Debt Collection and Strata Corporations: An Introduction
Strata corporations are, at their core, non-profit entities which often have little room in their budgets to absorb unforeseen costs. If a strata corporation does not take steps to collect the debts owed to it, the owners end up collectively bearing the burden of those debts.
There are a number of ways in which a person may become indebted to the strata corporation:
- an owner may be in arrears of strata fees or special levies;
- if an owner has contravened a bylaw, they may owe money for a fine;
- unpaid user fees, if the strata corporation’s bylaws provide for them;
- administrative fees charged to an owner;
- contractual obligations from contracts entered into with the strata corporation.
Why Does a Strata Corporation Need to Worry about its Debts?
It is important that a strata corporation stay on top of collecting the debts owed to it for a number of reasons.
- Strata corporations are, at their core, non-profit entities which often have little room in their budgets to absorb unforeseen costs.
- It can be difficult for strata corporations to borrow money to make up for budget shortfalls flowing from debts owed to the strata corporation.
- The ultimate solution for budget shortfalls due to uncollected debts is the assessment of a special levy against the owners in the strata corporation.
One way or another, if a strata corporation does not take steps to collect the debts owed to it, the owners end up collectively bearing the burden of those debts.
Collection of Debts
The strata corporation collects debts in different ways depending on the nature of the debt.
Unpaid Strata Fees or Special Levies
The Strata Property Act provides extreme powers when the debt is unpaid strata fees, special levies, or any interest charged on those amounts. These are typically described as ‘lienable debts’ because they must be secured by a Certificate of Lien registered on title of a strata lot before court action to collect the debts is taken. Once a Certificate of Lien is registered, the Strata Property Act permits the strata corporation to apply to the British Columbia Supreme Court for a judgement that the debt is owed and an order for conduct of sale of the strata lot.
Unpaid Bylaw fines
The strata corporation may collect debts for unpaid fines for bylaw infractions charged pursuant to the strata corporation’s bylaws through a Civil Resolution Tribunal (“CRT”) proceeding. It is crucial that the strata corporation prepares the claim as a strata dispute.
Unpaid User Fees, Move-In or Move-Out Fees, Administrative Fees (such as NSF Fees)
The strata corporation may collect debts for unpaid user fees charged pursuant to strata corporation’s bylaws or rules through a CRT proceeding. It is crucial that the strata corporation prepares the claim as a strata dispute.
Unpaid Contractual Debt
The strata corporation may collect debts related to contractual obligations through either:
- a CRT small claims proceeding,
- an action for debt at the BC Provincial Court, or
- the BC Supreme Court.
The appropriate venue for the claim depends on the amount of the debt. A CRT small claims proceeding can award a maximum of $5,000. A proceeding at the BC Provincial Court can award a maximum of $35,000. A proceeding at the BC Supreme Court does not have a limit on the maximum amount of money that can be awarded.
Processes for Collecting Debts
Either the strata corporation or the strata council is responsible for authorizing the collection of debts, depending on the type and method of collection.
Authorization for Collecting Unpaid Strata Fees or Special Levies
Decisions from the courts have repeatedly confirmed that proceedings enforcing payment of debts secured under a Certificate of Lien, such as unpaid strata fees, special levies or any interest charged on those amounts, do not require authorization of the owners by a ¾ vote resolution. Instead, this type of proceeding must be authorized by the strata council.
Authorization for CRT Proceedings
The Strata Property Act does not require a ¾ vote resolution to authorize CRT small claims or strata dispute proceedings. Instead, these types of proceedings must be authorized by the strata council.
Authorization for Other Court Proceedings
Generally, a ¾ vote resolution of the owners is required before the strata corporation can begin a proceeding at the Supreme Court or Provincial Court, including a Provincial Court small claims proceeding. However, there may be an exception to this requirement for proceedings at the Provincial Court under the Small Claims Act if your strata corporation’s bylaws specifically dispense with the ¾ vote requirement.
Time Limits on Collection of Debts
The basic 2-year limitation period established under the Limitation Act applies to debts owing to the strata corporation. Fundamentally, the strata corporation has a 2-year period in which it can collect a debt which is owed. If the strata corporation fails to begin collection proceedings, the right to collect the debt will expire and the strata corporation will potentially be barred from collecting of debt.
A recent decision from the BC Supreme Court has specified that the 2-year limitation period applies to the collection of lienable amounts secured under a Certificate of Lien. The court said that a strata corporation must begin forced sale proceedings within 2 years of the filing of the Certificate of Lien for arrears owed to the strata corporation.
The strata corporation must be proactive in collecting the amounts owed to it to avoid the expiry of the limitation period.
The strata corporation may be owed debts from a variety of sources.
The strata corporation must take steps to collect its debts. The owners bear the cost of the strata corporation’s failure to collect on its debts.
The way in which a strata corporation can go about collecting its debts depends on the nature of the debt. Authorization to begin debt collection procedures will vary depending on the method used to collects the debt.
If you are a strata council member or strata property manager and need advice or have questions on the collection of debts owed to the strata corporation, please contact a member of the Reed Pope Strata Law Group.