Retroactive Strata Fees Deemed “Contrary” To The Strata Property Act
As more and more strata corporations have elected to hold their Annual General Meetings (AGM) after their year-end (within the 2 months permissible under the Strata Property Act [SPA], and sometimes even later) the issue of “retroactive” strata fees has become more controversial.
A brief primer is probably helpful.
The SPA allows for an AGM to be held anytime within 60 days of the year-end of a strata:
Annual general meeting
40 (1)The strata corporation must hold annual general meetings except as provided under section 41.
(2)An annual general meeting must be held no later than 2 months after the strata corporation’s fiscal year end.
Interestingly, while the AGM can be held up to 2 months after the year end, there is no legislated limit to how early it can be held, but that is a subject for another day.
This presents a practical issue for any strata that increases or decreases their strata fee contribution for the year, the latter being far less common than the former.
Let’s assume your strata budget for 2017, with a year-end of December 31st, totalled $1,200,000. Now let’s assume you hold your AGM on February 28th, 2018 and increase the budget to $1,300,000. That new budget takes practical effect on March 1st, 2018, even if it is technically the budget for January 1st-December 31st, 2018. HOWEVER, what do you do about the difference between the old fees and the new fees, for January 1st and February 1st which works out to be 1/6th of the $100,000 increase?
Many Strata Corporations make a habit of charging that amount to the Owners, to make sure they are collecting the same amount of cash as they have budgeted for the new fiscal year. If they don’t, then that means that while they have budgeted for $1,300,000 in revenue, they will end up with a shortfall of $100,000 which is reflected on the financial statements. We’ll avoid getting into any more math here, but that is the gist of the reason why retroactive fees are somewhat common., i.e. to make the annual revenue equal to the budgeted operating expenses.
The problem is, retroactive fees are likely contrary to the Strata Property Act. This has long been Stratawest’s position- something we have relayed to many clients but previously without the weight of an actual legal ruling to support our view. Now however, there has been an important ruling by the Civil Resolution Tribunal finding retroactive fees to be contrary to SPA. You can read more information about the decision here: https://www.bcli.org/crt-roundup-strata-fees-rental-restrictions-bylaw-enforcement-and-nuisance and you can read the full ruling here: https://www.canlii.org/en/bc/bccrt/doc/2018/2018bccrt37/2018bccrt37.html#par42
There are many practical implications from this ruling, and a variety of concerns raised in it (for example, the author points out that it would be impossible to collect the retroactive portion of the budget to an Owner who has sold during the interim period between when the old budget expired and the new one was adopted). While the CRT does not technically set “precedent” in the traditional legal sense, we have seen several lawyers recommend to clients that they discontinue the practice of charging fees retroactively. We strongly encourage any strata corporation that is currently utilizing this practice to seek independent legal advice on whether they should be doing so.
There are a number of options available to strata corporations to avoid the problems associated with this pragmatic dilemma. All of them have upsides and downsides, and we don’t profess to have one size fits all answer for clients. Some of the options, including benefits/drawbacks include:
- Holding the AGM before the fiscal year end. The benefit is that you entirely avoid this problem- you will always be collecting exactly what you budgeted. The downside is that your budget is going to be less accurate in another way- you’ll be basing it on projections of what you will spend/earn over the fiscal year, rather than basing it on the actual numbers at the end of the year (this is the main reason why strata corporations often defer their AGM until after the year end);
- Hold the AGM at the same time every year. The benefit is that you will have consistent cash flow (i.e. 1/12th of your new budget will be collected each month, for a 12-month period, until the new budget takes effective a year later). The drawback is that your financial statements will look as though you are behind on your projected revenue for the strata fee line item, which is true, but keep in mind that if your AGM is held at a consistent time your actual cash flow will remain steady over the 12 months between your AGMs;
- Continue to charge fees retroactively. The benefit is that you will have the advantage of holding the AGM after the year-end (your budget will be more accurate) and your revenue line item will match what you actually collect. The drawbacks include this being contrary to SPA and likely to be challenged now that there is case law on the books, as well as the accounting costs firms charge clients for the work associated with adjusting a budget twice (once to collect the retroactive fees, and once again to set them at their new level).
This is a very technical article and we have simplified things considerably to try and make it as applicable as possible across the board. Each strata corporation will experience different nuisances to this issue, and again we encourage you to consider legal advice if you intend to continue to charge fees retroactively. Most importantly, we encourage you to discuss with your Property Manager the various options available to you. No single option is going to work in every circumstance and, as noted above, there are going to be drawbacks no matter which approach you decide to take.
All that being said, nothing is set in stone and these decisions are revisited on a yearly basis when the AGM date is set, and a new budget established.