In Findlay v. The Owners, Strata EPS401,1 the BC Court of Appeal ruled that BC strata corporations lack standing to bring claims under section 22 of the Real Estate Development Marketing Act ("REDMA") for damages arising out of a misleading disclosure statement. Findlay answers a long-outstanding question about the scope of REDMA claims, and offers significant, but not complete, protection to developers of strata projects. Below, we summarize Findlay and our key takeaways from the decision.
Facts
The case centred on the redevelopment of a residential apartment building into a strata property. After formally converting the property into 44 strata units, the developer began selling these strata units to individual purchasers. As required by section 14 of REDMA, the developer filed a disclosure statement with the Superintendent of Real Estate that contained statements indicating several commitments to improve the strata property.2 The disclosure statement was signed by the developer's director and was incorporated by reference into every contract of purchase and sale between the developer and the initial purchasers of the strata units.3
However, the developer did not fulfill the commitments outlined in the disclosure statement, and the strata corporation brought a claim against the developer and its director under section 22 of REDMA for misrepresentations made in the disclosure statement. Even though all strata unit owners were initial purchasers when the strata corporation commenced the lawsuit on their behalf, by the time of trial 13 strata units had been resold to subsequent purchasers.4
Trial Decision
The trial judge found in favour of the strata corporation, holding the development company and its director personally liable for over $170,000 in damages in respect of the misrepresentations.5
When considering the strata corporation's ability to bring the REDMA claim, the trial judge found such a claim fell "squarely" within section 171 the Strata Property Act, which grants strata corporations the capacity to bring a representative lawsuit on behalf of strata unit owners.6
Appeal Decision
The Court of Appeal overturned the trial decision after in-depth analysis of both REDMA and the Strata Property Act.
First, the court noted the purpose of REDMA: to provide consumer protection and to enable efficient and profitable operation of the real estate development sector.7 In this context, REDMA's narrow definition of "purchaser" means that the statutory cause of action for developer misrepresentations created by section 22 is personal in nature and limited to initial purchasers of a development; subsequent purchasers do not have a cause of action against developers for misrepresentations in a REDMA disclosure statement.8
By contrast, the court found that section 171 of the Strata Property Act is designed to permit a strata corporation on behalf of "owners" of strata lots, not merely initial purchasers. In that sense, the Strata Property Act contemplates representative actions on behalf of a broader group of strata owners than only initial purchasers. Further, section 171 provides only the strata corporation an ability to sue for matters that affect the strata corporation, such as matters affecting common property or the strata corporation's statutory duties.9
Considering these provisions together, the Court of Appeal found that the Strata Property Act does not contemplate granting strata corporations the right to sue for personal claims relating to misrepresentations made to initial purchasers who buy strata units from the developer.10 In other words, a strata corporation cannot bring a REDMA section 22 claim on behalf of strata owners. This claim must be brought by initial purchasers in their own capacity, although they may join their actions together or bring a class proceeding.11
Therefore, the Court of Appeal found the strata corporation lacked standing to bring its claim and allowed the appeal, overturning the trial decision.
Key Takeaways
Strata corporations cannot bring a claim under REDMA section 22 on behalf of strata unit owners. These claims must be brought directly by initial purchasers of strata units. This ruling provides clarity for developers of strata properties, and some protection from aggregate claims by strata owners. That said, this protection is limited and initial strata unit purchasers can continue to pursue claims for disclosure statement misrepresentation.
Footnotes
1. Findlay v. The Owners, Strata EPS401, 2024 BCCA 305 [Findlay..
2. Findlay, at paras 9-13.
3. Findlay, at para 12.
4. Findlay, at paras 14, 16-19.
5. The Owners, Strata EPS401 v. Findlay, 2023 BCSC 500 at para 67.
6. Findlay, at para 51.
7. Findlay, at para 68.
8. Findlay, at para 79.
9. Findlay, at paras 80-91.
10. Findlay, at paras 92-93.
11. Findlay, at para 99.
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