Strata properties have become more and more popular with the move in many areas to increased density.  These types of properties often give property owners the benefit of limited repair and maintenance work and may also give access to amenities that a single family home seldomly has.  There are often draws to condo and townhome units which may be less expensive than a single-family home and for many families and home buyers, these types of properties are an excellent choice.  That being said, a stratified property is different from the typical single-family home that most people are more familiar with in smaller markets. This article will provide a general overview on some matters for purchasers of these condo, townhome, bareland strata and duplex/triplex/fourplex units but should not be considered exhaustive and a purchaser should ensure they do their due diligence before deciding to proceed this route to ensure it makes sense for them.

Firstly, a strata property is governed by a set of “rules” called bylaws in British Columbia.  These can be either a standard set of bylaws applied under the Strata Property Act or they can be a modified set based on those that were either initially filed by the developer of the property or possibly amended and replaced by the strata corporation itself.  Each strata has a set of bylaws that apply to the owners of units within that strata and its very important that a prospective owner reviews the bylaws to ensure they’re aware of, and comfortable with, any restrictions on use, rental, pets, age, etc.   While there have been changes in the allowable restrictions over the years, there are still permissible limitations with respect to short term rentals and 55+ developments.  Strata bylaws also interact with any rules that the strata corporation itself has enacted as well.  Rules do not need to be registered with the Land Title Office to be enforceable, while strata bylaws do. Rules are created to govern the use, safety and condition of the common property and common assets, whereas bylaws govern the use of strata lots themselves. Therefore, rules that are intended to impact particular strata units must be included in strata bylaws, whereas those governing common property only can often be included in the unregistered rules.  Both should be reviewed by a prospective purchaser and clarity sought with respect to any questions or uncertainty.

A second consideration arises from the fact that a strata corporation, which is automatically created on the filing of a strata plan with the Land Title Office to create the stratified titles, is in fact a separate entity from the owners of the individual units.  This corporation is not a incorporated entity in the normal sense of a company incorporated under the Business Corporations Act, but does have many similar characteristics in that it can contract, has a group of individuals that are responsible for managing the operations of the strata corporation (the strata council) and has members that the strata corporation is responsible to (members are covered under the bylaws and the Strata Property Act).  Of significance is the fact that the strata corporation can also sue or be sued the same as a company or an individual can be.  In the course of a purchase transaction, if it is uncovered that the strata corporation is involved in litigation, the prospective buyer should obtain legal advice on any risks associated with the claim(s) and also ensure their lender is aware of the situation involving the strata corporation’s outstanding claims as these details can impact a lender’s financing decision.  It is best that the owner and lender be aware of this in advance of removing conditions and being bound by a contract to purchase the unit, rather than finding out about these issues shortly before closing.  Likely, a review of the strata minutes and budget would reveal any outstanding litigation, but the strata corporation also issues what is called a “Form B Information Certificate” under the Strata Property Act which discloses a lot of key information about the strata corporation including the requirement to disclose the existence of any litigation.  The Form B should be carefully reviewed by the buyer, their legal representative, and the lender prior to condition removal.

As a strata corporation is a separate entity, it also has the ability to manage its own budget based on fees collected from the owners and expected expenditures.  Depending on the size and sophistication of the strata corporation, a budget is typically done annually and strata fees set accordingly based on that budget to ensure sufficient funds are collected to pay for all shared expenses, such as insurance, maintenance and repair, snow clearing, window cleaning, legal and accounting costs, strata management costs if a manager is engaged, as well as contributions to a larger fund to be used for capital expenditures when needed (often referred to as the contingency fund). Strata fees are generally allocated proportionately between the units based largely on the respective sizes of the units – i.e. those with larger units will pay higher fees to cover their larger share of such expenses.  Reviewing the budget and financial health of a strata corporation can be important for a purchaser to help ensure that they’re not facing any unexpected levies and assessments to cover unplanned expenses.  A review of the minutes of the strata meetings will also help identify if any of those are expected, while not yet voted on, and the Form B would indicate if any have been approved, even if not yet paid.  There are also various private organizations that will assist a purchase in reviewing strata documents and advising on these types of matters so a buyer can have some comfort on the financial expectations arising from being an owner in a particular strata property.

The last consideration to be discussed in this article is the ownership structure.  When an owner purchases a strata property, they typically will acquire both ownership of their stratified title to their respective unit or lot, as well as an interest in the common property that is owned and controlled by the strata corporation.  Similar to strata fees discussed above, these interests are prorated between the various strata lots based on their unit entitlement (i.e. sizes of their unit) such that the owner of a larger unit would hold a larger interest in the common property (while not being a direct owner of it).  This structure is very different from typical freehold properties many are familiar with and it’s important that each buyer does their own review and due diligence on the ownership structure to ensure they’re fully aware of the nature and implications of this ownership.

There are many other matters to consider when deciding whether a strata unit is the right purchase for a particular buyer including whether or not a depreciation report has been done, sufficiency of the financial situation of the strata for upcoming expenditures, parking, rights to patios, storage and yards, insurance, differences between bareland and non-bareland stratas, and the ongoing nature of ownership in these types of developments and a buyer is advised to spend the time to review both the nature of a strata in general, and the details of any specific strata that the buyer may be choosing to look at buying in.  Realtors can be helpful in this review as can lawyers, but a buyer should spend the time to review the documentation associated with the strata property and engage appropriate professionals to assist on that review and advice.

Author: Una Kuzio

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 at the following:

Una Kuzio: una@touchstone.law

Jane Otterstrom: jane@touchstone.law