When can a strata corporation sue at the behest of or on behalf of its members? In a recent court decision, Findlay v. The Owners, Strata EPS401, 2024 BCCA 305 ("Findlay"), the British Columbia Court of Appeal settled a question of statutory interpretation concerning the interaction between the Strata Property Act, SBC 1998, c 43 (the "SPA") and the Real Estate Development Marketing Act, SBC 2004, c 41 ("REDMA"). Ultimately, Findlay held that strata corporations are only able to sue on behalf of all owners of the strata corporation if the matter in question affects the strata corporation as an entity and that REDMA issues are not among such matters.
Case Background
The relevant legislative provisions at issue, in this case, are section 171(1) of the SPA and section 22(3) of REDMA, a purchase agreement in relation to a development unit is not enforceable against the purchaser by a developer who has breached any provision of Part 2. Mr. Bruce Findlay was a director of the now dissolved GPI Developments Inc. ("GPI"), a developer of a residential property project in Ladysmith, BC (the "Development"). Upon the stratification of the Development, GPI issued a marketing brochure to prospective purchasers that contained, among other things, a memorandum personally signed by Mr. Findlay stating that GPI would make or cause to be made various exterior renovations to the strata property. The disclosure statement that was filed with the Superintendent of Real Estate (the "Disclosure Statement") was signed by Mr. Findlay as a director of GPI as well as in his personal capacity and contained similar promises regarding renovations to the strata property.
The renovations mentioned in the memorandum and Disclosure Statement were never carried out. As a result, the strata corporation filed a notice of civil claim (the "NOCC") against GPI seeking damages for breach of contract, breach of fiduciary duty, and unjust enrichment. Three years after filing the NOCC, the strata corporation filed an amended notice of civil claim to claim under section 22(3) of REDMA against GPI and Mr. Findlay personally.
At trial in the Supreme Court of British Columbia, indexed as 2023 BCSC 500, the strata corporation abandoned their original claims under the NOCC and only advanced the claim under section 22(3) of REDMA. Critically, by the time of the trial, 13 of the 44 strata units were owned by subsequent purchasers who had purchased the units from their previous owners, and not from GPI directly.
Ultimately, Justice Majawa of the Supreme Court of British Columbia ruled in favour of the strata corporation, holding that it could seek remedies as a representative of the owners for the contravention of the promises made in the memorandum and Disclosure Statement. This ruling was made despite the aforementioned language of the SPA and REDMA, in addition to any other legislation, not expressly permitting strata corporations to commence actions as a representative of owners for claims made under REDMA.1 Additionally, Justice Majawa found that the fact that 13 of the 44 strata owners were subsequent purchasers and not the original purchasers who had been delivered the Disclosure Statement did not affect the applicability of the legislation. Justice Majawa stated: "s. 171 does not provide that an action may be commenced in the name of the [strata corporation ...] only when all of a strata's unit owners are the owners that originally purchased the units from the developer." 2 This decision was appealed.
Analysis by the BC Court of Appeal
Given the abandonment of all claims except those made under section 22(3) of REDMA by way of relying on section 171 of the SPA, the Court of Appeal found that the determinative issue on appeal was whether the strata corporation had the requisite standing to advance a claim against GPI and Mr. Findlay as a representative of the strata owners.
As section 22(3) of REDMA concerns misrepresentations in disclosure statements that are made to the purchasers of development units, Mr. Findlay made the argument that Justice Majawa at trial incorrectly extended the protections of section 22(3) of REDMA to the subsequent purchasers of the strata units. To quote, "[Mr. Findlay] submits that only initial purchasers of a development unit from a developer have a REDMA cause of action and that the legislature intended to circumscribe the liability of a developer in this way."3 The implication of this line of reasoning is that Justice Majawa held (incorrectly) that the provisions of section 22(3) of REDMA extended beyond the original purchasers of strata units from a developer to any subsequent purchasers of such units – a claim which Mr. Findlay argued had no basis in the statutes.
The strata corporation disagreed with Mr. Findlay's assessment, arguing instead that since the SPA does not require owners at the time of a section 171 claim being filed to remain owners until the conclusion of trial, exhaustion of appeals, and execution on the judgment, that for section 171 to apply, subsequent owners could also fall under its definition.4
Interpreting Section 22(3) of REDMA
Mr. Justice Abrioux at the Court of Appeal turned to section 1 of REDMA, which defines a "purchaser" as:
(a) a purchaser, from a developer, of a development unit,
(b) a lessee, from a developer, of a development unit, and
(c) a prospective purchaser or lessee, from a developer, of a development unit.5
[Emphasis Added.]
In conjunction with section 1 of REDMA, Justice Abrioux found that "[REDMA] s. 22(3) is intended to restrict 'the right [to bring] a cause of action for damages' to 'purchasers of a development unit in the development property',"6 thereby making claims under REDMA fundamentally different from those contemplated under SPA section 171. The Court of Appeal finally held that:
"Considering [the] broader purpose when interpreting s. 22 of the REDMA specifically, it is apparent that claims for misrepresentation made under the legislation are intended to be limited to the initial purchaser and not to all subsequent purchasers or owners of the development unit."7
Since the misrepresentations made in the Disclosure Statement were made specifically to the original purchasers of the strata units, and were not otherwise assigned to subsequent purchasers, Justice Abrioux held that representative action could not be taken by the strata corporation in this case. These cases are distinguishable from so-called 'leaky condo' cases, "as those cases involve defects that affect all owners, regardless of whether they purchased directly from the developer or a subsequent owner."8 The misrepresentations at issue made by Mr. Findlay and GPI did not affect subsequent purchasers of strata units.
Interpreting Section 117 of the SPA
While REDMA only applies to those owners who purchased initially from the developer, the SPA permits strata corporations to bring representative actions on behalf of owners of strata lots for matters affecting the strata corporation. However, Justice Abrioux held that:
"misrepresentations made to purchasers of a development unit are not matters affecting the strata corporation. It also does not necessarily follow that representations made to purchasers who then become strata unit owners are ones that affect the strata corporation."9
Based on the foregoing analysis, the interaction of REDMA and the SPA are to be read as follows:
"only 'a purchaser, from a developer, of a development unit' as defined in [REDMA] 'has a right of action' and it cannot be brought by the strata corporation under s. 171 of the SPA."10.
Moving Forward
The Court of Appeal in this case referred to questions concerning the interaction between SPA section 171 and REDMA section 22 as having been raised but not answered in past jurisprudence. Therefore, this decision has considerable probative value for future representative actions being put forward by strata corporations.
This ruling has the effect of limiting the applicability of section 171 of the SPA, insofar as it cannot be applied to claims made under the REDMA. This ruling seems to additionally close the door on any potential causes of action under the REDMA for strata corporations bringing claims on behalf of strata owners, all of whom were the original purchasers of the strata units at issue.
In conclusion, it appears that because of this decision, the previously undecided question of whether section 171 of the SPA applies to claims made under REDMA has now been answered in the negative.
Footnotes
1 Findlay v. The Owners, Strata EPS401, 2024 BCCA 305. At para. 24. [Findlay]
2 The Owners, Strata EPS401 v. Findlay, 2023 BCSC 500. At para. 32.
3 Findlay. At para. 40.
4 Ibid. At para 42.
5 REDMA. Section 1.
6 Findlay. At para. 66.
7 Ibid. At para. 70.
8 Findlay. At para. 75
9 Ibid. At para. 91.
10 Ibid. At para. 92.
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