- Election of Strata Council
- Number of Positions
- Long-Term Residential Tenants
- Tenant Is A Family Member
- Owner May Assign Rights to Tenant
- Owner in Arrears
- Standard of Care
- Conflict of Interest
- Privacy Concerns About Personal Information
- Payment for Service
The law recognizes the need for an executive body to carry out the duties of the strata corporation and to oversee the corporation’s affairs between general meetings of the eligible voters. This executive body is called the strata council. It is effectively a board of directors.
Section 26 of the Strata Property Act says,
26. Subject to this Act, the regulations and the bylaws, the council must exercise the powers and perform the duties of the strata corporation, including the enforcement of bylaws and rules. 1
The Strata Property Act clearly makes the strata council responsible for carrying out the duties of the strata corporation. When the Act refers to a duty or a power of the strata corporation, it is generally the strata council that is responsible for performing the duty or exercising the power. This means that the strata council makes all decisions, except to the extent that the Act or the bylaws require the eligible voters to determine the matter.
For example, the strata council must ensure that the strata corporation obtains the property and general liability insurance required by the Strata Property Act. 2
Section 38 of the Strata Property Act states that the strata corporation has the capacity to enter into contracts in respect of its powers and duties under the Act, the regulations and the bylaws. This means that through the strata council, the strata corporation can enter into a contract with a strata manager. If provided for in the contract, the strata manager can perform the duties of the strata corporation that a strata council would otherwise have to perform. For instance, a strata manager could, by the terms of the contract, be required to obtain the insurance needed by the strata corporation.
When exercising authority under the bylaws, a strata council must act reasonably. This means the council must be able to demonstrate that its decision is in the best interests of the strata corporation as a whole and for reasons that rationally relate to the problem at hand. For instance, in Baker v. Strata Plan NW 3304 a strata corporation’s bylaws required an owner to obtain strata council’s permission before enclosing her balcony. 3
From 1992 to 2000, the owner’s balcony was enclosed. As it turned out, the building envelope leaked. In 2000, the building was repaired after the owners contributed approximately $3 million in special assessments. To carry out the repairs, the contractors first removed the enclosed portion of the owner’s balcony.
In 2001, the owner applied to strata council for permission once again to enclose her balcony. The contractors who renovated the building envelope informed the council that any areas that are altered by others after the completion of renovation work would not be covered by the contractor’s warranty. In addition, a municipal fire prevention officer recommended against completely enclosed balconies for fire safety reasons. The council refused the owner’s request to enclose her balcony. The council cited its concerns to keep the building envelope warranty intact and fire safety. Council also took into account the new look of the building’s exterior and the effect of an enclosed balcony on the building’s aesthetics. The council, however, did offer to compensate the owner for the loss of her original enclosure during the remediation work.
When the owner sued the strata corporation, the Supreme Court of British Columbia found that strata council relied on legitimate reasons that formed a rational basis for its decision. The council acted reasonably.
Election of Strata Council
Each year at the annual general meeting (“AGM”), the eligible voters must elect from among themselves the members of the strata council. 4 The Strata Property Act does not provide a procedure for the election of a strata council. Nor does the Act set out a procedure for challenging the results of a council election, or a specific legal standard for challenging the election’s validity.
The Strata Property Act, however, 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. 5 In Clarke v. Strata Plan VIS770, 6 significant unfairness occurred when a strata council issued a form of proxy that limited the right to vote at an AGM, and when, at that meeting, the council denied the proxy votes of two owners in the election of strata council and the approval of a budget. Before exercising its discretion to remedy the situation by over-turning the election, the court considered if:
1. The misconduct was due to bad faith,
2. The misconduct materially affected the outcome of the election, and
3. There was unreasonable delay in bringing the application challenging the validity of the election.
In the end, the court declined to overturn the election since the result of the election would have been the same even if the two votes were allowed, and because the two voters waited for more than a year before suing to challenge the election.
Number of Positions
A strata corporation’s bylaws determine the number of seats on council. The Standard Bylaws require a council to have at least three and not more than seven members. 7
The only individuals who can be council members are owners, 8 some tenants, 9 and any other class of person permitted by the strata corporation’s bylaws. For example, eligible voters may pass a bylaw permitting occupants who are spouses of owners to serve on council. 10
Every strata lot owner is eligible to sit on council. If a strata lot is owned by more than one person, only one of them at a time may sit on council unless all the owners are on council. 11
The Strata Property Act clarifies the status of a corporate owner, who may choose an individual person to represent the corporate owner on council. Only one representative of the corporation at a time can sit on council.
Long-Term Residential Tenants
Tenants who rent residential strata lots for lengthy terms are eligible to serve on strata councils. 12 If the owner of a residential strata lot leases his or her unit to a tenant for a set term of three years or more, section 148 of the Strata Property Act automatically assigns the owner’s powers and duties to the tenant.
For example, if an owner rents his or her residential strata lot to a tenant for a term of five years, the owner’s right to serve on council automatically passes to the tenant. On the other hand, suppose the owner rents to a tenant on a month-to-month basis. After three years of renting month-to-month, does the tenant acquire the owner’s right to serve on council? No. In a month-to-month tenancy, the term of the lease is only one month at a time. By operation of law, the one-month term is automatically renewed at the end of each month until the tenancy is ultimately brought to an end by proper notice.
There are some limitations on this automatic assignment of an owner’s powers and duties to the tenant. Section 148(6) requires the tenant to obtain the owner’s consent to exercise any of the owner’s powers or rights to:
- acquire or dispose of land,
- cancel or amend the strata plan, or
- do anything that would affect the owner’s interest in the strata lot, the common property or land that is a common asset.
A residential tenant must notify the strata corporation in writing of the assignment of the owner’s powers before the tenant can exercise any of those powers. The notice must state the name of the tenant and the time period during which the lease is effective. The strata corporation must give a copy of the tenant’s notice to the owner. 13
The tenant can stand for election to council once the tenant has given the notice to the strata corporation.
Tenant Is A Family Member
If an owner rents his or her residential strata lot to a family member, the Strata Property Act automatically assigns the owner’s powers and duties to his or her tenant. 14 The regulations define family or family member to mean a spouse of the owner, a parent or child of the owner, or a parent or child of the owner’s spouse. The term spouse includes an individual who has “lived and cohabited with the owner, for a period of at least 2 years at the relevant time, in a marriage-like relationship, including a marriage-like relationship between persons of the same gender.” 15 Neither the Act nor the regulations define the term “child.” It appears the term child refers to the tenant’s relationship to the owner, not the tenant’s age. So, for example, an owner rents to a family member when the owner rents the strata lot to her 28 year old daughter.
The same limitations that apply to an assignment of an owner’s powers and duties to a long-term residential tenant under section 148 of the Act, as noted above, also apply when renting to a family member. 16
A family-member tenant must notify the strata corporation in writing of the assignment of the owner’s powers and duties before the tenant can exercise any of those powers. The notice must state the family member’s name and the time period during which the lease is effective. Once a family-member tenant gives notice to the strata corporation, he or she may stand for election to council. The strata corporation must give a copy of the tenant’s notice to the owner. 17
Owner May Assign Rights to Tenant
Apart from the automatic assignments of the owner’s powers and duties to long-term residential tenants or family tenants described above, section 147(1) of the Strata Property Act permits any owner who leases his or her strata lot to assign some or all of the owner’s powers and duties to the tenant. There is, however, a restriction. The owner may not assign to a tenant the owner’s responsibility under the Act to pay fines incurred by the tenant, or the owner’s obligation to pay the cost of remedying the tenant’s contravention of a bylaw.
This feature of the Act applies to any type of strata lot, whether residential or non-residential.
The owner must notify the strata corporation, in writing, of the assignment of the owner’s powers and duties to the tenant before the assignment is effective. The notice must specify the name of the tenant, the powers that have been assigned and the time period during which the assignment is effective. 18
Owner in Arrears
The strata corporation can pass a bylaw prohibiting a person from sitting on council if he or she is in arrears to the strata corporation to the extent that the corporation is entitled to file a lien against the person’s strata lot. 19 A strata corporation must first comply with various requirements before it is entitled under the Act to file a lien. For information about liens, see Chapter 15, Finances.
The bylaw may also extend to a developer who owns one or more unsold strata lots but who owes money to the strata corporation for specified matters. However, it appears the bylaw cannot disqualify the developer from council because of money owed for: 20
- an interim budget shortfall or related penalty,
- a penalty for failure to call the first AGM, or
- reimbursement of the cost of obtaining copies of documents which the developer failed to deliver at the first AGM, as required by the Strata Property Act. For information about a developer’s responsibilities and liabilities, see Chapter 11, The Developer.
Standard of Care
Section 31 of the Strata Property Act sets out the standard by which council members must carry out their work:
31. In exercising the powers and performing the duties of the strata corporation, each council member 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 is the same standard expected from a director of a federally incorporated company. 21 It is substantially the same standard expected of a director of a provincially incorporated company, a cooperative association or incorporated non-profit society. 22 This is not a standard that requires perfection. It would be unreasonable to require a strata council to do everything perfectly. 23
This statutory standard has several features. First, by demanding honesty and good faith with a view to the strata corporation’s best interests, this provision codifies the fiduciary role of a strata council member. At common law, a fiduciary is a person who, because of his or her position, must look out completely for the interests of someone else. In the case of a strata council member, that someone is the strata corporation.
Next, this provision also sets out the standard of performance expected of a council member when carrying out his or her responsibilities. That is, it describes the standard of care, diligence and skill expected of each strata council member. In legal terms, this is simply called the standard of care.
The statutory bylaws may exempt a strata council member from liability in certain circumstances. In the former Condominium Act, section 122(4) excused a council member from personal liability for acts done in good faith while carrying out his or her duties as a council member. Under the Strata Property Act, section 22 of the Standard Bylaws relieves a council member from personal liability where the member acts honestly and in good faith while performing council duties. In the event of a lawsuit, the onus is on the council member to prove that he or she acted in good faith and, in the case of the Standard Bylaws, honestly.
The strata corporation may purchase insurance to protect council members against liability for errors and omissions in the performance of their duties on council. 24 This type of coverage is typically called directors’ and officers’ liability insurance. For more information about directors’ and officers’ liability insurance, see Chapter 16, Insurance.
Honesty, Good Faith and Best Interests
To explain the fiduciary aspect of this statutory standard, the British Columbia Court of Appeal 25 adopted the remarks of the Supreme Court of Canada in a case 26 dealing with identical wording in the Canada Business Corporations Act, 27
The statutory fiduciary duty requires directors and officers to act honestly and in good faith vis-à-vis the corporation. They must respect the trust and confidence that have been reposed in them to manage the assets of the corporation in pursuit of the realization of the objects of the corporation. They must avoid conflicts of interest with the corporation. They must avoid abusing their position to gain personal benefit. They must maintain the confidentiality of information they acquire by virtue of their position. Directors and officers must serve the corporation selflessly, honestly, and loyally: see K. P. McGuinness, The Law and Practice of Canadian Business Corporations (1999) at p. 715.
So, for instance, a strata council member’s failure to comply with the conflict of interest requirements in the Strata Property Act may also amount to a breach of its standard of care. 28 This standard does not in every case require a strata council member to avoid personal gain as a direct result of honest and good faith management. To determine if a council member has breached his or her statutory duty, a court will consider what the evidence reveals about the council member’s motivation. Evidence of dishonesty or of a personal interest for an improper purpose will indicate a breach of duty.
An Objective Standard
Regardless of an individual council member’s lack of experience, the court will hold the member to the standard expected from a reasonable person who is informed of all the facts and in comparable circumstances. This is called an objective standard of care. The court, however, will take into account the context in which a council member’s decision or conduct occurs.
A council member must act prudently and on a reasonably informed basis. When making a decision at council, a court expects a council member to use an appropriate degree of prudence and diligence. The courts expect a reasonable decision, not a perfect one. When making a decision at strata council, a council member must consider the available options, investigating and weighing each carefully. Even if the council member’s decision is ultimately unsuccessful, there is no breach of the standard of care so long as the decision was reasonable and defensible at the time it was made. If the council member has acted carefully in choosing a reasonable option, the courts will not interfere.
To assess a strata council member’s decision, the British Columbia Court of Appeal 29 has signaled its desire to apply a corporate law approach called “the business judgment rule.” This approach acknowledges that directors and officers, or in this case, strata council members, have expertise that the courts do not. In business, for example, high stakes decisions must sometimes be made under time pressure, where detailed information is not yet available. Under the business judgment rule, the court will not interfere with a decision of the directors, for instance, so long as the directors in good faith chose a course of action that was reasonable in the circumstances, even if, in retrospect, a different decision would have been better.
Conflict of Interest
Since strata council members must act in the strata corporation’s best interests, they must avoid situations where their private interests might conflict with the corporation’s interests.
The Strata Property Act requires a council member to disclose his or her interest, whether direct or indirect, in any of the following situations: 30
- (a) a contract or transaction with the strata corporation, or
- (b) a matter that is or is to be the subject of consideration by the council, if that interest could result in the creation of a duty or interest that materially conflicts with that council member’s duty or interest as a council member.
Where disclosure is mandatory, the Act requires the council member to take all of the following steps: 31
A council member who has a direct or indirect interest… must
(c) disclose fully and promptly to the council the nature and extent of the interest,
(d) abstain from voting on the contract, transaction or matter, and
(e) leave the council meeting
(i) while the contract, transaction or matter is discussed, unless asked by council to be present to provide information, and
(ii) while the council votes on the contract, transaction or matter.
If a council member fails to comply with these disclosure requirements, he or she may still avoid liability by disclosure to the members of the strata corporation in a general meeting. According to the Strata Property Act, if the council member fully discloses his or her interest to the members, the eligible voters may ratify the contract or transaction with a 3/4 majority at a general meeting. 32 The council member in question is not an eligible voter for the purpose of the vote at the general meeting. 33
If the council member fails to comply with these provisions of the Strata Property Act, the strata corporation or any owner may apply for relief to, “a court having jurisdiction.” 34 If a court finds that the contract or transaction was unreasonable or unfair to the strata corporation at the time it was entered into, the court can set it aside and require the council member to pay all of his or her profit from the arrangement to the strata corporation. In addition, if the court finds that the council member did not act honestly or in good faith, the court may order the member to compensate the strata corporation or any other person for a loss arising from the arrangement or from setting it aside. 35
For the purpose of remedying a council member’s conflict of interest, what is “a court having jurisdiction”? 36 While the Supreme Court of British Columbia certainly has jurisdiction to remedy a council member’s conflict of interest, it is not clear whether the Provincial Court of British Columbia: Small Claims Division (often called “Small Claims court”) has the necessary authority. In October 2009 the province passed amendments 37 to the Strata Property Act which, at the date of this writing, are not yet in force. If the province brings these amendments into force, they will expressly state that the strata corporation or an owner may apply to either the Supreme Court of British Columbia or to the Provincial Court of British Columbia: Small Claims Division (often called “Small Claims court”) for an order to remedy a strata council member’s conflict of interest. A regulation is necessary to bring these amendments into force. 38
The Dockside Case
Dockside Brewing Co. v. Strata Plan LMS 3837 illustrates the liability of a strata council member who fails to comply with the conflict of interest requirements in the Strata Property Act. 39 In the Dockside case, the court enforced the Act’s conflict-of-interest provisions by ordering eight strata council members to personally compensate their strata corporation for approximately $190,399 in legal expenses incurred by the corporation plus $150,000 in court costs.
The development was a strata hotel in Vancouver.
The strata council members in question belonged to a 93-person owners’ group that wished to acquire certain leases over the strata corporation’s common property. When a competitor acquired the leases with the strata corporation, the owners’ group embarked on a plan to obtain the leases. They planned to take control of the strata council, and to then use their council domination to cause the strata corporation to fund the necessary litigation to attack the leases with the competitor. This would enable the owners’ group to take over the leases. The group knew that although they could carry a majority vote in a general meeting, they could not by themselves pass a 3/4 vote of the eligible voters in a general meeting. In particular, they knew they could not get the necessary 3/4 vote to engage the strata corporation in a lawsuit over the validity of the leases. The owners’ group needed control of the strata council.
In the meantime, the owners’ group apparently made certain commitments with one of its business affiliates concerning the leases. If the owners’ group failed to acquire the leases with the strata corporation, the owners’ group potentially faced a $600,000 claim from their business affiliate. If necessary, the owners’ group planned to sue the strata corporation to obtain the leases.
At the 2002 AGM, the owners’ group voted in sufficient force to elect their members to eight of the nine seats on strata council. To ensure funding for their anticipated legal manoeuvres, at the AGM the owners’ group also caused the annual budget to be amended. They increased the operating budget for legal fees from $360 to $93,772 “to investigate” the enforceability of the leases. The owners’ group, including the eight elected to strata council, did not reveal their intention to use the legal fees to sue to challenge the leases. Since budget approval normally requires only a majority vote, the owners’ group used its voting power to approve the budget, despite objection to using the operating budget for legal fees that amount to an extraordinary expenditure. Normally, this expenditure would require a 3/4 vote approval.
Once elected, the eight members in question controlled the strata council. Despite objections from other owners, the council members in question promptly passed a council resolution to cause the strata corporation to obtain legal advice about the validity of the leases from the same law firm that already advised their owners’ group. At that council meeting, they did not disclose that their owners’ group had previously retained that law firm regarding the leases. Eventually, some of the other owners obtained an injunction to prevent the strata corporation from hiring the same lawyers who also represented the owners’ group to which the council members belonged.
Then the council members in question caused the strata corporation to hire new lawyers to evict the current tenant, the owners’ group’s competitor, from the strata corporation’s common property. None of the council members in question disclosed any conflict of interest, nor did they disclose that their owners’ group was about to sue the strata corporation to challenge the validity of the leases.
Within a few days, the owners’ group, through another of its members named Ms. Ang, sued the strata corporation to have the leases set aside. 40 The strata members in question then caused the strata corporation to hire more lawyers, this time to support Ang’s request. At the time, the council members in question concealed that five of them were also part of the owners’ group committee instructing Ang’s lawyers while, at the same time, serving on strata council and instructing the lawyers for the strata corporation.
Ultimately, the court dismissed the Ang proceedings on the ground that only the strata corporation could challenge the validity of its leases. 41 In Ang, the court also observed that the Ang proceedings were an attempt by the owners’ group to circumvent the governance provisions in the Strata Property Act, which require a 3/4 vote to authorize the strata corporation to sue in respect of its common property leases. 42
At the next AGM in 2003, the owners’ group apparently used its voting power to approve another $100,000 in legal fees in the operating budget. A resolution to authorize the strata corporation to challenge the validity of the leases failed, however, to get the necessary 3/4 vote.
Despite the failure of the resolution at the AGM to cause the strata corporation to sue to challenge the leases, the strata council members in question hired more lawyers to sue in the name of the strata corporation to set aside the leases.
Relying on the conflict-of-interest provisions in the Strata Property Act, some of the other owners ultimately applied to the Supreme Court of British Columbia to require the strata council members in question to reimburse the strata corporation for the legal fees improperly spent pursuing the objectives of their owners’ group.
The Supreme Court of British Columbia found 43 that by voting on the many resolutions before the strata council to carry out their strategy to engage the strata corporation in litigation, without disclosing their numerous and obvious conflicts of interest in such a transaction, the eight council members breached the conflict-of-interest provisions in sections 32 and 33 of the Strata Property Act. Contrary to the Act’s conflict-of-interest requirements, at the council meetings in question, they also failed to abstain from voting and to leave the meeting during both discussion and voting regarding the resolutions to retain the various law firms and to spend strata corporation funds on legal fees. 44 They also failed to meet the standard of care required of council members in section 31 of the Act. If they had complied with the Act’s conflict-of-interest requirements, the council resolutions would not have passed and the strata corporation would have been spared almost $200,000 in fruitless legal expense.
The Supreme Court of British Columbia found that the council members in question did not act honestly or in good faith. By failing to comply with the conflict-of-interest requirements in the Strata Property Act, council members authorized contracts and transactions that were “unreasonable and unfair” to the strata corporation. 45 Applying the remedy for breach of the Act’s conflict-of-interest provisions, the court ordered the council members, jointly and severally, to compensate the strata corporation for approximately $190,399 in legal expenses. In addition, the court also ordered the council members to pay special court costs amounting to a further $150,000. 46
The British Columbia Court of Appeal upheld the decision. Subsequently, the Supreme Court of Canada dismissed the application of the council members in question to appeal to Canada’s highest court, thereby bringing the matter to an end.
For information about strata council meetings, see Chapter 12, Meetings.
The Council Minutes
Where a council member has a conflict by virtue of the member’s interest in any contract or transaction involving the strata corporation, that council member must do at least four things:
1. Promptly tell the council about the nature of the member’s interest in the particular contract or transaction and the extent of that interest. The member must fully inform the council. This means, in effect, telling the other council members everything relevant within the member’s knowledge.
2. With one exception, whenever the particular contract or transaction is discussed at council, the member must leave the council meeting. The exception occurs where council asks the member to remain to provide information. After providing information, the member should leave.
3. Abstain from voting on the contract or transaction.
4. When the council votes on the matter, the member must leave the council meeting. No exceptions.
The member is best protected, and the strata corporation best served, if the council minutes also record these mat