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The Lay of the Land DEVELOPMENTS IN CANADIAN REAL PROPERTY LAW

BCCA Considers What Constitutes a “Habitable Area” in Determining Strata Unit Entitlements

Posted in Policy
Connor Bildfell

Introduction

 

The allocation of a strata corporation’s expenses among owners can create friction, especially when the method of calculation is seen by some owners to be unfair, inconsistent, or inequitable. This is precisely the scenario that arose in Barrett v. The Owners, Strata Plan LMS3265,[1] a case in which the B.C. Court of Appeal considered what constitutes a “habitable area” in determining unit entitlements, as well as the law on inaccurate schedules of unit entitlement.

Unit Entitlements

Unit entitlements govern, among other things, a unit owner’s proportionate share of the common expenses of a strata corporation. Under the Strata Property Act,[2] a schedule of unit entitlement must be filed when a strata plan is deposited in the Land Title Office.[3]

For residential strata lots, one of the ways in which unit entitlement may be determined is by reference to the unit’s “habitable area”.[4] “Habitable area” is defined in s. 14.2 of the Strata Property Regulation[5] (the “Regulation”) as “the area of a residential strata lot which can be lived in, but does not include patios, balconies, garages, parking stalls or storage areas other than closet space”.

Where the actual habitable area of a unit is not accurately reflected in the schedule of unit entitlement, an owner or the strata corporation may apply to the B.C. Supreme Court for an order that the schedule be amended.[6] However, under s. 14.13(a) of the Regulation, this remedy is available only where the inaccuracy was not contained in the schedule of unit entitlement as originally deposited.

Facts

In the late 1990s, an 80-lot residential development was constructed in Surrey. At the time, many units had either an unfinished basement or an unfinished loft. When the strata plan was deposited, unit entitlement was purportedly based on the size of the unit’s habitable area and was recorded in an accompanying schedule of unit entitlement (the “Schedule”). As stated in a disclosure statement relating to the property, “non-living areas such as garages and unfinished basements and loft[s]” were not included in the calculation of habitable area.[7]

Over time, many (but not all) of the basements and lofts were finished, but the Schedule was not updated to reflect the resulting changes in the habitable area of affected units. This caused a stir: certain owners who had neither basements nor lofts felt they were bearing a disproportionately high share of the strata corporation’s expenses, as the habitable area of other owners’ units was being understated.

After the strata owners passed a resolution approving a special roof replacement levy and allocating the cost in accordance with the existing Schedule, several disgruntled owners brought a petition seeking orders:

  1. amending the Schedule so as to have unit entitlement calculated on the basis of the total square footage of each unit (including basements and lofts); and
  2. varying the resolution.

B.C. Supreme Court Decision

The Supreme Court found that the actual habitable area of the units was not accurately reflected in the Schedule. The Court considered the definition of “habitable area” in the Regulation and found there to be no dispute that finished basements and lofts fell within that definition. The remaining question was whether unfinished basements and lofts also fell within that definition. Relying on Fenwick v. Parks,[8] an earlier B.C. Supreme Court decision, the Court answered this question in the affirmative.

Consequently, the Court held that the actual habitable areas of units were not accurately reflected in the Schedule in two respects:

  1. finished basements and lofts were not included; and
  2. unfinished basements and lofts were not included.

The Court then turned to whether these inaccuracies were contained in the Schedule when the strata plan was first deposited. The Court reasoned that the first inaccuracy did not exist at that time, as the basements and lofts were then unfinished. By contrast, the second inaccuracy did exist when the strata plan was deposited. Accordingly, while s. 14.13(a) of the Regulation did not preclude relief in respect of the first inaccuracy, it did prevent relief in relation to the second.

In the result, the Court ordered that the Schedule be amended to include the areas of the finished basements and lofts in the calculation of habitable area. The strata corporation appealed.

B.C. Court of Appeal Decision

The Court of Appeal first considered what constitutes a “habitable area” in determining unit entitlement. It expressly adopted the interpretation offered in Fenwick: “habitable area” means “that area within a residential strata lot which can, could or is capable of being lived in … free of serious defects that might harm health and safety”.[9] Observing that the statutory definition excluded external areas such as patios, balconies, parking stalls, garages, and storage areas other than closet space (which is located indoors), the Court also endorsed the notion that habitable area encompasses “all space located within a strata lot that is reasonably available for habitation, regardless of its present use, finishings or level of development.”[10] Thus, in short, a habitable area is simply an area within the unit that could be inhabited, not necessarily one that is actually inhabited.

While the Court of Appeal confirmed that the Supreme Court had correctly adopted the interpretation of “habitable area” set out in Fenwick, it ultimately found that the Supreme Court had erred in its application of that interpretation. Noting the Supreme Court’s conclusion that the actual habitable area of the units was not accurately reflected in the Schedule in two separate respects—(1) finished basements and lofts were not included and (2) unfinished basements and lofts were not included—the Court of Appeal stated that it was unclear why the Supreme Court had found that different levels of finishings created separate inaccuracies in the Schedule. There was but a single inaccuracy: basement and loft areas, whether finished or unfinished, had not been included the calculation of habitable area. Further, this inaccuracy was contained in the Schedule when the strata plan was deposited. It followed that s. 14.13(a) of the Regulation was engaged, and therefore no amendment to the Schedule could be ordered.

In the result, the Court of Appeal allowed the appeal and dismissed the petition.

Takeaways

Barrett provides valuable guidance on the meaning of “habitable area” for the purpose of determining unit entitlement. It may come as a surprise to some that areas such as unfinished basements and lofts are, in this context, habitable areas. Nonetheless, this interpretation is considered to be consistent with the objects of the statute, which include promoting consistency, fairness, and equity among owners. As the Court of Appeal in Barrett observed, “it would not be reasonable to allow an owner to dictate the habitable area of a strata lot by his or her choices on its present use, finishings or level of development. This is so at least in part because the value of a strata lot includes its potential and many uses, finishings and improvements may be possible for similar interior spaces”.[11]

Further, in circumstances where there are one or more inaccuracies in the schedule of unit entitlement, Barrett underscores the importance of determining whether those inaccuracies were contained in the schedule when the strata plan was first deposited. If so, relief under the Strata Property Act in the form of an amendment to the schedule cannot be sought.

If you have any questions about how this decision may affect your business, please feel free to contact one of our lawyers in the Real Property & Planning Group.

[1] 2017 BCCA 414 [Barrett].

[2] S.B.C. 1998, c. 43.

[3] Ibid, s. 245.

[4] Ibid, s. 246(3)(a)(i).

[5] B.C. Reg. 43/2000.

[6] Strata Property Act, ss. 246(7)–(8).

[7] Barrett at para. 7.

[8] 2004 BCSC 1132.

[9] Barrett at para. 47.

[10] Ibid [emphasis in original].

[11] Ibid at para. 48.