Date Issued: November 29, 2019

File: ST-2019-003106

Type: Strata

Civil Resolution Tribunal

Indexed as: Residential Section of The Owners, Strata Plan LMS 1089 v. The Owners, Strata Plan LMS 1089, 2019 BCCRT 1341

Between:

Residential Section of The Owners, Strata Plan LMS 1089

Applicant

And:

The Owners, Strata Plan LMS 1089

Respondent

INTRODUCTION

1.      This is a dispute about the allocation of security expenses between sections of a strata corporation. The applicant, Residential Section of The Owners, Strata Plan LMS 1089 (Residential Section), says that the respondent, The Owners, Strata Plan LMS 1089 (strata) has inappropriately allocated $37,110.42 in security costs to it. The Residential Section asks for an order that the strata stop including security costs in the common budget. The strata says that the security costs are not wrongly allocated, are incurred for the benefit of all strata lots, and should be borne by all owners in proportion to the unit entitlement of their strata lot.

2.      The Residential Section is represented by a member of its executive. The strata is represented by a member of the strata council.

JURISDICTION AND PROCEDURE

3.      These are the formal written reasons of the Civil Resolution Tribunal (tribunal). The tribunal has jurisdiction over strata property claims under section 121 of the Civil Resolution Tribunal Act (CRTA). The tribunal’s mandate is to provide dispute resolution services accessibly, quickly, economically, informally, and flexibly. The tribunal must act fairly and follow the law. It must also recognize any relationships between dispute parties that will likely continue after the tribunal’s process has ended.

4.      The tribunal has discretion to decide the format of the hearing, including in writing, by telephone, videoconferencing, or a combination of these. I am satisfied an oral hearing is not required as I can fairly decide the dispute based on the evidence and submissions provided.

5.      The tribunal may accept as evidence information that it considers relevant, necessary and appropriate, whether or not the information would be admissible in court. The tribunal may also ask the parties and witnesses questions and inform itself in any way it considers appropriate.

6.      Under section 123 of the CRTA and the tribunal rules, in resolving this dispute the tribunal may order a party to do or stop doing something, order a party to pay money, or order any other terms or conditions the tribunal considers appropriate.

7.      Under section 61 of the CRTA, the tribunal may make any order or give any direction in relation to a tribunal proceeding it thinks necessary to achieve the objects of the tribunal in accordance with its mandate. Tribunal documents incorrectly show the name of the applicant as Strata Corporation Residential Section of Strata Plan LMS 1089. However, the correct legal name of the section is Residential Section of The Owners, Strata Plan LMS 1089. Given the parties operated on the basis that the correct name of the section was used in their documents and submissions, I have exercised my discretion under section 61 to direct the use of the section’s correct legal name in these proceedings. Accordingly, I have amended the style of cause above.

ISSUES

8.      The issues in this dispute are:

a.    whether the strata inappropriately allocated $37,110.42 in security costs to the Residential Section,

b.    whether the $37,110.42 should be refunded to the Residential Section, and

c.    whether the strata should stop including security costs in its annual budget.

BACKGROUND AND POSITIONS OF THE PARTIES

9.      The strata consists of 85 strata lots in 2 sections. Strata lots 1 to 7 form the commercial section, while strata lots 8 to 85 are in the residential section. According to the strata plan, the commercial section holds 53.9% of the unit entitlement and voting rights. The strata plan shows that there are some areas of common property (CP) that are classed as limited common property (LCP) for each section.

10.   In a January 28, 2019 tribunal decision in Pedret v. The Owners, Strata Plan LMS 1089, 2019 BCCRT 107, another tribunal member determined that bylaw amendments dated March 10, 2015 and subsequent amendments were not valid, and found that the bylaws in effect immediately prior to March 2015 applied to the strata. Subsequently, in an October 30, 2019 default decision in file number ST-2019-004680, the tribunal member ordered that the bylaws filed on November 1, 2002 and any subsequent amendments were invalid, and the applicable bylaws were those filed on June 20, 2001. In their submissions, the parties refer to versions of the bylaws that are not valid. However, I find that this dispute may be decided solely with reference to the Strata Property Act (SPA) and the case law.

11.   The strata corporation creates an annual budget for the strata, in addition to separate budgets for section expenses. Costs for a security foot patrol were added to the strata corporation’s 2018 - 2019 budget as common expenses. The nature of the strata’s previous security arrangements, if any, is not clear.

12.   On January 31, 2019, the strata’s property manager issued notice of the strata’s February 25, 2019 annual general meeting (AGM). The notice package contained a proposed 2019 – 2020 budget that contained an increase in security costs from $40,000 to $65,000.

13.   On February 1, 2019, an owner of a residential strata lot, BP, requested a hearing to discuss the allocation of security costs. The minutes of the hearing, which was held on February 25, 2019 prior to the AGM, show that there was a discussion about allocation, as well as about providing the security company with access to the parkade area of the building.

14.   The issue was also addressed at the AGM, where there was a discussion about whether both sections were “properly serviced” by the security agreement. A straw poll showed that 16 out of the 30 residential owners present wished to have the security arrangement continue. A subsequent vote approved the budget, with all 121 votes in favour.

15.   A March 14, 2019 letter from the strata’s property manager to BP communicated the strata’s decision that the security expenses related to and benefitted both the residential and commercial sections, and would remain in the strata’s budget. The letter included a copy of a January 8, 2019 legal opinion on the matter.

16.   At an April 15, 2019 special general meeting (SGM) of the residential section, in a non-binding majority vote referendum, the majority of the owners in the residential section rejected participating in the sharing of security costs for the commercial section starting on January 1, 2018.

17.   In this dispute, the Residential Section submits that the security costs are sectional expenses that have been inappropriately added to the strata’s budget. According to the Residential Section, all of the commercial strata lots are owned by 1 family through a corporation, which effectively controls the conduct of the strata’s business. The Residential Section says that 99% of the building’s usable space is allocated as LCP for the exclusive use of either of the sections and, for practical purposes, there is no CP to patrol.

18.   The Residential Section states that both the SPA and the bylaws permit expenses to be allocated to different sections when each type of owner has different needs. It says that the commercial section has ground-floor tenants and underground parking that have different security needs than the Residential Section, and that the commercial section overwhelmingly benefits from the security patrol. The Residential Section submits that, as the security costs are not legitimate common expenses, it is significantly unfair to the Residential Section to have these costs included in the strata’s budget.

19.   The strata disagrees with the Residential Section’s position, and says that security expenses are an appropriate joint expense in the strata’s annual operating budget. The strata notes that that the commercial section pays 53.9% of theses costs. The strata agrees that there is LCP for each of the commercial section and residential section (including the entrance to the residential parkade and 2 street entrances). It also says that there is a CP loading bay that is not designated for the exclusive use of any strata lot, and that is patrolled along with the rest of the building’s perimeter. According to the strata, security expenses relate to all of these areas and benefit all strata lots, even though one section may derive a greater benefit than the other.

EVIDENCE AND ANALYSIS

20.   Section 191(1)(a) of the SPA states that a strata corporation may have sections for the purpose of representing the different interests of owners of residential and non-residential strata lots. Section 195 of the SPA states that expenses that relate solely to the strata lots in a section are shared by the owners of strata lots in that section.

21.   Section 6.4 of the Strata Property Regulation (Regulation) sets out formulas for sharing operating expenses for LCP and types of strata lots. Section 6.4(1) says that, if a contribution to an operating fund relates to and benefits only LCP, the contribution is shared only by owners of the strata lots entitled to use that LCP.

22.   The parties disagree as to whether the security services benefit all strata lots or only those in the commercial section. As noted, section 6.4(1) of the Regulation considers whether an expense “relates to and benefits only” LCP. When discussing section 6.4(2) of the Regulation, the British Columbia Court of Appeal has interpreted the words “relates to and benefits only” very narrowly (see Ernst & Twins Ventures (PP) Ltd. v. Strata Plan LMS 3259, 2004 BCCA 597). I find that this interpretation applies to both section 6.4(2) and 6.4(1) of the Regulation.

23.   The security patrol encompasses the entire exterior of the strata’s building, including the LCP entrances for the Residential Section. In addition, as noted by the strata, there is a CP loading bay that is not designated for the use of any particular strata lot or section. Further, although there are separate entrances for the commercial and residential parking areas, the evidence before me contains a reference to some parking stalls that are designated as LCP for the commercial section being available for residents and guests as “Visitor Parking Stalls” during certain hours. Therefore, the Residential Section benefits from not only the patrol of residential LCP, but to that portion of the commercial LCP as well. Although the commercial section may derive a larger benefit, I do not find that the security services relate solely to strata lots in the commercial section or to LCP designated for that section.

24.   In Ernst & Twins Ventures (PP), supra at paragraph 23, the Court of Appeal stated that “it must be accepted that some actions of a strata corporation will be unfair to one or more strata lot owners in that the will of the majority may often serve the interest of the majority of owners to the detriment of a minority”. The Court of Appeal noted that an owner must establish significant unfairness in order to obtain relief.

25.   Under section 164 of the SPA, an owner can dispute a decision by the strata on grounds that the decision is “significantly unfair” to the owner. Section 123 of the CRTA contains language similar to section 164 of the SPA, which allows a tribunal member to make an order to remedy a significantly unfair act by a strata corporation. A “significantly unfair” act encompasses oppressive conduct and unfairly prejudicial conduct or resolutions. The latter has been interpreted to mean conduct that is unjust and inequitable (see, for example, Strata Plan VR1767 (Owners) v. Seven Estate Ltd., 2002 BCSC 381).

26.   The test for significant unfairness was summarized by a tribunal Vice Chair in A.P. v. The Owners, Strata Plan ABC, 2017 BCCRT 94, with reference to Dollan v. The Owners, Strata Plan BCS 1589, 2012 BCCA 44: what is or was the expectation of the affected owner or tenant? Was that expectation on the part of the owner or tenant objectively reasonable? If so, was that expectation violated by an action that was significantly unfair?

27.   As discussed above, the Residential Section says that it is significantly unfair for the security expenses to be in the strata’s budget as they are not legitimate common expenses. Section 1 of the SPA defines “common expenses” as expenses relating to the CP and common assets of the strata corporation, or expenses required to meet any other purpose or obligation of the strata corporation. The security patrol does relate to a very small amount of CP, but I am satisfied that security falls within the scope of a “purpose or obligation” of the strata, and is an appropriate common expense. While the Residential Section may have an expectation not to pay expenses of the commercial section, it is unreasonable to expect to not pay for common expenses.

28.   I do not find any indication in this case that the allocation of security expenses was the result of any oppressive, unfairly prejudicial, unjust or inequitable conduct. The process for allocation of expenses is set out in the SPA, and I find that the strata’s decision was consistent with that process and the unit entitlement of the respective sections.

29.   The evidence before me does not establish the ownership of the commercial strata lots. Even accepting the Residential Section’s assertion that all commercial strata lots are owned by the same entity, this is not determinative. The commercial section has a greater number of votes as a result of the distribution of unit entitlement, as set out in the strata plan. I do not find that the evidence supports the conclusion that the commercial strata lot owners engaged in bad faith or inappropriate conduct by exercising their votes. In addition, the proposed budgets containing the security costs were approved by owners from both sections (including those owners from the Residential Section who were present) at the 2018 and 2019 AGMs. The fact that the residential owners subsequently indicated at the April 2019 SGM that they no longer wish to participate in the security patrol does not alter the results of the AGM votes.

30.   I find that the security costs are common expenses and it was not significantly unfair for the strata to include these costs in its annual budget. The Residential Section is not entitled to the reimbursement of its $37,110.42 portion of these costs. I dismiss the applicant’s claims.

TRIBUNAL FEES AND EXPENSES

31.   Under section 49 of the CRTA, and the tribunal rules, the tribunal will generally order an unsuccessful party to reimburse a successful party for tribunal fees and reasonable dispute-related expenses. As the applicant was unsuccessful, I dismiss its claim for reimbursement of tribunal fees.

32.   The strata corporation must comply with section 189.4 of the SPA, which includes not charging dispute-related expenses against the applicant.

ORDERS

33.   I dismiss the applicant’s claims and this dispute.