Using the Operating Fund, CRF or Special Levies

For a strata council completing its repair and maintenance obligations, there are three sources that the council can use the funds from: the operating fund, the contingency reserve fund ("CRF"), or directly from the owners by way of special levy. Sometimes the questions arises as to what source should be used for a specific repair item.

The Strata Property Act provides some guidance to this issue with section 92:

Operating fund and contingency reserve fund
92  To meet its expenses the strata corporation must establish, and the owners must contribute, by means of strata fees, to
(a) an operating fund for common expenses that
(i) usually occur either once a year or more often than once a year, or
(ii) are necessary to obtain a depreciation report under section 94, and
(b) a contingency reserve fund for common expenses that usually occur less often than once a year or that do not usually occur.

However, even with this guidance, some strata councils are still struggling with the issue. In four recent cases from the CRT: Stevenson v The Owners, Strata Plan VIS 1419, 2017 BCCRT 70, Woytuik v The Owners, Strata Plan VIS 5970, 2017 BCCRT 3, Kazakoff v The Owners, Strata Plan KAS 880, 2018 BCCRT 12, and Perry v The Owners, Strata Plan LMS 180, 2017 BCCRT 135, this issue was before the CRT.

In Stevenson, the strata corporation had used the operating fund for some of its decking replacement project. In Woytiuk, the strata corporation repaired an underground leak with its operating fund. In Kazakoff, the strata had made alterations to the common property out of the operating fund. In Perry the council had decided that the perimeter fence needed to be upgraded for security reasons and spent over $20,000 on the fence upgrades, part of which came from the operating fund, and the rest from the contingency reserve fund.

In all cases, some owners disputed the use of the operating fund for those expenses.

The Strata Property Act provides guidelines on how to approve the expenditures. However, the Strata Property Act does not provide any penalties or guidance on what to do when the funds are raised incorrectly, or expended from the incorrect fund.

The CRT confirmed that section 97(b) of the SPA that a strata corporation cannot use the operating fund unless the expenditure usually occurs at least once a year. The CRF is for expenses that occur less often than once a year - or do not usually occur. In all cases, the expense of the decking project, the repair of an underground leak and the alterations to common property were all unusual expenses.

However, section 98 of the SPA permits the operating fund to be used even if the expense happens less often than once a years - but the expense must be an emergency expense. In neither case were the expenses for an emergency purpose. Typically, an emergency expense is only an emergency if the strata corporation doesn't have time to call a general meeting to approve the expenditure.

In all cases, what was the remedy for the strata corporation improperly using the operating fund for non-operating fund expenditures?

In Woytiuk, the strata corporation was ordered to follow sections 96 and 98 of the SPA.

In Stevenson, the strata corporation was ordered to call an SGM to approve the CRF expenditures.

In Kazakoff, the strata corporation was ordered to call an SGM to consider funding the expenses from the CRF, by special levy or a combination of both. If the resolution fails, the strata corporation must restore the common property to its original state because it failed to get the 3/4 necessary for significant changes to the common property. The cost of restoring the common property would also be borne by all owners in the strata plan, including the complainant.

Lastly, in Perry the CRT ordered the strata corporation to reimburse the funds by way of special levy that all owners, including the applicant owners, had to contribute to.

In all cases, there were somewhat hollow victories for each owner, as the council was not sanctioned for failing to follow the SPA and the owners were then forced to contribute to a special levy in two cases. Further, many of the owners wanted the individual council members to personally reimburse the strata corporation for the improperly spent funds. This claim was denied because the CRT found no bad faith on the part of the council members.

But these cases do provide guidance on the proper use of the specific funds, and for failing to use those funds properly, the strata corporation can be subjected to explaining its actions to the CRT.

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TAEYA FITZPATRICK Taeya Fitzpatrick has specialized in strata law for most of her practice, has won cases for her clients in the BC Supreme Court, the BC Court of Appeal, and assisted with a client succeeding in defending a Civil Resolution Tribunal claim. Taeya offers full services to a strata corporation or a strata owner from redrafting the strata’s bylaws, collection of outstanding strata fees or other charges, issues with bylaw enforcement, to amending the strata plan. For more information on the services provided, you can reach Taeya by email, phone: 250-763-4323, or at her Web Page.