Financial Controls

An issue has come up at our council meeting with our manager dealing with the signing authority on cheques and our accounts. We have two council members who have created friction with our property manager and are now questioning their integrity because they have sole signing authority on our trust funds. Should our strata corporation be concerned about the management of the trust funds and the lack of scrutiny over the cheques that are issued, or is there a better approach to ensure the strata corporation has controls to deal with our concerns? Martin W.

Dear Martin: Whether your strata corporation is self managed or in an agency management agreement, the most important role in the relationship in financial operations is the review and the leadership of the strata council. Under an agency agreement, the strata corporation’s funds are held in trust in the name of the strata corporation. Trust funds must not be pooled with any other strata corporation, and specific funds like operating accounts, special levy accounts and contingency funds must all be accounted for separately. Each account will have a monthly financial report. As the funds are held by the strata management agency, the broker or authorized signatory is responsible to authorize payments to approve cheques or electronic transactions. Multiple signing officers inevitably just delay transactions causing greater problems and often replace review of the financial statements which is much more important. In the event there is a dispute or claim over an unauthorized expense, the funds have limited insurance coverage through the Real Estate Council Compensation Fund, which has rarely been accessed. If there is a financial irregularity that cannot be resolved, your first call as a strata corporation is to the Real Estate Council. The agency management of receivables and payables is first step in the financial management process; however, it is the responsibility of the strata council to review the reconciled monthly financial statements, bank statements, payments, and receivables. Your management company likely processes thousands of transactions monthly with multiple strata corporations often using the same service providers. Incorrect allocations or errors can easily occur and on financial review they are identified and adjusted, but it is up to the strata council to review the monthly financials in detail. Compare the payables to invoices that are preauthorized as routine expenses or infrequent payables for designated projects and budget items. A summary of the payables and receivables each month helps to make the review easier for the treasurer and council to review.
If your strata corporation is self managed, the risks of loss or fraud have been reported more frequently as volunteers tend not to challenge each other on the credibility of documents, the provision of monthly financial reports, or challenge the integrity of transactions. Watch for individuals who often place themselves in positions where they have sole control over the strata bank accounts and transactions and refuse access to other council members. If you have a treasurer who is not providing access to bank statements for all accounts, is not providing routine financial statements, which could be monthly or quarterly depending the size of your strata corporation, or who is withholding copies of invoices and cancelled cheques, alarms bells should be sounding. If your treasurer misappropriates your strata funds it is too late, there is no insurance coverage. For self managed strata corporations, basic financial management policies should include: a minimal number of signing officers on the accounts of at least 3 if possible, a council member receiving a financial payment is never permitted to sign their own cheque, all council members have access to view the bank statements, separate accounts are created for operating funds and contingency/special levy funds, no cash is ever accepted or handled, and the council routinely review all financial transactions. The best prevention to financial risks is to be proactive. Routinely, review all transactions and compare them to invoices and accounts. Looking for more resources or education to assist your strata corporation and owners? Join CHOA on Tuesday’s at noon for free Webinars on current strata issues or view archived strata operations sessions. Go to www.choa.bc.ca to register.
Tony Gioventu, Executive Director CHOA

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Operations Plans-Landscape maintenance. Essential Strata Service

Our strata council is trying to cut corners on cost this year as we have experienced the same dramatic increases in our insurance costs. As an owner and council member I am concerned that we are not meeting our basic operations requirements and exposing ourselves to even higher claims that may result in damages to strata lots and common property that in the end will simply cost us more. A recent decision to eliminate the landscape contractor (DO NOT DO CANCEL ESSENTIAL SERVICES….it will always cost you more money down the line….sigh) resulted in a ground floor flood last week, as the irrigation system was not being maintained through July, which was a routine part of the schedule maintenance and servicing. The flood resulting from chronic leaking sprinkler head that was reported to council in early July and not addressed until an owner reported their patio filling with water. The damage to the strata lot was nothing more than a wet carpet, but as a strata council member, at what point do we the council and the corporation start to take on libaility for bad business decisions. Council have basically taken the position that they will address problems as they arise. Kyle J.

Dear Kyle: As a property owner and council member you have the legislated obligation under the Strata Property Act to maintain and repair common property and common assets. Your owners also approved a budget including landscaping services, which is also a lawful instruction to implement the contracts wherever possible. Regardless of the size or type of a strata corporation, annual operations plans are the best method to ensure the obligations of inspection, maintenance and repairs are implemented. An operations plan will summarize the components and assets of your strata corporation, which can easily be converted from your deprecation report, and identify what level of service or inspection and maintenance are required as part of your annual operations, and what components or systems are managed on a long term basis. If your strata corporation fails to maintain common property and common assets, and an owner suffers a loss, the owner is likely in a position to seek damages against the strata corporation either through the courts or the civil resolution tribunal. If you have failures relating to building systems or assets that result in insurance claims, your insurance provider is likely going to advise you of this risk, put you on notice of increased costs for claims or advise you of their inability to renew your insurance. A common area of neglect for strata corporations are drainage and sanitary systems, roofing systems and electrical systems. Most items that are out of sight are often not a priority, but these key components often result in avoidable claims and damages, and a significant disruption to owners. Sanitary lines and drains for example, should be flushed professionally at least every 3 years if not more frequenlty. Likely due to the increased occupancy periods this year with the pandemic restrictions, there has also been an increase in sewer back ups, but the most common attributable factor is simply aging building systems that are neglected. Sewer back up is one of the most severe problems, and accessing buildings during the lock down is a greater problem as the plumbing contractor will require access to strata lots as well, but general inspection and maintenance of operational building components is the best method to prevent losses, claims, unnecessary damages and in many cases often extend the life of building components. Roofing systems cover 100% of our investments yet most property owners undertake inspection or maintenance on an annual basis. A qualified inspector or roofer can identify defeciencies and damages that can be easily and quickly addressed to ensure good performance of the roofing system and extend the life of the roofing system if routine service is conducted. Routine maintenance of hot water boilers will extend the life of the boilers and ensure they are performing at their best efficiency levels reducing energy consumption and cost. If your roof fails, this is now an emergency repair. Damages have been caused, the cost for after hours response is significant and the repair is short term rather than a coordinated approach to mainteance and renewals. The attitude of waiting till a component fails before we have to fix it is a false economy. Create a schedule of all your building components and determine what services you require and the frequency of servicing. For more information on operations plans and samples, go to the www.choa.bc.ca and view the Webinar on operations plans.
Tony Gioventu, Executive Director CHOA

Terra Nova Landscaping says: LANDSCAPING IS AN ESSENTIAL SERVICE. Cancelling or cutting back on landscape services and maintenance should never be done. Remember, a well maintained landscape can help increase your property value up to 15 percent. Neglected trees and shrub maintenance will be expensive and will come out of the strata’s purse some-how, some-time down the line….

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Unauthorized Alterations

We purchased 2 older units next to each other in September of last year with the intention of combing them into 1 larger unit for our family. Since our purchase the strata council have done nothing but obstruct our attempts to conduct alterations and block our ability to consolidate our two strata lots and have insisted we will be required to pay higher strata fees. They have refused to grant permission for the removal of a section of wall between the units even though we have obtained a structural engineering report and a building permit for the work. The wall is not structural and does not contain any services such as plumbing or venting that could affect our 2 units or another strata lot. This was a significant investment intended to raise our family in an affordable setting and has turned into a disaster. Are there some options to forcing the strata council to cooperate with our request and resolve this? Maria and George C.

Dear Maria and George: Strata corporations are naturally reluctant to allow the removal of walls between units or above and below units. There are many buyers who often try to flip units quickly by doing quick fix alterations and changes, the next buyer comes along and after possession often discovers there are problems with mechanical services, the walls were in fact structural and supporting, the ventilation has significantly changed or the plumbing water delivery or drainage has been altered. Both the new owner, and the strata corporation are often left with damages and liability to remedy the unauthorized alterations. If an owner requests authorization to remove all or part of a wall that is a common boundary between two strata lots, they require the written approval of the strata corporation. Provided the owner complies with building regulations, any applicable municipal or regional bylaws, does not interfere with the provision of utilities or other services to any other strata lot or common property, and provides copies of any required building permits to the strata corporation when seeking its approval, the strata corporation must grant the permission. Documents and plans certified by an engineer that verify the scope the work in detail, addresses building code requirements, and coincides with the required building permits would be a minimal standard for a strata council to request. If the strata council does not act reasonably, the Strata Property Act provisions can be enforced with an application through the Civil Resolution Tribunal. It would be beneficial to request a hearing with the strata council which may be conducted electronically. You may wish to retain a lawyer to be present at your hearing to determine what conditions if any are not being met, or if the strata is simply refusing to comply with the Act. The unit entitlement or size of the 2 strata lots remains the same as well as the voting rights of 1 vote per strata lot. There is no increase in strata fees as the habitable area of each strata lot has not been changed. As the owner you continue to pay the same strata fee entitlement for the two strata lots. Any other changes within the strata lot such as removal of a kitchen, update or remodelling of washrooms or internal walls and rooms will all require the permission of the strata corporation and detailed drawings and plans should be provided to help the strata council make a decision. Changes to electrical systems, plumbing and ventilation may also have a significant effect on the use and enjoyment of other strata lots. During the Covid 19 restrictions, many strata corporations are encouraging owners to delay alterations to strata lots to reduce construction activity within their buildings and reduce the transiency of contractors and trades. The level of caution your strata council is exercising is prudent; however, under normal conditions, they do have an obligation to grant permission within a timely manner.
Tony Gioventu, Executive Director CHOA

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Retroactive Strata Fees

We recently purchased a condo in a Fraser Valley community the first week of June. We obtained the disclosure forms in advance, read the minutes and bylaws closely, and we aware in advance the insurance was increasing by 250% due to the location and type of construction of the building. We just received notice of the Annual General Meeting (AGM) to be held electronically in August, and other than routine business the annual budget is increasing by 27% to address a deficit from the previous year and the significant increase in insurance. What we find alarming is the strata fees for September, if approved include the increase from May – August as the fiscal year for the strata corporation ends April 30th. We did not find the increase unreasonable, because the fees appear artificially low, the 27% increase for the first 4 months is due and payable all at once in September adding $486 to a monthly fee of $607. The back charge for the first four months is being called a retroactive fee. As buyers, why do we have to pay for a period of fees when we were not the owners? Is the retro fee enforceable? Lillian & Dave M.

Dear Lillian & Dave: There have been several Civil Resolution Tribunal Decisions on this issue that originally deemed the status of retro fees was unenforceable; however, the BC Supreme Court has “disagreed” with the tribunal’s conclusions and upheld the practice in a the matter of fiscal year strata fees involving a “commercial strata development”. The case is 625536 B.C. Ltd v. The Owners, Strata Plan LMS4385, 2018 BCSC 1637, the Supreme Court of British Columbia. The dispute primarily focused on the interpretation of the Strata Property Act and whether a strata corporation who was charging the additional increase of fees for the period of the fiscal year that had already passed, was compliant with the legislation. In the court’s view, there was nothing in the strata corporation’s approach to strata fees that placed it offside the act. A subsequent “adjustment” to the fees paid in the period between the end of a fiscal year and the passing of the budget for the next fiscal year, is not a retroactive charge.

The Tribunal based its determination in large part of the notion that the strata fee information required to be disclosed in a Form B or Form F would be inaccurate if a prospective purchaser of a strata unit obtained those forms (a Form F remains “current” for a period of 60 days after it is issued) prior to the approval of a new budget. The buyer would be led to believe that the seller’s strata fee payment obligation was up to date when in fact it was not. With the greatest of respect to the Tribunal, the judge disagreed. An owner’s strata fee obligation does not arise until it is approved at the AGM. The Form F (and indeed the Form B) will have been accurate when issued. There is no requirement in the Act that strata fees be paid in equal installments. Plainly, the schedule of strata fee payments can require equal monthly installments, or installments that include adjustments to make up a deficit between what was paid and what would have been paid had the budget for the current fiscal year been in place at the commencement of the current fiscal year. Fees for one month may be different than for other months. Ultimately the budget approved for the fiscal year becomes the obligation of the strata corporation to collect that amount through a schedule of fees due monthly as adjusted; however, not every strata corporation collects fees monthly or on the same schedule. Always read the bylaws of a strata corporation, especially resort properties if you are concerned about the payment of strata fee.

Many strata corporations hold their AGM after the fiscal year end as they wait for the completed financial reports to determine budgetary needs for the following year. The AGM must be held within 2 months of the fiscal year end, unless there is an emergency order as we are currently under, which extends the period to 4 months. If the AGM is held prior to the end of the fiscal year, financial projection statements must be prepared and circulated to the owners in advance of the AGM as well as a completed financial report within 8 weeks of the end of the fiscal year. While it is advantageous to convene the AGM as early as possible to execute the next year’s budget, the total amount owing by each strata lot for that fiscal year is the same total whether you approve the budget before the fiscal year end or after. When the strata corporation issues notice of the meeting, the fee schedule required by the Act showing either an adjustment in the next month or over the balance of the year is included, which by default is ratified by the owners when they approve the annual budget by majority vote. Tony Gioventu, Executive Director CHOA

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Electronic Meetings

Our strata corporation and manager have advised owners that an electronic meeting is different, and we are required to submit a restricted proxy in advance of the meeting. Doesn’t that undermine the integrity of an electronic meeting and assign our proxy to the council? At our annual general meeting last week, all the votes had been pre-counted and when it came to the election of council there were no additional nominees permitted and the council were simply announced as elected based on the restricted proxies that were issued. We were basically observers at the meeting. Is an electronic meeting really any different than a meeting with in-person attendance? Margo W.

Dear Margo: An electronic meeting is a fully constituted meeting like an in-person meeting. All the provisions of the bylaws and the Act must still be followed. The only difference is the address, which is the electronic address and the method of electronic attendance that requires everyone to be able to communicate with each other. The obligation for eligible voters to register and be issued a voting card is still a requirement. Eligible voters may be identified at point of registration, or a ballot showing their strata lot number can be sent with the notice package, which they can use to identify their strata lot and used for voting during the meeting. If an owner cannot attend the meeting, it is the owner’s privilege to decide whether to assign their proxy to a person who can attend electronically, or to a council member in attendance. A restricted proxy is only a privilege of the strata owner, this is not a function the strata corporation can impose on owners. The Strata Property Act permits proxies, subject to any limitations or restrictions imposed by owners. By issuing a restricted proxy the owner can confirm their voting instructions or limitations are restricted to what was instructed. The person who is appointed on that proxy must be present at the meeting for the proxy votes to be counted at their instructions. Proxy votes, or a restricted proxy is not an absentee ballot. It must still be exercised at the time the votes are taken, which may be after each resolution or a designated voting window at the end of the resolutions and elections. At this time every eligible voter, including the assigned proxies, submit their votes either in a ballot method, by email, a verbal call of the roll, an electronic poll or some other method determined in the bylaws of the strata. Secret ballots are a bit more complicated to manage as the only method the strata has to verify if an eligible voter has submitted a ballot is to be able to identify the person who voted or submitted the votes. While an email ballot is secret from the remainder of the owners at the meeting, the scrutineers who are receiving the balloting instructions must be able to identify the source of the vote. At an in-person meeting, secret ballots can be easily managed as a sequential audited paper ballot may be used to ensure the vote count can be audited and compared to the registration without identifying the voters. While this may seem a bit excessive at times, strata corporations are frequently required to approve millions of dollars of special levies, expenses, or bylaws that often result in serious limitations to use of property. A helpful solution to prepare for the registration and voting is to develop an instruction page to explain the voting procedures that is included with the notice package. This is both helpful for the owners to understand how they will be voting and the property manager and chairperson to administer the voting procedures. Several strata corporations are including a voting card showing the strata plan number and the strata lot number with the notice package. This makes the electronic meetings much easier to conduct registration and identify voters and the chairperson can still call for a show of voting cards. The real challenges of course are to manage 200 participants electronically. While a traditional 2-hour meeting is easily taking 4+ hours, there is a much greater participation by owners with the convenience of electronic meetings.
Tony Gioventu, Executive Director CHOA

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Disclosing Broker Fees

Our strata council met with our strata manager last week after the issue around compensation and commissions from insurance brokers arose to discuss whether our representatives receive any of these types of commissions or fees. The broker followed up with us afterwards. We are happy to say our long-term relationship is intact, and our brokers and managers to the best of our knowledge have never received an undisclosed fee. A major part of our success that we hope to share with other strata corporations is that we have a clear and fair contract with our management company. It clearly defines what services they provide from emergencies, to meeting support, to building inspections and supervision of staff and contractors, to monthly reporting of financials, council meetings and minutes and our annual requirements. We also have detailed additional fees for major construction at an hourly rate approved by council if there are additional services required. At the time we negotiated the contract, we spent $1,500 on legal review to ensure the relationship was fair and it has worked well for both parties. Most important, as a strata council we review the contract every year to ensure we understand both of our responsibilities and the work schedules are met. All our fees for monthly costs, administration, the provision of forms and records to buyers and financial services are clearly detailed and can be easily cross matched to our monthly invoices. Our strata management agreement specifically prohibits the retention of any type of fees and commissions. Wouldn’t it be a conflict of interest for the manager or broker being paid from our service providers or contractors especially as they work for us? Isn’t the best practice to negotiate directly with the strata corporation and set your fees accordingly? We pay $45 per unit a month for great service, plus additional services as they arise. It works very well and there are no surprises. JMF

Dear JMF: A well negotiated contract is essential for any business relationship. Understanding the responsibilities, products, and services in exchange for itemized compensation removes doubt and ambiguity. Transparency is essential to ensure responsible business practices and enables a strata corporation to identify the services provided and compensate for them appropriately. The issues that have arisen in Strata Management Services is the lack of disclosure around commissions and fees earned, while the strata managers or brokers are in the process of managing your business affairs as your agent. Under the Real Estate Council Rules, if a licensee receives or anticipates receiving, directly or indirectly, remuneration, other than remuneration paid directly by a client, while in the process of acting for the client, they must promptly disclose: 1. the source of the remuneration, 2. the amount of the remuneration or, if the amount of the remuneration is unknown, the likely amount of the remuneration or the method of calculation of the remuneration, and 3. all other relevant facts relating to the remuneration. It isn’t a conflict of interest for an agent or brokerage to receive a fee or commission if they have disclosed that they have or will receive a commission from a service provider who is acting for your strata corporation and your strata corporation has consented. Without any knowledge or disclosure, a number of strata corporations are discovering they are wrapped into larger portfolio negotiations for insurance renewals, which may be impacting their renewal costs and status, and the management company has been negotiating commissions and fees as compensation to the management company as a condition of bringing the business to the insurance brokers. With insurance rates climbing for the same buildings at a rate of 300-500%, those fees at a rate of 5-10% of the gross cost are having a significant impact on the cost for the consumer. As your agent, the strata manager and broker are essentially acting as you, the strata corporation. They have your delegated authority and in the process of managing your services they have a duty to act lawfully and in your best interest. Most of the management companies across BC refuse to participate in commission compensation through insurance brokerages, service providers and contractors as it often leads to conflicts, barriers to competitive pricing for the clients, and risking unlawful activity without disclosure. Some of the many reasons why the BC Government has introduced legislation prohibiting the paying of commissions by insurance brokerages to strata manager companies and agents. If a strata council is in doubt, obtain a written disclosure from your management company and request they declare if the company or the managers receive any types of fees, commissions or compensation from any other party in the course of acting as your agent.
Tony Gioventu, Executive Director CHOA

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Sign Your Landscape Service Contract

There are now precedents in the B.C. Supreme Court, as well as the Supreme Court of Canada (also U.S., Britain, Quebec etc.) which have allowed e-mails as binding contracts.(I will not cite legal precedents.) Signed contracts via Faxes are also considered legal in Canada.

I still prefer clients and Strata Property Managers to physically sign your contract and return via Canada Post.

The contract itself has to meet all requirements of your legal jurisdiction. Terms should state that, ” acceptance of this contract can be made via e-mail. ”
Keeping an electronic file of all correspondence with each client is necessary. (conversely, so is a paper trail)
Have the client or their legal agent/manager respond “yes, they agree to the contract and terms” in an e-mail, if you can.
You have to prove to the court that you’ve had a back and forth conversation and agreement.
Legal fees and court costs can not be recouped from the client in B.C., even if you win the case.
Caveat: don’t rely on information found in social media or chat rooms. Be pro-active. Consult with a lawyer.
Do your own web search for information relevant to your jurisdiction’s laws. Re: contracts, labour laws etc.
I’ve owned TerraNovaLandscapingBC.com since the last century (1996)
Note: the above is from an international member landscape industry group that I belong to. My handle is Dr New Earth.

Edit: I’ll add this for reference.
To protect yourself, there are a few things you should be sure to include in every contract.
•Parties to the contract. Include the legal names and addresses of all parties.
•Scope. A clear, detailed description of the goods or services to be provided. Due dates are normally included here. Be as clear as possible; as we explain below, this is the one most commonly disputed parts of a contract.
•Price and payment terms. Be sure to include not only the amount, but also when payment is due, the length of time the purchaser has to pay, and any interest charges that will be applied to late payments.
•Responsibilities. Try to anticipate what could go wrong. For example, missing a deadline can have consequences.
•Terms and conditions. This is where lawyers have a lot of fun. Typical things to include here are limitations of liability, terms for amending or terminating the contract, warranties and disclaimers.
•Signatures. You will want to include the signature, typed name, and title of each signatory as well as the date signed for each signatory.

Remember, the more precise the wording of a contract is, the less open it will be to interpretation and dispute.

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Leaky condos now facing bigger problem

B.C. condos built to fix leaky problem with overhangs now facing bigger problem.

A B.C. developer who built townhouse condos, mostly in Surrey, with roof overhangs as a solution to the leaky-condo problem, is facing at least three lawsuits from stratas, alleging the overhangs weren’t property designed or built.

The strata owners of a complex of 81 townhomes have been fighting for repairs to their roofs since 2011, about five years after the three-storey wood-frame buildings were built in Surrey. They filed a claim against the warranty provider, Travellers Insurance Co. of Canada, and the developer, architect, engineers and framer, seeking repairs for structural defects in the roofs of the 12 buildings that made up the complex, that if left unprepared “posed a real and substantial danger to owners and other persons,” according to a lawsuit filed by the owners.

The strata in the suit said the gable and dormer roofs had “structural defects in their design, workmanship and/or materials,” which included “inadequate supports for the overhangs.”

The strata filed a claim against its insurance policy, called the 2-5-10 warranty, which was mandated by the B.C. government at the end of the leaky-condo crisis in the 1980s and ’90s, and provided two years’ coverage for labour and materials, five for the building envelope and 10 years for structural defects.

The claim was accepted and the repairs done but they “did not correct the defects,” the lawsuit says.

The suit says the overhangs were sagging and the support rungs were rotating, and the overhangs were being supported by the non-structural frame. That framing was “experiencing increased stress” and the “walls were failing and nails were withdrawing from the wood,” the lawsuit said.

Left disrepaired, the roofs were in danger of failing because of the buildings’ “inability to support the dead load of overhangs, snow loads and loads imposed during maintenance and repairs of the roofs,” the suit said.

After the insurer and developer refused to complete the repairs, “the plaintiff was required to repair one of the dormer roofs as it posed an immediate safety hazard,” the lawsuit said.

There are 331 units involved in the three lawsuits against complexes connected with Lakewood Homes (each project had a name that included Lakewood but was unique to each project).

One of the writs names Jerry Luking as Lakewood’s owner. Lakewood Homes’ website says he and his brother Hans started the company in 1967 and have built 4,000 homes in Metro Vancouver.

The writ for that development alleges negligence by Luking, saying he “lacked the necessary technical expertise and practical experience to design, build or inspect the condominium’s roofs and overhangs,” and that he “was informed by the developer’s employees, consultants and trades that there were defects” but didn’t investigate or repair them.

None of the allegations have been proven in court. All defendants and third parties to the large and complicated legal proceedings in which various parties were named denied responsibility in their responses to the claims. Almost all constructions lawsuits are settled during mediation and the suits aren’t completed.

The owners are asking for the developer and insurance company to honour the building’s warranty or pay general and special damages for breaching the warranty.

One owner, who did not want to be named because the matter is in mediation, said the strata is suing for $13 million.

A report by Miller Thomson lawyers analyzing B.C.’s leaky-condo crisis years ago said 45 per cent of the 160,000 condos and 57 per cent of the 700 schools built in B.C. between 1958 and 2000 had water-ingress issues.

With three- or four-storey wood frame buildings, the percentage suffering from building envelope failure and water ingress jumped to 90 per cent and some have had their envelopes repaired two or three times, the report said.

It listed as causes for the crisis “inappropriate design features and building materials” of the “face-sealed” or stucco walls.

The report also noted a bylaw change by Vancouver in the 1980s, which included roof overhangs in the building’s floor-space ratio, reduced the amount of permitted square footage and led to the removal of overhangs from designs.

“These design changes were more likely to allow water ingress,” it said.

Story by Susan Lazaruk, Vancouver Sun.

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New Legislation: Will it make a change?

Our high-rise building is one of the many that has been trapped by the high increases to insurance costs and deductibles. We attempted several times over the last 2 months to communicate with our manager and insurance broker and were advised that because of the hard market it was unlikely we would hear anything until the last week before our renewal. We finally received notice 2 days before our renewal with a 250% increase in cost and our deductibles have jumped to $250,000. In the past 5 years we have had one claim, in the amount of $47,000, that was caused by an owner installing a new washer and dryer and not hooking up the washer correctly, damaging 4 strata lots. We have a depreciation report, our reserves are well planned for a roof renewal in 2025, and most of our operations are under managed service agreements. Clearly there is no reward nor consistency for prudent operations in the current market as one of our older neighbouring properties with higher risks has renewed with a marginal increase. Will the legislative amendments introduced this week be of any assistance for the public or is it just politics? Gavin M.

Dear Gavin: Resolving the insurance crisis for BC strata owners will not be quickly or easily resolved. The legislation tabled this week enables the government to address several factors that are contributing to the issues around insurance renewals, increased risks and costs in the insurance market, but there is no guarantee how or when the insurance industry will respond. To protect investments and collective risks, strata corporations in BC are placed in an awkward situation because of the obligation to obtain and maintain insurance for the full replacement value of their buildings, common assets and fixtures. Essentially everything constructed by the owner developer has to be insured by the strata corporation, whether it is common property or part of a unit; however, when a broker goes to the insurance market, there are no mandatory requirements for the insurance companies to provide insurance, maintain competitive cost, cover all of our risks or even provide full replacement coverage. This is the effect of a free market system. It worked well for our industry for the past 55 years, but global conditions on risk, profit and the number of companies providing insurance dramatically changed. We are vulnerable to the availability of insurance providers willing to take on our risk and the potential costs. Compounded with the exorbitant costs, there is a rise in the number of strata corporations that are unable to obtain insurance or left with loss limits on their insurance, where the corporation is no longer able to comply with the Strata Property Act. The tabled amendments will enable changes to address some of the following conditions: the requirement for depreciation reports for all strata corporations of certain classes, minimum funding models to increase reserve funds, a unit description clarifying what parts of a strata lot must be insured by the owner vs the strata corporation to limit the financial exposure for the strata corporation, a limitation on a risk to an owner if a claim has originated from their strata lot but they were not responsible, a mandatory reporting requirement to strata lot owners on policy renewals, and how a strata corporation may operate without full insurance. While the legislation and government policy decisions have no direct impact on the product of insurance providers, there have been many consumer complaints relating to the business practice of insurance brokers which are also being addressed through amendments to the Financial Institutions Act to require brokers to: disclose the amount of their commissions, strengthen notification requirements to strata corporations of changes to insurance coverage and costs, or an intent not to renew, and prohibiting insurance brokers from paying commissions or fees to strata management brokerages or agents representing other parties. Transparency around reporting, commissions, disclosure, and changes to enhance owner responsibilities in strata corporations will all contribute to an improving insurance market. Active risk assessment in each of our communities and managing outstanding operations issues along with active claims reduction programs will also be essential if we are to experience an improvement in the BC insurance market for strata corporations and homeowners.
Tony Gioventu, Executive Director CHOA

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Insurance Deductible Special Levy

I was dismayed to open my mail yesterday to discover our strata council has issued a notice of special levy to pay for a $100,000 insurance deductible for damages caused as a result of a flooded roof top area and back up that occurred during one of our spring storms. There were damages to 11 strata lots in addition to common areas and one elevator. Our strata corporation is a combination of town houses and apartments, and the apartment units operate as a separate section where the damages occurred, so we don’t understand why the town house owners are having to pay for their damages and why the owners are not being given an option to pay for the deductible from their contingency reserve funds as opposed to a special levy as we have sufficient funds to cover the cost. Our insurance renews end of August, so this is likely going to have an impact on costs and raise our strata fees once again, in addition to the added levy. Pamela K.

Dear Pamela: When a strata corporation creates sections, it creates separate legal entities that are responsible for maintenance, repairs, operating and use of those areas that are exclusive to that section. A section can basically do anything a corporation can do but it does not eliminate or dissolve the obligations of the strata corporation. Sections could be a division between different types of housing, or a division between different uses such as commercial and residential. To guarantee all owners are protected, the corporation is still required to maintain insurance on the common property, common assets, the buildings shown on the strata plan and all original fixtures constructed by the owner developer, for all the perils and coverage required by the Strata Property Act. The creation of sections does not change this obligation or divide the liability for claims between sections. When a claim arises, if the amount is above the deductible, the claim is processed through the strata corporation policy and the deductible is a common expense of the strata corporation. The deductible may be paid in a variety of options. Through the operating account or contingency reserve fund of the corporation if there are sufficient funds available, or the strata corporation may special levy all owners, based on the unit entitlement of all units for common expenses of the strata corporation. The strata corporation does not require a ¾ vote at a general meeting for this type of levy. The levy must identify the amount, the purpose of the levy, which is a common expense insurance deductible, the due date(s) of payment either in one lump sum or over several payments and show how the levy was calculated. There are benefits to applying a levy for a common expense deductible for both the strata corporation and the owners. The strata corporation will not deplete much needed cash reserves either from operating or contingency funds and if owners have purchased appropriate home owner insurance, the owners may be eligible to have their home owner policy cover the deductible claim for a lower home owner deductible. Because your townhouses are larger, you are paying a higher unit entitlement with your share of the levy being $1,850. Your homeowner policy does cover this claim and your deductible will be $300. It is your choice to either pay the deductible or file a claim, which may have an impact on your homeowner policy in future years. The increase in deductibles is having a dramatic effect for strata corporations. It is either resulting in scenarios such as yours where owners will more commonly be faced with shares of deductible costs, or the amount of the claim will not exceed a deductible amount and each owner who has experienced damages, along with the strata corporation for common property repairs, will be faced with managing the restoration and repair costs to their own units whether they have home owner insurance or not. This is a serious wake up call for strata lot owners. If you operate without insurance coverage for your personal contents, betterments in your strata lot, the cost of deductible claims, or the general restoration of your strata lot, you could be facing serious financial hardship. If this claim had been the responsibility of an owner, their occupants or tenants, the owner could easily discover they are liable for the entire cost of the $100,000 deductible. With the increasing rise in strata corporation deductibles up to $250,000 and $500,000, I advise all strata property owners to obtain a copy of their strata policy renewal documents and speak with an insurance broker about your best options for coverage.
Tony Gioventu, Executive Director CHOA

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