious recreation centre in Phase Ten. Purchasers in Phase One buy their strata lots in the expectation that their development will ultimately have a first-class recreation centre. What happens if the developer elects not to proceed after Phase One? Purchasers may feel misled and the fair market values of their respective strata lots may reflect the loss of amenities in future phases.

If a developer elects not to proceed, the Strata Property Act allows the strata corporation to apply to the Supreme Court of British Columbia for an order requiring the developer to compensate the corporation for certain losses connected with common facilities. 35

What is a “Common Facility”?

In general, we can regard a common facility as common property that constitutes a major amenity in a phased strata plan.

The Strata Property Act uses the term common facility (or sometimes the plural form, common facilities) only in connection with phased developments. For the purpose of the phasing provisions, the Act defines common facility as: 36

The prescribed Phased Strata Plan Declaration (Form P) in the Strata Property Regulation requires a developer to specify “any common facility to be constructed in conjunction with a particular phase.”  37

In Strata Plan NES 97 v. Timberline Developments Ltd. the court had to determine if certain hot tubs, laundry rooms and elevators were common facilities. 38 The developer built the project in 11 phases. There were six buildings (sometimes called “lodges”) containing 175 strata lots. There were six hot tubs, each associated with a particular lodge. Three of the lodges each contained a common laundry room and four lodges had elevators.

The court found that the hot tubs were common facilities within the meaning of the Strata Property Act. First, the hot tubs were major facilities in the sense that they were important or significant to the facility. Next, the hot tubs were optional and they played a significant part in enhancing the overall quality of the development. Finally, the hot tubs were available for the use of all the owners. While an owner might tend to use the hot tub associated with that owner’s building, nothing prevented the owner from using any other hot tub in the complex. For the same reasons, the court found that the laundry rooms were common facilities. By contrast, the elevators were not common facilities because they were not optional. Instead, the elevators were a standard means of access, similar to a hallway or stairs.

In the Timberline Developments case, the court emphasized the importance of the statutory definition of common facilities, quoted above. 39 To determine if a feature is a common facility within the meaning of the Strata Property Act, we must refer to the statutory definition. Whether or not a feature is a common facility does not depend on descriptions in a developer’s disclosure statement or upon an approving officer’s approval. So long as a feature meets the Act’s definition of a common facility, that feature is a common facility, regardless of how the feature is described in a developer’s disclosure statement or whether the feature is specified as a common facility in an approving officer’s approval.

If a developer proposes to build a common facility in a phase other than the first phase, or to construct that facility on a separate parcel, the approving officer may only approve the Phased Strata Plan Declaration (Form P) if the developer makes sufficient financial arrangements to cover the full cost of constructing the common facility. 40 The developer must post a bond, or an irrevocable letter of credit or other sufficient arrangements to ensure the completion of the common facility (the “common-facility security”).

Later, when the common facility is substantially completed, the developer’s common-facility security must be released. For this purpose, the Strata Property Act requires the certificate of a registered architect or professional engineer to verify that the common facility is substantially complete. 41 Alternatively, the Act also permits release of the developer’s common-facility security if the following requirements are met. After a strata council is elected, if the strata corporation and the developer enter into an agreement for the completion of the common facilities, the strata corporation may authorize the release of the security by a resolution passed by a 3/4 vote at a general meeting. 42 For the purpose of the 3/4 vote, the developer is not an eligible voter.

What if the developer fails to substantially complete the common facility within the time for completion set out in the Phased Strata Plan Declaration (Form P)? If this happens, then either the strata corporation or an owner may apply to the Supreme Court of British Columbia for one or both of the following orders: 43

  • An order that the developer complete whatever common facilities the court considers equitable;
  • An order that some or all of the developer’s common-facility security be paid as provided by the court.
Approval for Common Facilities in Phased Strata Plan

Where a developer plans to construct a common facility in conjunction with a phase of a strata plan, a specific additional approval is necessary. Quite apart from approving the developer’s Phased Strata Plan Declaration (Form P) or any other necessary approvals, the approving officer must also separately add an endorsement concerning the common facility in question. The legislation requires the approving officer to endorse the strata plan for that phase with an Endorsement for Common Facilities in Phased Strata Plan (Form R). 44

In the Form R endorsement, the approving officer must specify the common facilities in question. According to the Strata Property Act , the approving officer must endorse the officer’s approval if the developer meets either of two requirements. First, the approving officer must give his or her approval if the developer has met the statutory requirements for providing financial security where the developer proposes to build a common facility in a later phase or on a separate parcel. Alternatively, the approving officer must give his or her approval if at the time the common facility is at least 50% completed as verified by the certificate of a registered architect or professional engineer.

Remedies Under the Strata Property Act

Where there are common facilities in existing phases, and the developer elects not to proceed with the next phase, the Strata Property Act permits the Supreme Court of British Columbia to order the developer to contribute to the expenses of the corporation that are attributable to those facilities as if the developer had elected to proceed, unless otherwise agreed between the strata corporation and the developer. The court may also order the developer to pay security for that purpose. 45

Where there are common facilities in future phases, the Strata Property Act