Insurance – Condo Flooding Liability 101

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You are the owner of a condo unit. The toilet in the condo unit above you overflows, causing water damage to your ceiling and floor. No, your upstairs neighbour does not have to reimburse you for your $1,000 insurance policy deductible, unless you can prove he was negligent.

“It can be surprising and upsetting for owners to learn that they are responsible for the cost of repairs to their strata lot even though the source of the damage originated in someone else’s strata lot,” the B.C. Civil Resolution Tribunal ruled Wednesday in Zale et al v. Hodgins. “However, in the absence of negligence, nuisance or a specific bylaw making owners liable for damage that originates in their strata lots, the applicants and their insurer are responsible for the cost of the damage even though they did nothing to cause it.”

Clayton Zale and Eileen Kelly lived in a condo unit below Mark Hodgins. Overnight on Sept. 2-3, 2017, Hodgkin’s toilet leaked, causing damage to the ceiling and floor of Zale and Kelly’s condo unit. Hodgins reported the leak to the property manager the next day by email. A plumber determined that the toilet’s fill valve and tube needed to be replaced, which the plumber did.

Zale and Kelly made an insurance claim, which the insurer paid. The policy included a $1,000 deductible, which Zale and Kelly paid. They sought to recover the deductible from Hodgins in small claims court.

“On Apr. 17, 2018, [Hodgins’s] adjuster told [Hodgins] that he could expect [Zale and Kelly’s] insurer to claim the cost of the repairs,” B.C.’s small claims court noted. “However, [Hodgins’s] adjuster was of the view that [Hodgins] was not legally responsible for the damage because he was not negligent. [Zale and Kelly’s] insurer eventually abandoned its claim for reimbursement, presumably agreeing with [Hodgins’s] insurer that the respondent was not negligent.”

Zale and Kelly did not claim that Hodgins was negligent. Instead, they relied instead on the condo building’s bylaws, which state that an owner must not use their strata lot in a way that:

  • causes a nuisance or hazard to another person.
  • unreasonably interferes with the rights of other persons to use and enjoy another strata lot.

Zale and Kelly further relied on a bulletin written by a lawyer for the Condominium Home Owners Association (CHOA), which discusses a strata corporation’s responsibility to pay for repairs to a strata lot. In particular, they relied on a statement in the CHOA bulletin that said determining who must pay for repairs is governed solely by a strata’s bylaws. But the tribunal noted that the article does not refer to the responsibility of one unit owner to another when it comes to determining who pays for repair costs.

“I find that the strata’s bylaws that [Zane and Kelly] rely on do not apply to this dispute,” the B.C. Civil Resolution Tribunal found. “The strata’s bylaws govern the ways that the respondent can use his strata lot. In other words, they govern his behaviour. The strata’s bylaws do not govern whether the respondent has to reimburse the applicants for damage that originated in the respondent’s strata lot regardless of the respondent’s behaviour.”

The tribunal also shut down the argument that Hodgins owed the claimants the money for their insurance deductible because he caused a nuisance or a hazard to another person. “A nuisance occurs when a person unreasonably interferes with the use or enjoyment of another person’s property,” the tribunal found. “However, if the person is not aware of the problem that causes the interference, and has no reason to know about the problem, they will not be liable because they did not act unreasonably.”

In this case, there was no evidence that Hodgins knew or should have known that the fill valve in his toilet would fail and cause a leak, the tribunal ruled. Hodgins is therefore not liable for the leak.

 

Content curated by canadianunderwriter.ca / David Gambrill

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STRATA ALERT: RECOVERING LEGAL COSTS FOR CIVIL RESOLUTION TRIBUNAL DISPUTES

The Owners, Strata Plan VR293 v. Bains 2019 BCCRT 504

The Civil Resolution Tribunal is now the forum for the resolution of many strata-related disputes. The decisions from the Tribunal usually do not consider the parties’ legal expenses. The Tribunal’s rules set out that these are not recoverable except in “extraordinary cases”. This applies to few cases involving stratas.

The recent decision of The Owners, Strata Plan VR293 v. Bains 2019 BCCRT 504 sets out an interesting exception to this rule which stratas and property managers should be aware of. Stratas may, in fact, recover some or all of their legal expenses with the proper bylaw provisions and carefully following the requirements of the Strata Property Act.

Although legal representation is normally not allowed at the Tribunal, stratas often incur expenses by having lawyers draft correspondence, review documents or provide other advice and support during a strata conflict.

Bains considered a dispute between an owner and a strata concerning unauthorized alterations to the owner’s lot. The dispute resulted in $13,400 in bylaw infraction fines. The owner counterclaimed for lost rent due to unfair treatment by the strata. The strata had the following provisions in its bylaws:

24.2 An owner is liable for the contravention of the bylaw by his or her tenants, invitees, licensees or visitors and is liable for all costs or expenses incurred or expended by the strata corporation in correcting, remedying or curing such infractions or violations and the same shall be charged to that owner…

24.3 An owner, shall be liable for and indemnify the strata corporation for any legal and administrative expenses, including legal costs on a solicitor and own client basis, incurred or expended by the strata corporation as a result of such infraction or violation or of its having to enforce these bylaws and rules

The Tribunal found that it was appropriate to allow the strata to recover its legal expenses related to its claim for the fines. Sections 121 and 123 of the Civil Resolution Tribunal Act allow the Tribunal to award money owed under a strata bylaw – including legal expenses.

However, it was not clear what expenses were related to the strata’s claim versus the respondent’s counterclaim. The expenses related to the counterclaim were not recoverable. The Tribunal awarded the strata half of the approximately $11,500 in legal expenses on the assumption that the expenses were equally related to both parties’ claims.

Stratas should review their bylaws to ensure they include similarly effective provisions. Stratas should also carefully document the expenses they incur in attempting bylaw enforcement. Residents in breach of bylaws should be notified that the strata will seek to recover its enforcement costs.

The reasoning in Bains does not prevent a strata from pursuing a claim for enforcement costs with the Tribunal even if the underlying dispute is resolved beforehand. A strata could even argue it should recover expenses related to pursuing the enforcement costs.

This could make resolving some bylaw enforcement disputes at an early stage much easier. Residents will share the strata’s interest in resolving the dispute if they are concerned they may be fully responsible for a large legal bill.

We expect this topic will be considered in many more Tribunal decisions in the near future.

 

Robert A. Mallett, Associate Lesperance Mendes Lawyers
Phone: 604-685-3560

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STRATA ALERT:

BC COURT OF APPEAL CONFIRMS THAT CORPORATE FURNISHED RENTAL BUSINESSES ARE NOT GRANDFATHERED FROM RENTAL RESTRICTION BYLAWS

HighStreet Accommodations Ltd. v. The Owners, Strata Plan BCS2478, 2017 BCSC 1039

There has been some confusion about whether rental restriction bylaws apply to corporate furnished rentals, typically known as “executive stay” businesses.  This confusion arises in part from the BC Provincial Court’s decision in The Owners, Strata Plan VR 2213 v. Duncan & Owen, 2010 BCPC 123, which held that an executive stay company was not required to complete a Form K or pay a move in fee each time the company rented out a unit to one of its clients. The Court reached this conclusion based on the peculiar wording of that strata’s bylaws, and its decision that the company’s clients were “occupants” and not tenants.

HighStreet Accommodations is a high profile executive stay company that leases strata lots from owners and then uses them as short-term furnished accommodation for executives. Although HighStreet’s operation is a short-term rental business, HighStreet’s contracts usually form a minimum of one month. In that respect, HighStreet’s business differs from Airbnb and other typical short-term rentals.

The strata corporation, in this case, had amended its bylaws to prohibit any strata lot from being occupied under a “lease, sublease, contract, license or any other commercial arrangement for periods of less than 180 days”.

HighStreet argued that it was grandfathered from the new bylaw because it was an existing tenant and had occupied the strata lot at the time the bylaw was passed. Existing tenants are grandfathered and exempt from new rental restriction bylaws under s. 143 of the Strata Property Act, which says that when a strata corporation passes a bylaw that prohibits or limits rentals, the bylaw does not apply to a strata lot until the later of:

  • one year after the tenant who is occupying the strata lot at the time the bylaw is passed ceases to occupy it as a tenant; and
  • one year after the bylaw is passed.

The purpose of this exemption is to allow owners a grace period to get their affairs in order after a rental restriction is passed.

The strata and its property management company disagreed with HighStreet’s interpretation of s. 143 and ultimately applied to the Supreme Court for a determination on the issue. The Court found that s. 143 of the Act only exempted existing tenants at the time a new rental restriction was passed and did not exempt the occupancy of strata lots through licensing arrangements like HighStreet’s executive stay business. The Court also found that only tenants who actually occupy a strata lot at the time the bylaw is passed can benefit from the exemption in s.143 and that HighStreet had never occupied the strata lot.

On appeal, HighStreet argued that to legally “occupy” a strata lot does not necessarily require the tenant to physically occupy the strata lot. The Court of Appeal looked at the legislative intent behind the exemption in s.143 and the ordinary meaning interpretation of the word “occupy” in the context of that provision in the Act.  It concluded that the grace period exemption in s.143 only applies to a tenant who physically occupies the strata lot when the new bylaw is passed, whether that tenant is an individual or a corporation. If it were otherwise, then an individual owner could defeat the collective will of the strata ownership by renting a residential unit to a company like HighStreet who would then be free to run an executive stay business from the unit for years to come. In the Court’s view, that interpretation of s. 143 would undermine the true purpose of the exemption.

This decision is a good reminder that bylaws restricting rentals do not work to prohibit Airbnb and other similar uses which are licenses of a unit and not true rentals. The decision will also likely have an impact on executive stay businesses like HighStreet’s moving forward since it’s now clear that any strata corporation will be able to shut down those operations with a properly drafted bylaw.

 

Content curated from lmlaw.ca / April 12, 2019, By Paul G. Mendes and Amanda Magee

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