Dear Tony: We live in a 16-unit strata corporation that has two commercial units and 14 residences. It is divided into two separate sections, created by the developer for the commercial and residential sides.
Our management company has updated us on the requirements of their contact obligations with respects to managing the strata and having separate contracts and service agreements for the sections, and all 16 owners have come to realize that there is no need for us to have separate sections. We do not have any exclusive uses of property or expenses that are separate nor any separate bylaws, and all of our expenses are common. In reading your column a week ago, we realized that we can 鈥渄e-sectionize,鈥� provided all the sections and the strata corporation agree by three quarters vote.
Could you provide us some direction on how to proceed with the transition?
Fred Wolf
Dear Fred: CHOA is preparing to publish an article on the process of cancelling sections and some of the pitfalls to watch for in the process.
Elaine McCormack, a lawyer with Alexander Holburn LLP, provides some valuable insight about the process, and the lawyers in the province who have helped strata corporations adopt bylaws to create sections will be a good resource in assisting you with using the correct procedure to cancel your sections.
As McCormack puts it: 鈥淭he main attraction to having sections is that they allow for a certain amount of independent decision making and financial separation. For instance, owners within a section have their own section executive and can vote on and file bylaws for matters that relate solely to the section.
鈥淔or some strata complexes, the added time and expense involved in running sections outweighs the benefits. Having sections means extended administrative time, extra expenses and more complicated governance that may not be required.鈥�
The creation and cancellation of sections is a provision under the Strata Property Act. While the act sets out the basic requirements for the bylaws, the unravelling of the business can be much more complicated.
Drafting the resolutions is only one of many tasks that need to be accomplished in order to properly cancel sections. The cancellation of sections also likely involves transferring the assets (money and property) and liabilities (debts and service agreements) of each section to the strata corporation.
McCormack advises: 鈥淚n addition to the resolutions to amend the bylaws, each section should enter into an agreement (referred to as a succession agreement) with the strata corporation. The succession agreement carefully sets out the process and timing for transferring the assets and liabilities of the section to the strata corporation.
鈥淓xamples of assets that need to be transferred are the operating fund, contingency reserve fund and monies owing to the section, such as strata fees and special levies.
鈥淎n example of a liability that needs to be paid prior to the cancellation of the section or transferred to the strata corporation is a repair expense incurred by the section.鈥�
Don鈥檛 be afraid to get legal advice. Think of it as un-divorcing and remarrying. How complicated could that be?
听
Tony Gioventu is executive director of听the听Condominium Home Owners鈥� Association. The association鈥檚 website is www.choa.bc.ca.
Email: [email protected]
