Condo Smarts column: A strata council spends reserve fund on a non-emergency

What happens when a strata council spends all of the contingency funds on an unauthorized project, and then members of the council defend themselves by calling it an emergency?

Our strata council decided that our fences needed to be replaced.

In a 66-unit townhouse complex, that ended up being more than $100,000 worth of fencing, gates, dividers and painting – and it wiped out our reserves.

The owners were aware that our fencing had reached its life expectancy, but we assumed council would set up some basic specs, tender out the contract and get at least three or four bids for a fixed price, and then the owners would be able to vote on the approval of the contract at a special general meeting.

You will be surprised to find out that not only did they not take any precautions, they just issued instructions to a company to go ahead with the fence replacement without any fixed pricing or written agreement for the construction.

A group of owners has set up a construction committee, and estimate that so far we have paid more than double what the cost should

have been on materials alone. Council’s reply to the owners was that this was an emergency to protect the safety of our children, and that under the Strata Property Act, they could just go ahead.

Four months had passed by the time we had a petition and meeting to remove council, by which time most of the work was done, the bills were paid and there wasn’t even any money held back for deficiencies or other problems.

Council said their lawyer told them it was up to them to decide what an emergency was. Can the council really do this?

Barbara F., Surrey

Dear Barbara: A strata corporation is a business that is of significant value with operating budgets and reserves that match many mid-sized companies in Canada.

As a result, it is critical that we apply basic standards to our business practices to protect the interest of our owners and to comply with the legislation.

Your complaint is sadly not uncommon. Strata council members frequently take misdirected advice or misunderstand the advice and get themselves into serious trouble.

We have to acknowledge that strata councils are volunteers, and many councillors have little experience in business or administration of a corporation.

Owners within strata corporations also need to play a role in the operations of their strata corporations and not simply dump the load on the reluctant elected council each year.

Many strata corporations have adopted very clear business bylaws to ensure reasonable administration of the strata. The bylaws include limits on expenses, the requirement for technical specifications of all projects over a certain value, along with a fair-tendering process and mandatory written contracts to confirm material costs, labour costs and the terms and conditions of the contracts.

In addition to fudged emergencies, cost overruns for lack of administration or uncontrolled change orders are often reported as causing a problem.

An emergency should not be determined just because you do or do not have the money available in the contingency fund.

Would your council have contracted the service if you had only $5,000 left in your reserve funds?

Probably not, as they would have needed owners to approve a special levy.

Just having the money in the reserve does not mean the council has the right to spend it.

Genuine emergencies should not be overlooked.

The Strata Property Act defines an emergency as follows: “(98) if there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage, whether physical or otherwise.”

For example, a pipe burst, boiler failure, a limited deadline for a court response or filing deadline, broken windows, storm damage, elevator failure, or any sudden incident that requires the strata council to act quickly to protect your investment and safety, are real emergencies.

When four months pass from the order for the work and the installation, the test of “immediate” is almost an impossible argument to make, especially when council had the opportunity to seek the owners’ approval and perhaps obtain their direction on the project.

Source: The Victoria Times Colonist