No contingencies for a strata to defer fees

Tony Gioventu
The Province

Dear Tony:

Our strata council has been contacted by several owners asking if the strata corporation can defer strata fees until people can get back to work. We are not sure what options we have.

Is this something the council has the authority to consider? Could we declare an emergency and transfer money from our contingency fund to cover several months of strata fees? What happens if the strata corporation runs out of money and cannot pay for our expenses? With the increase in our insurance costs and higher deductible costs, we don’t want to tap into our reserve funds unless absolutely necessary.

— Karen Lynch, Vancouver

Dear Karen:

Under the current crisis there are no provisions in the legislation, or contingencies within budgets, for a strata corporation to defer strata fees. How you collect those fees if an owner is in financial difficulty is a decision of the strata council and determined in your bylaws. Have your council work closely with your manager and treasurer to review monthly receivables and then decide on collection procedures if necessary.

Your council is not obliged to impose fines or interest, or file liens or take further actions for collections; however, it is important to pay attention to balances owing and treat everyone the same, and be mindful of the obligations to eventually collect the funds and protect the interest of the corporation. It will be essential to monitor the period of our shut downs and when residents may be returning to work. In conjunction with mortgage and loan payment deferrals and funding provided by government, owners will hopefully still be in a position to manage their strata fees.

Before you consider options for reducing budgets for the next fiscal year or using reserve funds, it is vital that you look at your essential obligations and services for your strata corporation. During the spring many strata corporations convene their Annual General Meetings and while it is tempting to reduce your expenses, many strata corporations are already at their minimal levels of funding to simply maintain crucial services.

If your strata corporation reduces its operating costs the effects will result in deferred maintenance and services that may end with compounded damages, building failures and likely disputes that will cost exponentially more to remedy. These are text book results in strata corporations who fail to maintain their properties with low strata fees.

Look at a single high-rise or low-rise building with no shared commercial spaces. The administration and management of your service contracts, increased janitorial protocols, increased demands on concierge or maintenance staff, utility costs, insurance costs, and building security, are all essential costs and services for the protection of your property and your owners.

Who will ensure the elevators are serviced and someone can respond to after hours calls when residents are trapped or there is a shut down? Who will manage the maintenance and emergency response for the hot water boilers and circulation systems? What if there is a flood or fire in the building? In addition to the management of a potential insurance claim who will respond to the calls, emergency abatement and management of the repairs? How are plumbing and drainage systems being maintained and flushed to prevent back ups within units? How is the waste management and collection being administered? With so many residents isolated and using home delivery, the increase in waste and cardboard recycling has doubled in many buildings.

Even though on-site meetings may be reduced, the network of service providers and emergency responders coordinated by your strata manager or resident manager are critical services and likely even busier and in higher demand with reduced staffing. The CHOA offices have seen a doubling of calls and emails for assistance with meetings and operations during this period, and with residents isolated there will be increased demand for hot water, gas fireplace use and janitorial services.

These are stressful tough times for everyone. Strata fees are necessary for operations to continue, and suppliers and contractors are still working to provide essential services.

For more guides and resources on managing your strata corporation during the COVID-19 crisis go to www.choa.bc.ca

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Large gatherings are prohibited, how do we make decisions?

Tony Gioventu
The Province

Dear Tony:

Our strata corporation is 125 units and we have an upcoming annual general meeting that is going to be critical as we need to approve a significant increase in our budget to cover our insurance. We do have a common room where we only get 50 to 60 people attend, but in consideration of the health risks we want to cancel our meeting.

Are there penalties if we cancel the meeting and just pay for the insurance increase from our contingency fund?

— Marco R. President of Council

Dear Marco:

This is the same topic of question on everyone’s mind. Can we delay our meeting? What do we do when the Act requires us to have a meeting no later than 60 days after our fiscal year end? Large gatherings are prohibited, how do we make decisions? Can we do meetings electronically? Can people simply mail in a paper ballot?

The Strata Property Act does not make contingency plans in the event of an emergency; however, I doubt anyone was thinking about COVID-19, the illness caused by the coronavirus, or such a health crisis when the Act was being adopted.

Electronic communication is only permitted if you have a bylaw that permits general meetings being held electronically and addresses the issues of voter registration identity, proxies, and counting votes. Within the Standard Bylaws, strata councils may meet electronically — a conference call or by email conference is the easiest answer — and minutes of your decisions are recorded in the same manner.

Strata corporations will need to be creative and innovative.

Is there a penalty if your strata corporation does not hold its meeting within the time frame? No, the strata fees continue at the same rate; however, with the exception of an insurance deductible imposed as a special levy by council, you do not have the authority to collect higher amounts as strata fees or special levies until the budget or a three-quarter vote resolution has been approved.

The consequence if you extend this too long is that an owner may apply to the Civil Resolution tribunal ordering a meeting be held. If your strata corporation does delay, as we hopefully pass the next few months of crisis, operate as a normal routine. No unusual expenses or decisions other than emergencies, and if something unusual arises talk to your property manager, an advisor or your lawyer.

There are alternatives. You could convene meetings by a restricted proxy or a waiver of notice of meeting. Under a restricted proxy, a small meeting of one or two people is convened and owners submit a proxy restricted only to their voting instructions, all proxies are retained for the record, and all votes are recorded in the minutes as instructed. This ensures a meeting is held, a new budget may be approved, special levies or resolutions may be approved, and the business continues normally. The proxies may be mailed in, dropped in a central ballot box or scanned/photographed and emailed.

This is already a method we apply at resort properties where owners are located world wide and often out of a 250-unit strata corporation only three people are sitting at the table. A waiver of notice requires every eligible voter to agree in writing to waive notice and agree to any resolutions, and if this is an annual general meeting, the approval of the budget and acclamation of council.

Over the weekend the CHOA staff prepared a detailed series of guides and forms to assist strata corporations with all of these issues. They are available to the public at choa.bc.ca and any CHOA advisor is available to assist strata corporations. 1.877.353.2462 or email i[email protected]

© 2020 Postmedia Network Inc.

Strata council has right to negotiate insurance

Tony Gioventu
The Province

Dear Tony:

Our strata corporation has just renewed our insurance policy. As part of the renewal our increases were 150 per cent for premiums, deductibles increased from $25,000 to $100,000, we have a loss limit now that covers only 35 million of our 55 million dollar appraisal, and we have an earthquake deductible buy down from 15 to 10 per cent.

At our strata council meeting, which was three days after our renewal, the strata manager was explaining how they negotiated and worked with our insurance broker to obtain this coverage and this was the best they could manage with the current market.

One of our council members — who has a background in construction — questioned the ability and authority of the strata manager to negotiate the risks, limits and costs on our behalf. His comment, which all of council agreed upon, was, “We are paying the bills and assuming the risks, so why would you negotiate on our behalf without our input?” This does raise a serious concern for our council.

At what point is the strata manager required to come back to the strata council and owners to seek their approval? If they don’t, and negotiate a condition that increases our risks or reduces our coverage, who is liable?

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CKG, Vancouver

Dear CKG:

A strata management agreement is captured under what is commonly referred to as agency law. When you enter into such an agreement the agent is essentially acting as you — the corporation —subject to their service agreement and instructions given by the strata council.

The direct supervisor is the strata council, not the owners of the corporation. The strata council is elected and acts on behalf of the corporation to authorize contracts, manage budgets and approve fees, placement of insurance, bylaws enforcement, and general operations of the corporation. A strata corporation, under the Strata Property Act, is permitted to retain a strata management company, and may delegate a number of duties either through the service agreement or the resolutions of the council.

In many strata management service agreements, you will find language that refers to the placement or renewal of insurance for the strata corporation. This generally delegates authority to the strata manager to work with the broker on your behalf and renew your insurance; however, as there is so much liability and cost associated with the renewal of the insurance policy, the strata manager/broker should be seeking instructions from the strata corporation before they negotiate different terms or conditions from the previous year’s policy.

You are correct — it’s your property, you pay, you make the decisions and you negotiate. When your strata corporation signs a strata management agreement, you have not surrendered any of your responsibility or authority. You have simply empowered an agent to act on your behalf at your instructions, and you as the council and corporation continue to be liable for the actions of the manager in the performance of their authorized duties.

In this time of complicated insurance products and renewals, I encourage all strata councils to speak directly to their brokers well in advance of their renewals. Don’t leave this to the final days before your renewals. If the broker is not responding, move to another broker. As the strata council you have the right to make decisions and negotiate. Look at the deductibles, your claims history, options that may be cost savings if they were deleted or reduced, the impact of loss limits and possible exclusions of components that are currently high risk because of a history of claims.

If you are compromising your insurance coverage and not complying with the requirements of the Strata Property Act, talk to your lawyer and determine if there is any process possible to manage those risks.

© 2020 Postmedia Network Inc.

Routine audit is recommended on operating budget

Tony Gioventu
The Province

Dear Tony:

Our property manager asks us to approve the financial statements each month and last month our treasurer noticed there was a duplication for a bill from the three previous months.  The error was tracked down to a simple accounting duplication that was resolved, but it did raise a topic at our council meeting over the role of our treasurer and the secretary of our strata corporation.

How would our strata corporation know if there was an incorrect invoice for our property unless we closely reviewed all of the invoices and payments every month?

It would seem this is a potential problem and opens strata corporations to the possibility of fraud or at the very least misallocation of funds between multiple strata corporations managed by the same property manager.  The property manager tells us not to worry as they review all the accounts and are audited every year, yet we don’t receive a copy of that audit report so how would we know whether there are outstanding adjustments or errors?

— Judy McClelland

Dear Judy:

When your strata corporation engages a strata management company for accounting and operational services the strata council must understand you have engaged a contractor in an agency agreement.  The management company are granted the authority to act on your behalf, known as the agency relationship, to manage your accounting, your property and assets and supervise employees and contractors. The scope of authority you give your strata management company is set out in the strata management agency agreement and through resolutions passed by the strata council at council meetings.

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While your strata corporation has contracted these services, your responsibilities and liabilities as a council member do not diminish. It is still the responsibility of the strata council and the elected treasurer to review all monthly transactions, including payables, deposits, investments and receivables. The strata management company must provide the strata corporation with reconciled monthly reports that include the financial statement and the bank statements.

As a routine practice at your March meeting you would be receiving the January financial statement. There is no requirement under the Strata Property Act to approve the financial statements at either a council meeting or at your annual general meeting. They are simply a report the strata council receives. If your strata corporation has a significant number of transactions and substantial amount of operational budgeting and investments, a routine audit is also recommended.  Every month review your standard accounts and compare those to your service agreements and invoices that are paid through your general ledger. Strata management companies manage multiple strata corporations and produce thousands of transactions every month. It is common to find a misallocated invoice; however, it is crucial for you to review all of the transactions to confirm your strata corporation’s invoice allocations are correct.

To understand how easy it is for fraud to be committed, look at the recent Calgary strata manager accused of stealing approximately $2,000,000 in funds from her clients.  There have been similar situations in British Columbia where false companies have been created and appear to be legitimate transactions on strata accounts or where a treasurer in sole control of the finances has taken a permanent vacation on strata funds. Be vigilant. Whether you are self managed with only the treasurer in control of your transactions or operating through a strata management company, review all monthly invoices and payables and compare those transactions to the bank statements.

If there is a transaction that looks duplicated, suspicious or in error, request copies of the invoices and verify the transaction is for your strata corporation. If there is doubt about the credibility of a transaction, verify the recipient contractor is legitimate.  It is essential for the public interest that if you discover a transaction suspected to be fraudulent, immediately contact the broker of the management company and the Real Estate Council of BC. All too often strata corporations that have encountered problems have simply been content with cancelling their contracts without no further action.

If you are on your strata council, take your role seriously as the board of directors of a corporation.

© 2020 Postmedia Network Inc.

Is a strata corporation permitted to amend their budget part way through the fiscal year

Tony Gioventu
The Province

Dear Tony:

Our strata corporation is one of the properties where our deductible has gone from $25,000 to $100,000 dollars as a result of two claims last year.  We approved our annual budget in December and now are projecting a short fall of about $65,000 with the insurance increases.

A number of questions have arisen as a result. Are we permitted to call a special general meeting and amend our budget part way through the year? This would seem to be the easiest solution.

Is the council permitted to draw the extra funds from the contingency fund as a loan to pay the amount, which we have already done? Our property manager has suggested we pass a special levy for the extra insurance cost and for one potential claim of $100,000 so we have enough funds in our cash flow in the event we have a claim. We had a very large contingency as we scheduled the replacement of our piping in 2019, as a result we are in a low cycle of our contingency balance.

— Claire W.  Burnaby

Dear Claire: 

I am often asked whether a strata corporation is permitted to amend their budget part way through the fiscal year. For a variety of reasons, the Strata Property Act did not contemplate or permit this as an option.  At an “annual” general meeting (AGM), the proposed budget for the next fiscal year may be amended by majority vote before the budget is approved.

There are two cycles where this may occur.  At the routine AGM of an established strata corporation, and at a meeting required to implement a phase in a strata plan, where the new phase must hold its meeting, often referred to as the AGM of the phase. Because a phase meeting often occurs between the routine AGM’s of a strata corporation, the budget may be amended only at a phased AGM to incorporate the changes to accommodate the new phase(s).

Another reason the budget cannot be amended, is that the integrity of disclosure on an Information Certificate would be affected, because buyers are informed of the strata fees for the current fiscal year. If budgets were to change throughout the year, it would create unpredictable financial reporting for buyers, financial institutions and taxation filing.

In the short term it is important that the insurance premium is paid. While the strata corporation may borrow from the contingency for cash flow, it must be paid back within the same fiscal year. If there is room in your budget to accommodate the additional $65,000 in your current budget, without being in a deficit, your strata corporation could manage the CRF loan; however, if this places you in a deficit the deficit must be paid back within the next fiscal year. While deferring the inevitable debt to a future year seems appealing, it always results in dramatic increases in strata fees the following year because your strata will then compound a deficit with further increases.

You could also approve the additional contingency insurance expense by three-quarter vote at a general meeting. Special levies are also an option; however, there is no need to approve a special levy for a potential claim in advance. A strata corporation does not require a three-quarter vote at a general meeting to issue a special levy for an insurance deductible. If there is a claim, the strata council approves a special levy for an insurance deductible that includes the amount, purpose, method of calculation and date of payment.

It is difficult to comply with the reporting and refund requirements of a special levy for a potential deductible. If the funds are not used for the purpose intended, the strata corporation must refund the levy to the owners if any owner is entitled to $100 or more.

If your strata corporation does not have a claim this year that requires the payment of the $100,000 deductible, how do you intend to hold the funds? Any seller will demand the levy be refunded and create a potential Tribunal claim against your strata.

Important to note is the issue of a special levy to each owner for a specified claim. This may permit each owner to file that claim against their homeowner insurance for the levied insurance deductible. That is not possible if you pass a special levy for a potential claim.

Your best option? Always to plan your budget and contingency contributions to anticipate future risks. It is only a majority vote at your AGM to approve the budget and any contribution to your contingency fund.

© 2020 Postmedia Network Inc.

The lines of taxation get blurry when strata corporations run a commercial enterprise

Tony Gioventu
The Province

Dear Tony:

Our strata corporation is a multi-building community in the Fraser Valley. We host five guest suites solely for owner use at a minimal cost to cover expenses, rent 20 additional parking spaces at $25 per month and receive revenues from a lease with Telus for the communication towers on one of our buildings. We also rent the caretaker suite in our building at market rates as we have not had a resident caretaker for a number of years.

One council member has raised concerns over our revenues and insisted we are probably going to pay taxes on the revenues. Our property manager has advised us to not file a tax return as we have never filed a return before and strata corporations are non-profit associations so we don’t pay any taxes.

We are confused about the obligations. Do strata corporations ever have to pay taxes on revenues? Strata fees are not revenue they are simply a method of owners contributing to their own expenses.

— Sheila M.

Dear Sheila:

While tax time is approaching for personal returns, strata corporations returns are determined by their fiscal year end.

All strata corporations in British Columbia must file an annual tax return. Strata corporations are defined as non-taxable corporations under the Tax Act, they are not non-profit associations. There are limits to this exemption and there are strata corporations who have been taxed based on certain levels of revenue and source.

Your strata corporation may also be required to collect GST on non-residential strata fees and strata fees on units in a rental pool, or if your strata corporation is engaged in commercial activities. The routine operations of a strata corporation are generally not taxable. Your monthly strata fees, special levies, interest on your operating account, contingency funds and special levies, fines and penalties imposed for bylaw violations and resident user fees for parking spaces and guest suites are all generally non-taxable.

The lines of taxation get blurry when strata corporations run a commercial enterprise or use or lease property to a significant benefit of the corporation that results in financial benefits to the owners. For example, if your strata corporations owns and manages a commercial marina, a golf course that operates as a commercial entity, or uses their common areas to enter into commercial lease agreements with service providers for communications towers, billboards, public parking lots or signage, those revenues could be deemed to be taxable.

There are strata corporations who have been audited and required to pay taxes on a variety of revenues. Don’t assume your commercial revenues are exempt in a small strata. The number of units in the strata corporation is not necessarily relevant. In addition to the potential for taxable revenues, strata corporations also have an obligation to report funds paid to non contracted employees, including members of council and owners who are paid for on site services and remunerated council members who are not working as an independent contractor.

If your strata corporation generates any external or commercial revenue or retains any staff, consult with a qualified accountant to assist your strata corporation in filing your annual tax return. For those self managed and purely residential strata corporations who are not generating external revenues, you will need a T-2 short form, a copy of your annual financial statement and an information return.

The return is easy enough for strata council to file on behalf of their strata corporation. If there is a chance your strata corporation has a taxable benefit, you will receive a letter from Canada Revenue Agency requesting additional information.

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Buyers can get information about corporation, future maintenance and the insurance policy

Tony Gioventu
The Province

Dear Tony:

Our family has been shopping for a two-bedroom condo for the past three months and finally found a location and price range that fits our needs.

We put in an offer on the condo subject to receiving specific records and documents and reviewing the depreciation report. One of the documents we specifically requested was a copy of the strata insurance policy. As we are following all of the recent news on insurance issues, our agent has recommended we review the insurance and understand the potential risks we may face.

The strata corporation and the manager of this property have advised us that we are not entitled to a copy of the insurance policy until we are owners, as this is a privacy issue. This immediately raised a concern for us; however, if we are not entitled to obtain a copy of the policy before we purchase, how can we determine what risks we may be exposed to if we cannot obtain strata records?

— Darlene M. Richmond

Dear Darlene:

There are two methods of obtaining records from a strata corporation if you considering purchasing a unit.

Buyers are recommended to request a Form B Information Certificate to begin. The certificate discloses general information about the strata corporation including judgements against the corporation in the courts or tribunals, the number of rentals, parking space and storage locker designations and allocations, current balance in the contingency reserve fund and must include a copy of the most recent depreciation report.

The depreciation report is valuable in reviewing future major maintenance and renewal cycles. It will estimate when common components such as roofing, exterior cladding, doors and windows, elevators, plumbing systems are due for replacement and the estimated costs. This will give you an opportunity to compare the balances in the contingency fund with future demands on funds by the corporation. Documents such as the annual budget, copies of the bylaws, minutes of meetings, any other types of engineering reports and the annual insurance policy must be retained by the strata corporation and are available on request of an owner.

When an owner retains an agent to sell their unit, they assign the rights to that person to be able to request records and documents. Have your agent, through the seller’s agent, submit a written request for the specific documents. There are no privacy conditions or restrictions that apply to those items the strata corporation must retain, and they must make them available on request to the owner or their agent(s). The strata corporation is entitled to charge twenty-five cents per page, per copy and may withhold the copies until the amount is paid.

When you obtain a copy of the insurance policy, review the deductible amounts for water escape and other types of claims. In the event as an owner there is a claim from your strata lot where you are deemed to be responsible, the strata corporation is entitled to proceed to the courts or the tribunal to collect the deductible amount. If the deductible is $50,000 or $100,000 you could be responsible for that amount.

To protect your personal liability against claims or the risk of a deductible, it is vital owners purchase homeowner condominium insurance. Bring a copy of the strata corporation policy to your home insurer and they will assist you in understanding the deductible rates and how they are best covered.

It may also be valuable to review the date the policy is renewed. In these times of a restricted insurance market, a renewal in the next month may result in dramatic changes of the policy depending on the claims history, age, and risks of the strata corporation.

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Strata corporation should consider the options for renewing your insurance

Tony Gioventu
The Province

Dear Tony:

We are a first-time buyer and looking at an older condo in Surrey that is affordable and large enough for our family. The building just posted a notice, without any explanations, they could no longer purchase insurance as of January 31, and our sale is due to complete in mid-February.

We did pre-qualify for a mortgage, but on the condition that sufficient insurance was provided, which we now cannot provide. We are stuck between the obligation to purchase, where we put down a $10,000 deposit that we cannot afford to lose, but at the same time we cannot proceed with the purchase as we have been advised by our bank they cannot provide a mortgage if the strata corporation cannot purchase insurance and the buyer cannot purchase insurance.

We contacted an insurance provider about homeowner/content insurance and they confirmed they can provide insurance for our personal liability and our personal contents including any betterments to the strata lot; however, they cannot provide insurance for the building.

What are we supposed to do next? We will default on our purchase agreement and lose our deposit and may be sued by the seller.

— Marco T.

Dear Marco:

Your first phone call is to your lawyer acting for your purchase and your agent who negotiated the purchase. You will need to review the terms and conditions of the purchase agreement and consider the options. One failed completion of a sale could have a domino effect on multiple sales affecting many families.

Unfortunately, buyers and sellers are caught in the extreme conditions of the insurance market at this time, with serious consequences for the real estate market as well as the personal liability of strata property owners and buyers across British Columbia.

Strata councils should also be aware of their personal liability if the insurance is not renewed. Immediately talk to your manager and lawyer about how to inform the owners and what type of information they immediately require. Large, high-valued strata corporations, aging communities that have deferred depreciation reports or maintenance, or communities with a history of claims are all exposed to much higher costs, certain types of exclusions for claims, higher deductibles and the risk of limitations or cancellation of insurance at this time.

Insurance is a free-market industry with minimal government regulation. This is one of the reasons a competitive industry has worked well for the public to date, but when competition declines and the cost of providing coverage along with increased construction and finishing costs and a rising frequency of claims and construction values intersects, the result is costly and drastic for the public.

There are multiple brokers across B.C. that have access to broader insurance markets and every attempt should be made by your strata corporation to consider the options for renewing your insurance.

A strata corporation may have to consider exclusions or exemptions to certain types of claims, substantially increased insurance deductibles and dramatic increases in costs to renew their insurance policy, but remember, your policy isn’t just about insuring for that inevitable flood caused by a pipe break, failed washing machine hose or an over-flowing bath tub.

When insurance companies agree to insure your property, their obligation is for full replacement value. If your building’s replacement value is appraised at $65 million, the broker and insurers are securing coverage for $65 million. If your building is an apartment style building the risk increases automatically because the likely hood of multiple units being damaged in a flood significantly increases. If you compound that risk with aging building systems, neglected renewals, a frequency of claims and lack of a depreciation plan, it will become much more difficult and costly for a strata corporation to renew their insurance.

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There is more than one benefit to the owners when you issue a special levy for an insurance deductible

Tony Gioventu
The Province

Dear Tony:

Our strata has had a deductible of $100,000 for several years due to a number of claims and the inability to approve a resolution to replace our piping. In November we had another claim over $100,000.

In one of your articles you indicated the strata corporation could levy that amount to the owners without approving a three-quarter vote at a general meeting. Our property manager and president told the council we either had to pay this amount from our contingency or call a meeting, and they paid the amount from our contingency fund without a vote of the strata council.

We are concerned about the significant reduction of our reserve funds, because we would not have any funds to pay for emergencies that are not insurable. Who has the authority to make these decisions?

AJC, Surrey

Dear AJ:

Decisions that relate to bylaw enforcement, major expenses, selection of contractors, when general meetings are called, the agenda and resolutions of general meetings, the recovery or back charging of damages and insurance deductibles, and when a strata decides to levy owners for an insurance deductible that is a common expense of the corporation, are all decisions of the strata council by majority vote.

It is critical the decision is voted on and minuted as the decision will delegate authority to the strata manager to act on your instructions and in the event of an action to recover a deductible or proceed with further bylaw enforcement such as a tribunal or court application, the decision and minutes provide valuable evidence of the actions and authority of the strata council and the strata corporation.

There is more than one benefit to the owners when you issue a special levy for an insurance deductible. In addition to reducing the pressure on your reserve fund and depleting your cash resources, owners are in a position to apply their share of the insurance deductible to their home owner policy if they qualify. This is one of the many reasons we recommend home owners purchase condo insurance.

Unfortunately, we have created a culture in strata corporations where owners and tenants assume the strata corporation takes care of everything. In addition to neglecting their personal insurance obligations we see the same behaviour exhibited in use of energy. We still commonly hear from owners they use their gas fireplaces 24 hours per day to heat their units as the gas is paid by the strata — resulting in excessive energy consumption and fuel costs for strata corporations.

In your strata, the insurance claim was caused from a failed pipe, damaging five units, and the damages were $138,000. The $100,000 deductible applies as a common expense of all owners based on unit entitlement. Your options of payment are your operating fund, the contingency reserve fund or you may special levy owners directly. If a strata corporation does not have sufficient cash flow, they will have no choice and must levy the owners. The special levy of $100,000 is approved by a resolution of the strata council at a council meeting.

Like all levies there must be a due date for payment, the purpose of the levy (payment of an insurance deductible) and the method of calculating payments, which is unit entitlement, the same formula applied to all common expenses such as strata fees. The strata corporation/manager then manages a collection process like any special levy and owners may have liens applied to their units if they fail to pay the amount. Because this is a special levy, your strata corporation must also report this account separately as part of your fiscal year end reports.

When in doubt of who has authority to make decisions, always err on the side of inclusion and first bring the matters to council.

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Beware of bylaws that limit or restrict insurance claims

Tony Gioventu
The Province

Dear Tony:

Our strata corporation has consulted with a lawyer and our property manager and have been advised that if we approve a bylaw that limits the amount an owner would have to pay if they were responsible for a claim, it would be easier for the strata corporation to renew our insurance policy.

The bylaw basically limits the amount to $50,000 as we now have a $250,000 deductible for water escape. However, this makes no sense to us because the amount an owner would have to pay for the deductible if they caused a claim has nothing to do with the insurance policy. The strata corporation and the rest of the owners would still be required to pay the remaining $200,000.

How does this benefit anyone?

Carmen R., Richmond

Dear Carmen:

Bylaws that limit, restrict or qualify claims, coverage or limitations of liability are extremely complicated to administer.

For example, while the Strata Property Act sets a threshold for corporations that enables them to recover the deductible if an owner is “responsible” for a claim, strata corporations are under the impression that if they adopt a bylaw that qualifies this condition as negligence, it is easier to collect.

Not so, the higher standards, definitions or thresholds will require a higher test in the courts or tribunal to obtain a successful judgement. A bylaw that limits an owner’s liability will impose a greater liability on the rest of the owners, even if they had nothing to do with the cause of the claim.

Yes, deductibles are excessive, but the related risks the insurers are adopting may be equally high. At this time owners may be able to obtain insurance to cover high deductibles, but the rational question owners must discuss at your meeting is why they are shielding an owner from such a liability if the owner had caused the claim? Why should the remaining owners pay for a $250,000 if someone has caused a claim as a result of failing to comply with the strata bylaws, maintaining their strata lot or appliances, or an action that caused the claim?

Sadly, there will be owners who lose their homes as a result of high deductibles and claims. We have not identified any related benefits to renewing insurance or cost of policies if strata corporations adopt such bylaws.

An insurance deductible as a result of a claim on your strata policy is a common expense of the strata corporation, and paid by the strata corporation until it is determined who is responsible for the claim and the amount is collected. A strata corporation is automatically authorized by the Act to pay a deductible from the contingency reserve fund, operating fund or directly special levy each owner for their share.

Unlike strata fees and special levies, insurance deductibles do not qualify for a lien priority over charges such as mortgages. While a strata may obtain a decision from the courts or the tribunal for a high deductible amount, if there is no equity left in a property because mortgages are so high the remaining owners may still be at risk of covering the full deductible amount.

A word of caution, if a strata council or property manager indicate they have legal advice on a matter, it is beneficial to either have the lawyer attend the meeting or a copy of the written opinion on the proposed bylaw included with the notice. Managers and council members frequently wordsmith bylaws before they send out notice packages that were not the same advice provided.

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