Date Issued: August 19, 2021

File: ST-2020-009528

Type: Strata

Civil Resolution Tribunal

Indexed as: Berry v. The Owners, Strata Plan KAS 3625, 2021 BCCRT 910

Between:

WILLIAM BERRY, LOREEN KNELSEN, CINDY BYRNE, EDWIN KNELSEN, KRISTIN POITRAS

ApplicantS

And:

The Owners, Strata Plan KAS 3625

Respondent

REASONS FOR DECISION
Tribunal Member:	Micah Carmody

INTRODUCTION

1.      The applicants, William Berry, Loreen Knelsen, Cindy Byrne, Edwin Knelsen, and Kristin Poitras, own or co-own strata lots in the respondent strata corporation The Owners, Strata Plan KAS 3625 (strata).

2.      Operating on strata property is as a hotel known as Summerland Waterfront Resort (SWR). SWR is managed under a hotel management agreement (HMA) between strata lot owners, Tepic Management Group Inc. (hotel manager) and the Summerland Resort Rental Pool Owners Association (OA), a society under the Societies Act. Most strata lot owners have their strata lots in a hotel rental pool under the HMA and are OA members. The applicants’ strata lots are not in the hotel rental pool and the applicants are not OA members.

3.      The applicants withdrew 1 of their claims against the strata during the case management phase of the dispute process, so I find the withdrawn claim is not before me. The remaining claims overlap substantially. In summary, the applicants allege that the strata, through its council, has colluded with the OA and the hotel manager, who are not parties to this dispute, to increase expenses attributed to out-of-pool owners, including the applicants. The applicants say they are being required to pay hotel expenses that do not benefit them because the strata wants to force them to put their strata lots back into the rental pool.

4.      The applicants seek an order to stop the “unfair actions” of the strata and the majority of owners. More specifically, they seek an order that the strata stop imposing the “unfair fee schedule for out-of-pool expenses.” Mr. Berry represents the applicants.

5.      The strata says the applicants’ claims do not involve the strata because the strata is not involved in hotel expense allocation decisions. A strata council member represents the strata.

6.      For the reasons that follow, I dismiss the applicants claims.

JURISDICTION AND PROCEDURE

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

8.      The CRT 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.

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

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

ISSUES

11.   The issues in this dispute are:

a.    Has the strata has treated the applicants in a significantly unfair way by increasing the out-of-pool expenses, or otherwise?

b.    If so, what remedy is appropriate?

EVIDENCE AND ANALYSIS

12.   In a civil dispute like this, the applicants must prove their claims on a balance of probabilities. I have considered all the parties’ evidence and submissions, but only refer to what is necessary to explain to my decision. The strata provided submissions but no evidence, despite having the opportunity to do so.

Background

13.   The 119-lot strata includes what the parties refer to as a north building and a south building. The north building was constructed first and its strata lots are subject to a covenant under section 219 of the Land Title Act in favour of the district (north building covenant). Strata lots in the south building are subject to a slightly different version of the covenant (south building covenant).

14.   In 2017 the strata filed at the Land Title Office (LTO) a consolidated set of bylaws that repealed and replaced all previous bylaws. There have been no filed bylaw amendments since.

15.   Under bylaw 31, the strata has created a resort section and a restaurant section. The resort section consists of residential strata lots 2-77 and 81-119, and non-residential strata lots 1 & 80. Strata lot 1 is leased to the manager for operating the hotel, and strata lot 80 is leased to a spa. The applicants’ strata lots are residential strata lots in the resort section. The remaining strata lots, 78 and 79, make up the restaurant section.

16.   Bylaw 35 says that as required by the covenants, each owner is considered a party to the HMA whether or not they participate in the rental pool and whether or not they have executed a copy of the HMA.

17.   Bylaw 3(1) says an owner must not use a strata lot, common property or common assets in a way that (a) contravenes the HMA or (e) is illegal.

18.   The HMA governs the rental pool and other hotel business matters. The latest HMA in evidence is dated January 1, 2019 and expired December 31, 2019. For the purposes of this dispute I have assumed that the HMA parties renewed the HMA with the same terms. No one in this dispute says otherwise.

19.   As noted above, the HMA says it is an agreement between the OA, the hotel manager, and the owners of the residential strata lots. The HMA was signed by a representative of the resort section of the strata, which includes non-residential strata lots 1 & 80. For the purposes of this dispute I do not need to determine whether the owners of strata lots 1 & 80 are bound by the HMA, as the applicants do not own either of those strata lots.

20.   Initially, the applicants argued that the strata was a party to the HMA, but later acknowledged the resort section of the strata signed the HMA. A section is a separate legal entity from the strata itself. It is essentially a “mini-strata corporation”: see Lim v. The Owners, Strata Plan Vr2654, 2001 BCSC 1386. The applicants did not name the resort section as a respondent in this dispute, so I have not considered any possible claim against the resort section.

In-pool and out-of-pool conflict

21.   In the background of this dispute is the tension between the majority of owners whose strata lots are in the rental pool, and the minority of owners who have withdrawn from the rental pool to reside in their strata lots. The evidence indicates that in late 2019 the OA directors felt that the number of withdrawals was affecting the “bottom line” for owners in the rental pool. The hotel manager’s records showed that there were 5 withdrawn strata lots in 2015 and 13 withdrawn strata lots in 2019. The strata council received a complaint that owners were living in their strata lots in contravention of zoning bylaws and therefore possibly the strata’s bylaw prohibiting “illegal use”.

22.   On December 6, 2019 the District of Summerland (district) wrote to the strata advising that use or occupation of any strata lot as a permanent or long-term residence was inconsistent with the intent of the Official Community Plan and the applicable zoning bylaw, as clarified by the covenants on title. The strata council provided the letter to owners and said it was considering “all possible options” to bring the 13 out-of-pool strata lots “back in compliance” with the zoning bylaws and covenants. In contrast, the applicants say the strata requested the district’s December 6, 2019 letter, and that the district has assured them they are not doing anything illegal. The applicants further say that the zoning can be changed and there is an ongoing BC Ombudsperson investigation into the “zoning dispute”.

 

23.   Article 3 of the HMA says that owners agree to be bound by rental bookings in accordance with the HMA and the Summerland Rental Pool Rules (rental pool rules), which are found in Schedule C to the HMA. Rule 2.04 says strata lots will be used only as strata titled “resort units” and only in accordance with the applicable covenants and the rental pool rules. The rules have a further Schedule A addressing use of strata lots by owners, which differs depending on whether the strata lot is in the north building or the south building. The strata’s bylaws, the HMA, the rental pool rules, the applicable covenants, and the district zoning bylaw combine to cause some confusion and debate about whether owners can opt out of renting entirely and live in their strata lots full-time.

24.   The strata’s submissions indicate that this issue was at least part of the reason for its previous claim against a strata lot owner (not one of the applicants in this dispute) in The Owners, Strata Plan KAS 3625 v. Drance, 2021 BCCRT 151. In that dispute, the strata sought an order that Mr. Drance vacate his strata lot and make it available for hotel use. The CRT member found that Mr. Drance had not contravened bylaws 3(1)(a) or 35 because the HMA did not require owners to make their strata lots available for hotel use. That conclusion is not binding on me, but in this dispute I find I do not need to determine whether the HMA requires owners to make their strata lots available for hotel use or allows full-time owner occupancy. Neither party asked me to determine that issue. Instead, the issue before me is whether the strata has been significantly unfair to the applicants, whether by effecting an HMA expense increase or some other decision or action.

HMA Expenses

25.   At the outset, I note the applicants say they are not parties to the HMA as they did not sign it. Elsewhere they say once they opted out of the rental pool they were no longer parties to the HMA. They say 3 lawyers independently gave a verbal opinion that the applicants are not bound by the HMA. I disagree with these assertions. Bylaw 35 says each owner is considered a party and is bound by the HMA regardless of whether the owner participates in the rental pool and whether or not they have executed and delivered a copy of the HMA. Withdrawing from the rental pool does not remove an owner from the agreement. To the contrary, the agreement contemplates owners withdrawing from and returning to the rental pool. I find the applicants are bound by the HMA.

26.   Under Article 6.09(d) of the HMA, each owner, whether or not they are in the rental pool, must pay the owner’s share of the “out-of-pool expenses” as allocated by the hotel manager in consultation with the OA. Out-of-pool expenses is defined as hotel expenses that benefit all owners, including but not limited to telephone, cable, hotel insurance premiums and other expenses as determined by the manager from time to time. In previous years, the hotel manager billed out-of-pool owners only for cable, internet, telephone and liability insurance.

27.   According to a September 3, 2020 letter from the strata council to all owners, the OA directors asked the hotel manager to reconsider the allocation of out-of-pool expenses starting January 1, 2021. The strata said out-of-pool owners who were paying around $116 per month would be paying between $400 and $1,600 per month. The strata also said these were expenses that, after careful consideration with a chartered professional accountant, should be attributed to all owners, including out-of-pool owners.

28.   The evidence confirms that as of January 2021, monthly HMA fees for at least some of the applicants increased from around $116 per month to $600-$900 per month.

Did the strata treat the applicants in a significantly unfair way?

29.   SPA section 164 sets out the BC Supreme Court’s authority to remedy significantly unfair actions. The CRT has jurisdiction over significantly unfair actions under CRTA section 123(2), which has the same legal test as cases under SPA section 164: see The Owners, Strata Plan BCS 1721 v. Watson, 2018 BCSC 164). Significantly unfair conduct is conduct that is 1) oppressive, in that it is burdensome, harsh, wrongful, lacking in probity or fair dealing, or done in bad faith, or 2) unfairly prejudicial, in that it is unjust or inequitable: see King Day Holdings Ltd. v. The Owners, Strata Plan LMS3851, 2020 BCCA 342 (King Day).

30.   The BC Court of Appeal confirmed in King Day that an owner’s reasonable expectation is one relevant factor to be taken in to account. The applicants argue they had a reasonable expectation that the strata would allow them to live in their strata lots full-time with reasonable shared expenses. They say this expectation was which was violated by the strata’s sudden “reversal” after years of allowing owner residence.

31.   The applicants say that they made critical purchase decisions and life commitments on the understanding that they had the option to live in their strata lots. They say the south building in particular, was promoted as having an option for owner full-time use. They say they reasonably relied on the words of “those in authority”, which they say includes their lawyers, realtors, the strata, the OA, the hotel manager, and the developer. I make no comment about the applicants’ potential claims against others who are not respondents in this dispute.

32.   The applicants say that paying these increased out-of-pool expenses is unfair because they do not receive hotel revenue or any benefit from room attendants, front desk attendants, management fees, and other expenses associated with operation of the hotel. The applicants say the increase in out-of-pool expenses is a bad-faith attempt by the strata to force the applicants into the rental pool or sell their strata lots.

33.   The strata, on the other hand, says it is not a party to the HMA. It says the hotel manager simply identified specific expenses that all owners are responsible for, and equalized the burden across owners. The strata says the fact that the applicants have not paid for certain expenses in the past does not mean they are forever relieved from the requirement. The strata also says these charges are imposed by the hotel manager and they are not strata fees.

34.   I agree with the strata that it is not a party to the HMA and that the expenses owners may be required to pay under the HMA are not strata fees. The evidence clearly shows that the owners are required to remit payment to SWR Inc. (a company wholly owned by the OA), not the strata. The evidence also shows the decision that led to an increase in expenses for out-of-pool members was made by the hotel manager in consultation with the OA. This is consistent with Article 6.09(d) of the HMA.

35.   The applicants allege the strata council is complicit because the strata council and the OA directors are the same people. They also say the strata oversees all the legal entities involved.

36.   A strata corporation is established when a strata plan is deposited in the LTO. The strata council exercises the powers and performs the duties of the strata. Strata council members are elected volunteers.

37.   A society is incorporated under the Societies Act or its predecessors. A society’s directors are elected or appointed under the society’s bylaws and Part 5 of the Societies Act. The strata says the OA members voted unanimously to appoint the strata council members as the OA directors. The applicants do not say this was contrary to the Societies Act or the SPA.

38.   I find the OA and the strata council are distinct organizations that hold separate meetings. The applicants say the strata council and OA executive have held joint meetings, but I find the meeting minutes document joint meetings of the strata council and the resort section executive, not the OA executive. I am satisfied that the OA operates at arm’s length from the strata council despite the overlap in membership. I find the fact that strata council members and OA directors overlapped does not mean the strata made decisions for the OA or that the strata corporation is liable for claims against the OA.

39.   The applicants claim that the strata council is breaching its obligations under section 31 of the Strata Property Act (SPA) to act honestly and in good faith. The applicants say the strata council members are increasing personal profit by billing out-of-pool owners for hotel expenses, breaching their duty of care, which they say amounts to a fiduciary duty. The applicants rely on Perry et al v. The Owners, Strata Plan LMS 180, 2017 BCCRT 135. However, previous CRT decisions are not binding on me. In The Owners, Strata Plan LMS 3259 v. Sze Hang Holding Inc., 2016 BCSC 32, the BC Supreme Court found that the duties of strata council members under SPA section 31 are owed to the strata corporation, and not to individual strata lot owners (at paragraph 267). This means that a strata lot owner cannot be successful in a claim against a strata corporation for duties owed by its strata council members under section 31. Supreme Court decisions are binding on me, and so I find the applicants cannot rely on SPA section 31 against the strata in this dispute.

40.   The applicants argue that the strata is not acting in the best interests of all owners. They rely on Jedmen Holdings Inc. v. The Owners, Strata Plan NES 3120, 2018 BCCRT 425, where a CRT member found that a strata corporation was not able to act in the interests of all owners when it involved itself the management of the rental pool. The CRT member in that decision ordered the strata to stop its involvement in rental pool management.

41.   I find the facts of this case are different from those in Jedmen. In Jedmen, the strata was a party to an agreement with the rental manager governing the rental pool, and the strata council created a committee to address rental pool issues. In this dispute, the strata is not a party to the HMA, and there is no strata council committee to address rental pool issues.

42.   I also note that in Drance, another CRT member considered Jedmen and found that section 3 of the SPA only required strata corporations to act for the benefit of owners with respect to managing and maintaining common property and common assets. There was no suggestion in Drance that the strata was neglecting to manage or maintain common property and common assets and there is no such suggestion in this dispute. Expenses related to common property and common assets are generally borne by all owners in proportion to unit entitlement under SPA section 99, or for expenses that relate solely to strata lots in a section, SPA section 195. The owners make these contributions through strata fees. The strata fees are not in dispute here. If the allocation of expenses under the HMA has been unfair or contrary to the HMA, I find that is an issue between the HMA’s parties. Again, the strata is not a party to the HMA.

43.   I acknowledge the strata’s October 4, 2019 letter to Ms. Byrne, in which the strata council president says the strata council rejected Ms. Byrne’s request to have her strata lot excluded from the 9-month waiting period for removal from the rental pool. The applicants say this is an example of the strata involving itself in management of the rental pool despite not being a party to the HMA. I agree that the strata should not be involved in rental pool management. Rental pool rule 2.03(c) establishes that owners are to notify the hotel manager, who then notifies the OA. However, I am not persuaded that the October 4, 2019 letter demonstrates inappropriate involvement. The strata council was responding to Ms. Byrne’s inquiry, presumably addressed to the strata council. Ms. Byrne’s request was not about opting out of the pool, but about avoiding the 9-month waiting period, which is mandatory under the rental pool rules. There is no procedure set out in the rules for seeking waiver of the 9-month waiting period, and this may explain why Ms. Byrne contacted the strata council. So, I find the October 4, 2019 letter does not show that the strata made decisions that should have been made by other parties under the HMA.

44.   The applicants raise other examples of potentially unfair treatment from the strata. They say the strata denies out-of-pool owners access to documents and minutes of OA meetings. However, OA meeting minutes and other documents are not strata corporation records under SPA section 35 so the strata is not required to provide access to them. The applicants also say the strata failed to advise them of the dates and times of strata council meetings, so they could not attend meetings as allowed under the bylaws. The applicants do no ask for any remedy related to this issue, so I take it only as an example of alleged unfairness. However, the applicants only raised the issue in their final reply submissions, so the strata had no opportunity to respond to it or provide evidence. As a result, have not considered this issue as it would be unfair to the strata to do so.

45.   In summary, I find that the hotel manager, not the strata, made the decision to increase out-of-pool expense allocation in consultation with the OA. I find that the strata has not treated the applicants in a significantly unfair way.

CRT FEES AND EXPENSES

46.   In accordance with the CRTA and the CRT rules, as the applicants were unsuccessful, I find they are not entitled to any reimbursement. The strata did not pay any CRT fees or claim any expenses.

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

ORDER

48.   I dismiss the applicants’ claims and this dispute.