Richardson v. Strata Plan LMS2435

In September of 2004, the Strata Council obtained a property inspection report from a qualified property inspector. The inspection report revealed a number of problems including envelope leaks and sewage pipe leaks. These problems apparently did not affect the residential Strata lots. These problems affected only the commercial Strata lots. 

One of the commercial Strata lot owners fell into bankruptcy and the Strata Corporation ultimately sought to sell that Strata lot to recover considerable arrears in Strata fees. The mortgagees of that Strata lot asserted that the Strata Corporation had failed to take proper steps to address the problems noted in the inspection report. The mortgagees asserted that they would be badly prejudiced (by reduced sale value) in the event of a sale of the Strata lot in the face of those problems. The mortgagees accordingly petitioned for an order appointing an administrator of the Strata Corporation, for the purpose of hiring consultants to find the source of all building envelope leaks and sewage pipe leaks (affecting the particular Strata lot) and to hire contractors to effect the necessary repairs. They also sought an order that any required funds, for these purposes, be raised by special assessment. The court held as follows:  

• Generally, “the democratic government of the Strata community should not be overridden by the court except where absolutely necessary”.
• “I am disinclined to impose the expense of an administrator on the Strata Corporation” for the limited purposes identified – namely to engage an expert consultant.
• A Strata Corporation is not an insurer of the property. It’s obligation, through the Strata Council, is to do all that can reasonably be done to fulfill its statutory obligations.
• In this case, however, the Strata Corporation had not done all that could reasonably be done. Obtaining the inspection report “was an appropriate but not a sufficient response to the mortgagee’s complaints”. Once alerted to the problems identified in the inspection report, the Strata Corporation had a duty to do all that was reasonable to address them. In particular, “the next appropriate step was to obtain a professional assessment by recognized engineering experts, of the extent and costs of the necessary repairs and to effect any such repairs either from the contingency funds or by special assessment”.
• The Strata Council’s failure to take these steps exposed the Strata community to potential litigation. For example, the mortgagees “are vulnerable to a loss” if the Strata lot is sold at a price reduced by the Strata Corporation’s failure to fulfill its duty.
• Therefore, the court made the following orders: 

a)      The mortgagees must pay the outstanding Strata fees into trust.

b)      The Strata Corporation must engage an expert consultant to investigate the complaints and report on, and estimate the costs, of any necessary repairs. The costs of the consultant shall be paid out of the trust funds. If the parties cannot agree on the expert, either party may apply to the court for appointment of an administrator for the specific purpose of engaging the expert.

c)      The application for appointment of an administrator is adjourned. Once the expert report is received, the Strata Corporation must take appropriate steps to meet its statutory duty to repair and maintain the common property. Failure to do so will provide a basis for the mortgagees to renew their application for the appointment of an administrator for that purpose.

d)      If the mortagagees fail to pay the Strata fees as noted above, the Strata Corporation may renew its application for an order for sale of the Strata lot.

[*Editorial Note: In the editor’s view, this decision nicely describes the obligations of  condominium corporations and the risks of harm (for example, harm to mortgagees) in cases where condominium corporations fail to take reasonable steps to fulfill their obligations. The decision also highlights the importance of involving expert consultants in appropriate circumstances.  Finally, the decision expresses the principle that appointment of an administrator is generally a last resort.]