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Assumptions, Assumptions…

 

by Allison Godey and Nathan Ische

As a condition of rezoning, municipalities frequently require developers to construct various amenities, such as pedestrian walkways, greenspaces and art installations, for the future use and enjoyment of residents of the development and the general public. Developers incur significant costs in fulfilling these obligations and are occasionally burdened with the responsibility of maintaining these amenities in perpetuity.

In order to limit liability and ensure no unexpected costs arise following completion of a development, it is imperative for developers of condominium projects to pass on the cost and responsibility of fulfilling these obligations to the strata corporations that will ultimately benefit from the amenities. Interville Development Limited Partnership v. The Owners, Strata Plan BCS2313, 2019 BCSC 112, highlights the importance of passing on these costs and responsibilities—properly.

Background

The plaintiff in the case, Interville Development Limited Partnership (the “Developer”), was the developer of a large mixed-use development in Vancouver known as International Village, which is comprised of four stratified groups of towers. The defendant, The Owners Strata Plan BCS2313 (the “Strata Corporation”) is the strata corporation of one of the groups of towers known as the Firenze (the “Firenze”). In connection with the subdivision and rezoning of International Village, the City of Vancouver required that the Developer construct and maintain a pedestrian thoroughfare connecting the International Village to downtown Vancouver. The Developer fulfilled its obligation and constructed the thoroughfare, which became known as the Keefer Steps, and entered into an agreement with the City pursuant to which the Developer agreed to maintain the Keefer Steps.

Prior to filing the first strata plan in the International Village development, the Developer entered into a written agreement with itself in its distinct capacity as beneficial owner of each parcel of land comprising the development (the “Cost Sharing Agreement”). The purpose of the Cost Sharing Agreement was to apportion the liability for the ongoing costs associated with the maintenance of the Keefer Steps (the “Costs”) among the owners of the parcels comprising International Village, including all successors in title.

On April 23, 2007, an application to deposit the strata plan relating to the Strata Corporation was filed in the Land Title Office and the Strata Corporation was created. In accordance with the Strata Property Act (British Columbia), the Developer, as the owner developer, had the powers and was responsible for performing the duties of a strata council from the date the Strata Corporation was established until a strata council was elected at the first annual general meeting of the Strata Corporation. The first annual general meeting for the Strata Corporation was held on July 19, 2007. Despite controlling the Strata Corporation between April 23, 2007 and July 19, 2007, the Developer did not cause the Strata Corporation to enter into a written assumption agreement during that period pursuant to which it agreed to assume the Developer’s obligations under the Cost Sharing Agreement or to indemnify the Developer for a portion of the Costs. It was this failure that eventually led to litigation.

For several years after its creation, the Strata Corporation paid a portion of the Costs to the Developer when invoiced. Then, in October 2013, upon its members realizing that the Strata Corporation had never executed a written agreement pursuant to which it agreed to pay the Costs, the members caused the Strata Corporation stop paying the Developer. As the parties could not resolve the dispute outside of court, the Developer commenced an action seeking a declaration that the Strata Corporation was bound to pay a portion of the Costs and judgment in the amount of all unpaid invoices. The Strata Corporation counterclaimed seeking the return of all payments made to the Developer in connection with the Costs.

Arguments and Analysis

The Developer submitted that it entered into an unwritten agreement with the Strata Corporation upon its creation (a time when the Developer controlled the Strata Corporation) in which the Strata Corporation agreed to pay and be liable for a portion of the Costs (the “Apportionment Agreement”). The Developer argued that the disclosure statement provided to each initial purchaser of a strata lot in the Firenze contained the essential terms of the Apportionment Agreement and evidenced the Developer’s intention to cause the Strata Corporation to enter into the Apportionment Agreement upon its creation.

The Strata Corporation submitted, among other things, that:

    1.  the legal principle that positive convents do not run with the land absolves the Strata Corporation of the obligation to pay a portion of the Costs because it was not a party to the Cost Sharing Agreement and it did not subsequently enter into a written assumption agreement;
    2.  any contract between the Strata Corporation and the Developer relating to the Costs must be in writing to be enforceable; and
    3.  since the Apportionment Agreement was not approved by a resolution passed by a unanimous vote at a special general meeting as is required by section 10 of the Strata Property Act(British Columbia), the Apportionment Agreement was not enforceable against the Strata Corporation.

    The Decision

    Ultimately, and somewhat surprisingly given other recent British Columbia decisions, the Court rejected the arguments raised by the Strata Corporation and concluded that, upon the creation of the Strata Corporation, the unwritten Apportionment Agreement was formed, pursuant to which the Strata Corporation agreed to pay a portion of the Costs. The Court declared that the Strata Corporation was and remains legally bound pursuant to the Apportionment Agreement to pay a portion of the Costs and granted judgment in favour of the Developer in the amount of all unpaid invoices. Unsurprisingly, the Strata Corporation has filed a notice of appeal in respect of the decision and it remains to be seen if the Court of Appeal will uphold the judgment or overturn the lower Court’s decision and find in favour of the Strata Corporation.

    Despite the Developer obtaining judgment in its favour, its failure to cause the Strata Corporation to enter into a written and unambiguous assumption agreement resulted in unnecessary and undoubtedly costly litigation. A prudent developer can avoid a similar situation by causing a strata corporation, upon its creation, to enter into a written assumption agreement in which the strata corporation assumes all of the applicable obligations of the developer and indemnifies the developer against all costs, expenses and losses arising out of the strata corporation’s failure to fulfill those obligations. A simple assumption agreement can eliminate uncertainly and significantly reduce the risk of litigation.


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