Every strata council is at some point placed in the unenviable position of having to chase an owner for unpaid strata fees or special levies. Too often, strata councils drag their feet in enforcing such non-payment, not wanting to play the bad guy who has to put pressure on an owner who may be in financial hardship.
The bottom line, however, is that not only does every owner have an obligation to pay their strata fees and special levies, but the strata council has a duty to enforce the collection of these amounts. Owners are free to make alternate payment arrangements, but the strata council may still have no choice but to take steps in order to ensure the debt is protected. Failing to promptly and fairly pursue arrears can result in cash flow problems for the strata corporation and difficulty in encouraging prompt payment by owners generally.
Strata council members have a duty to protect the interests of the strata corporation and all owners. As directed by the Strata Property Act (the “SPA”), this duty includes the obligation to collect money owing to the strata corporation. Further to this legislated duty, strata council members are required to act honestly and in good faith, and to exercise the care, diligence and skill of a reasonably prudent person in similar circumstances.
Any action or omission of a council member that is not in the best interest of the strata corporation therefore puts that council member at risk of being held in breach of their fiduciary duty as a council member. Moreover, where a strata council fails to enforce the bylaws and rules, an owner may apply to the BC Supreme Court for an order pursuant to section 165 of the SPA, requiring the strata corporation to comply with the legislation.
Strata council members are advised to devise and adhere to a collections policy for the strata corporation, which should include firm timelines for any debts to be pursued. Even the best policy will require some case by case consideration, however. For some owners, taking modest steps towards collection and waiting will be the preferable strategy, while in other circumstances, proceeding promptly to court for an order for sale may be in the strata corporation’s best interest. It will often be difficult or even impossible to tell at the outset which option best mitigates any risks, and maximizes the chance of recovery by the strata corporation.
The SPA provides the strata council with the power to secure the strata corporation’s position through the filing of a lien on title to a strata lot, in relation to certain debts. Allowable amounts to be included in a lien include items such as: strata fees, special levies, a rate of interest up to 10 per cent as permitted in the bylaws or included in a special levy resolution, the costs of filing a lien, legal and administrative costs for filing the lien and the cost of removing the lien. Once registered, a lien affords the strata corporation super priority over other creditors that the owner may have.
Before a strata corporation is entitled to file a lien, they must first issue a demand notice to the owner with a 14-day notice period, allowing the owner the opportunity to contact the strata corporation and resolve the issue before the lien is filed. Council members must keep in mind that unless a lien is filed, the debt is vulnerable in the face of the solvency of the owner, the nature and status of other charges on title and any pending foreclosure or bankruptcy of the owner. In such situations, the strata corporation would become an unsecured creditor, and would likely miss their opportunity to collect on any arrears.
Strata councils are urged to seek legal advice in relation to best collections practices, especially in light of recent changes to the Limitation Act and implications arising from recent case law on the topic.