Written By David Gruber, Madison Bergen and Samantha Chenatte

Whether a strata corporation has the standing to bring representative Real Estate Development Marketing Act, SBC 2004, c 41 (REDMA) claims on behalf of owners has been a long-standing issue in strata property law. The B.C. Court of Appeal clarified in a recent decision that strata corporations do not have standing to bring representative actions on behalf of owners under the REDMA, effectively shielding developers from REDMA claims by strata corporations.¹ Only the initial purchasers of development units can bring individual REDMA claims against developers.

Facts

A strata corporation, on behalf of the owners of a strata development, brought an action claiming damages for a real estate developer’s misrepresentations in the filed disclosure statement. The action was brought against GPI Developments Inc. (GPI) and one of its directors, Bruce Findlay, in his personal capacity (collectively, the Defendants).

GPI purchased an apartment building containing 44 rental suites and converted it into a strata development (the Property).² In April 2011, GPI filed its strata plan at the Land Title Office and created the strata corporation (the Strata Corporation). GPI also filed the required disclosure statement signed by Mr. Findlay, in his personal capacity, and on behalf of GPI (the Disclosure Statement).³ GPI committed in the Disclosure Statement to make certain improvements to the property, and to contribute $55,000 to the Strata Corporation's contingency reserve fund.

Between May 2011 and December 2011, GPI sold the strata units to individual purchasers (the Initial Purchasers). The Disclosure Statement was incorporated by reference into every contract for purchase and sale with the Initial Purchasers.

When GPI failed to complete the promised property improvements and to contribute to the contingency fund, the Strata Corporation applied to the B.C. Supreme Court seeking damages for the Defendants misrepresentations in the Disclosure Statement. By the time of trial, 13 of the 44 owners were subsequent purchasers of the strata units (the Subsequent Purchasers).⁴ The action raised three main issues: (1) whether the Strata Corporation had standing to commence the claim on behalf of the individual owners; (2) whether the Defendants' made misrepresentations in the Disclosure Statement; and (3) if so, what damages were the Defendants' liable for.

The B.C. Supreme Court's Decision

The B.C. Supreme Court held the Strata Corporation had standing under s. 171 of the Strata Property Act, SBC 1998, c 43 (SPA) to bring a representative action for the individual owners' claims under the REDMA.⁵ The sale of units to the Subsequent Purchasers was found not to be fatal as the Initial Purchasers owned all strata units when the action commenced. Mr. Findlay was personally liable for damages for the Defendants' misrepresentations in the Disclosure Statement.

The B.C. Court of Appeal's Decision

Mr. Findlay appealed the order granting the Strata Corporation standing. The Court of Appeal reversed the decision of the B.C. Supreme Court, finding the trial judge erred in deciding the Strata Corporation could rely on s. 171 of the SPA to advance a representative action under s. 22(3) of the REDMA on behalf of the strata owners.⁶

The Court of Appeal reviewed the principles of statutory interpretation and examined the SPA and REDMA individually, before analyzing their combined effect.

Firstly, s. 22 of the REDMA provides purchasers with a right of action against developers for misrepresentations made in disclosure statements.⁷ A purchaser is defined, in part, as, "a purchaser, from a developer, of a development unit".⁸ The Court of Appeal determined, based on the REDMA's purpose, s. 22 limits a purchaser's right to sue a developer to those who bought their strata units directly from the developer (i.e., the Initial Purchasers).

Secondly, s. 171 of the SPA authorizes a strata corporation to sue as a representative of all owners.⁹ Owners is defined as any person, including an owner developer, with title to a strata lot, which is much broader than the REDMA's definition of "purchaser". In contrast to the REDMA, the Court of Appeal found that, in contrast, the SPA allows a strata corporation to bring a representative action on behalf of all owners, including subsequent purchasers.¹⁰

The Court of Appeal concluded the combined effect of the SPA and REDMA does not provide the Strata Corporation standing to advance a representative REDMA claim on behalf of all owners.¹¹ Section 22(3) claims must be pursued individually by the Initial Purchasers and cannot be brought by the Subsequent Purchasers. The Strata Corporation can only bring representative actions on matters affecting all owners, not just limited to the Initial Purchasers.

Conclusion

This decision marks the first time the B.C. Court of Appeal has ruled on whether a strata corporation has standing to bring representative REDMA actions on behalf of all strata unit owners. This decision clarifies that only an initial purchaser of a strata unit can advance a REDMA claim for misrepresentations in a disclosure statement, eliminating the “back door” by which subsequent purchasers might benefit through a representative action brought by the strata corporation.

If you are planning on developing a strata development, or purchasing a strata unit, and need assistance with protecting your investment, please contact the Bennett Jones Commercial Litigation team.