In our real estate practice, we regularly come across strata corporations that are comprised of only a few units which often raise unique considerations. Although these properties often do not operate the same way a more conventional strata corporation would, legally, the same principles apply. We often hear people question whether these are really strata properties in the ordinary sense – the short answer to that question is, “yes, they are”.
Pursuant to section 2 of the Strata Property Act (the “Act”), a strata corporation comes into existence upon the filing of a strata plan and is automatically known as “The Owners, Strata Plan [___]”. The strata corporation takes on various obligations in accordance with the Act including responsibilities with respect to insurance. Many of these stratas do not necessarily operate as true stratas under the Act in that the owners do not vote in a council, approve a budget, collect strata fees, and/or fund a contingency fund. The strata corporation still has the obligations to carry out certain duties with respect to insurance, but does not have funds to be able to do so. In those cases, the owners often need to rely on each other to act reasonably and fairly with each other when funds are needed to complete repairs or purchase insurance.
Insurance is often an issue that arises as part of the conveyancing process. For smaller strata developments that do not set and fund a budget, insurance is typically a shared expense that the owners fund. As the policy is generally prepaid, it would be adjusted for on closing with the buyer crediting the seller with the amount due for the prepaid portion that the buyer would have the benefit of. In our role as the lawyer for the buyer, we generally act for their lender as well. As part of the mortgage financing, we would have to ensure that the proper insurance is in place. This means requesting evidence of the strata insurance. We often find that the prior owners did not have the correct insurance in place. Trying to get this rectified for a closing date can be difficult as it generally means that both strata lot owners need to cooperate and pay for the new policy. It also means that the shared policy would cover the common property and the structures shown on the strata plan but that each owner would need to get their own separate policies to cover their personal property, liability, and potentially the deductible under the strata policy. If the proper insurance policy is not in place, the new buyer may need to get it arranged and potentially pay for it in order to meet their mortgage requirements and then work with the other owner to try to get reimbursed.
In many cases, the challenge begins when a duplex is stratified or constructed and both sides are owned by the same person. If the building existed prior to being stratified, it would normally have a more common fire insurance policy as would be seen on a single family home. To have the proper policy in place, it means implementing a strata insurance policy in the name of the strata corporation covering the items the strata corporation is required to insure under the Act and possibly some of the optional coverages available to the strata corporation.
Mandatory strata insurance coverage that the strata corporation should have in place includes:
- Pursuant to section 149 of the Act, insurance on the common property/common assets/buildings shown on the strata plan, and fixtures built/installed as part of the original construction of the strata lot which must be on a full replacement value basis and cover the perils identified in the Regulations pursuant to the Act (the “Regulations”)and the strata bylaws; and
- Pursuant to section 150 of the Act, liability insurance with respect to property damage and bodily insurance in accordance with the Act and Regulations.
For buyers looking at strata properties operating in this manner, it is important to understand the mechanics of the particular strata they are buying into. This means doing some investigation as far as whether an existing insurance policy exists (and is compliant) and whether the strata does in fact set a budget and collect strata fees. It is also important to understand the nature of the strata property being viewed as the insurance requirements will differ depending on whether the strata is a bare land strata or not. The easiest way to tell this is to look at the strata plan and see if the buildings show on the strata plan. If they do, it is not a bare land strata and the above insurance requirements would apply. If the strata is a bare land, different insurance considerations come in to play as the owner is then responsible for insuring their own property against the perils noted above.
Author: Una Gabie
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of real estate law at the following:
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