As more and more stratas are coming into existence with sections having been created by the developer, or in some cases being created afterwards by the strata corporation, strata property managers should familiarize themselves with the various requirements imposed on them by B.C.’s Real Estate Services Act (RESA).
The creation of a section
Section 191 of the Strata Property Act (the “SPA”) provides that strata corporations may create sections for the purposes of representing the different interests of strata lot owners in certain scenarios. Once created, each section is treated under Section 194 of the SPA as though it were its own corporation.
The clients
Where a strata property manager acts for both a strata corporation and its sections, both the strata corporation and each of its sections are in fact individual clients. This result stems from the definition of strata corporation, which includes a section under RESA.
Consequently, a strata property manager may have many clients, the strata corporation and each section, and each client is owed duties under RESA.
Separate contracts
Property managers have to have written service agreements with each of their clients, unless their client waives the requirement, per Rule 5-1 of the Rules of the Real Estate Council of British Columbia.
Since the strata corporation and each of its sections must be treated as separate clients, Rule 5-1 requires that a separate service agreement exist for each section and for the strata corporation. This rule is commonly overlooked, and many service agreements name the strata corporation and the section(s) as the same party/client, despite the fact that this contravenes the rules.
Separate trust accounts
A strata property manager must maintain at least one separate trust account for each strata corporation that it represents, per Rule 7-9. Since a section is considered a strata corporation by virtue of Section 1 of the RESA, strata property managers must maintain separate trust accounts for each section that they represent.
This rule can be a burden to maintain. However, one easy solution is to have the strata corporation or section maintain its own accounts.
Separate payments
Despite the requirement for strata property managers to maintain separate trust accounts, single direct deposits from the strata corporation to the strata property manager representing the payments of the strata corporation and its sections are often the industry norm, despite the administrative fiasco this creates.
In order to address the inconsistency between industry practice and the separate trust accounting requirements, the rules were amended to include Rule 7-9-1 (which comes into force Dec. 31, 2014) that specifically allows a brokerage to receive a “blended payment” on behalf of one or more strata corporations and their respective sections.That is, provided that the payment is then separated into the appropriate trust accounts within seven days from receiving the blended payment.
Conflicts of interest
Acting for both the strata corporation and one of its sections can create potential conflicts. Further, Rule 3-3 requires the avoidance of conflicts of interest.
Conflicts can often arise from:
• The allocation of expenses between the strata corporation and its sections;
• The enforcement of bylaws; and
• Competing instructions with respect to repair and maintenance obligations of each entity.
Fortunately, the Real Estate Council has provided guidance where such conflicts of interest are likely to arise and with the consent of both clients, a strata property manager is permitted to designate a “primary client” and to then provide limited representation for its non-primary clients.
In the event of a conflict, non-primary clients must acknowledge and agree that the strata property manager can ignore such client’s instructions if those instructions would not be in the best interest of the primary client, or would in some way lead to a breach of the strata property managers’ obligations to its primary client.
In the absence of judicial consideration regarding breach of client obligations in such scenarios, it is unclear the standard of care to which strata property managers will be held. However, a practical solution would be to require strata corporations and their sections to designate the primary client.
A property manager for a strata with sections has more than one client. Caution must be exercised to abide by the applicable legislation and avoid conflicts of interest.
Judy Rost is the leader of the commercial litigation group at Alexander Holburn Beaudin and Lang LLP. Ryan Howe is a member of the real estate law group at the firm.
