Canada: There's An Exception To Every Rule: Navigating Rental Exemptions Under The Strata Property Act

Tranquility Estates is a 180-unit residential strata corporation in Vancouver, British Columbia. Five years ago, the Tranquility owners passed a rental restriction bylaw, limiting strata lot rentals to 10. Since passing the bylaw, however, the community has been far from tranquil. Several owners have claimed entitlement to rent under the Rental Disclosure Statement. Others have alleged hardship, or claimed that the rental restriction bylaw does not apply to them. The Council wondered: if there's an exception to every rule, can there be an exception to a rental restriction bylaw?

The Laws of the Land

Living in a strata corporation means living with certain laws of the land. The Strata Property Act, S.B.C. 1998, c. 43 ("SPA") is the principal statute that governs the creation and operation of strata corporations in our province. This SPA operates in conjunction with a strata corporation's bylaws and rules, as well as several other provincial and municipal laws which regulate how persons use and enjoy their properties.

In a kingdom that is a strata corporation, it is the Strata Council (the neighbourhood's proverbial Royal Family), who is first tasked with administering these laws. Strata governance invariably entails regulating all aspects of communal living, from pet noise to drifting smoke, curtain colours to garden gnomes. Although the SPA is silent on such hard-hitting issues as garden gnomes, it is quite comprehensive when it comes to other matters; in particular, rental restrictions, permissions and prohibitions.

To Rent or Not to Rent

The SPA does not permit a strata corporation to prohibit or limit the number of non-residential strata lots that may be rented. However, the legislation does allow strata communities to pass restrictions as they pertain to residential strata lots.

Subject to obtaining the ¾ vote approval of the kingdom, a Strata Corporation can (1) ban rentals of residential strata lots; (2) restrict the number or percentage of residential strata lots that can be rented; and (3) limit the period of time for which residential strata lots may be rented. However, if there is "an exception to every rule", then the SPA is no exception either.

Three Strikes and You're Out

There are three main categories of exemptions that can strike strata lots out of rental bylaw enforcement. These exemptions are conveniently found in the same statutory neighborhood (sections 141 – 144, SPA), so Strata Councils needn't travel far to find them. Despite this convenient location, however, implementing these legislative exemptions can be challenging.

Strike 1 – The Rental Disclosure Statement Exemption

The Rental Disclosure Statement, otherwise known as an "RDS", is one of many documents an owner developer files when creating a strata development. It is also one of the documents the owner developer must supply purchasers before entering into a contract of purchase and sale for a strata lot. The purpose of the RDS is to specify which strata lots (if any) are reserved the right to rent, and the length of time that right applies.

If an owner developer reserves the right to rent any or all strata lots, then the RDS will impact when and if a Strata Council can enforce a rental restriction against certain strata lots. The scope of the rental period exemption largely depends on when the RDS was prepared and filed with the Superintendent of Real Estate, as governed by sections 139 and 143 of the SPA.

If an RDS was filed before January 1, 2010, then its rental bylaw does not apply to an affected strata lot until the earlier of:

1. the date on which the strata lot is conveyed by the first purchaser to a new owner; and

2. the date on which the rental period set out in the RDS expires.

A "first purchaser" means a person who purchased directly from the owner developer, and does not include subsequent purchasers of the strata property. Although these RDS forms were permitted to specify an "indefinite" rental exemption period, the actual time period of the exemption was frequently finite; once the property was sold to a new owner, the rental exemption period provided under the RDS was lifted. This limitation on the rental period exemption is an important one, and one that has changed dramatically for RDS forms filed after December 31, 2009.

If an RDS was filed after December 31, 2009, then its rental bylaw would not apply to the affected strata lot until the date on which the rental period set out in the RDS expires. This exemption not only applies to all first purchasers, but also encompasses all subsequent purchasers, opening the door to a much broader rental period exemption for affected strata lots. However, due to amendments made to the RDS form, an RDS filed after December 31, 2009 must now state a specific expiration date for the rental period exemption to apply; reference to "indefinite" rental exemptions once permitted with pre-January1, 2010 filings is no longer permissible on the new form. When in doubt about the validity of an RDS or the scope of its proposed rental exemption period, the Strata Council should obtain a legal opinion before attempting to enforce its rental bylaw, or exempting an owner from its application.

Strike 2 – The Family Member Exemption

Renting to a "family member" is also exempt from a strata corporation's rental restriction bylaws. However, this exemption does not apply to "all in the family". Under the Strata Property Act, a family member only means the following individuals: the owner's spouse; the owner's parent or child; and a parent or child of the owner's spouse. Rentals in these scenarios are struck out from the application of a rental bylaw, and are also not counted in any tally for permitted rentals under a rental restriction.

Strike 3 – The Hardship Exemption

Last but not least, the SPA allows owners to obtain an exemption on the basis that not renting would cause "hardship". When reviewing an application to rent based on hardship, a Strata Council must act fairly and reasonably in accordance with each Council member's duty of care under section 31 of the Strata Property Act. The Council must not prejudge the issue before the hardship hearing or before reviewing the hardship application. In short, Councils must keep an open mind before closing the door on any rentals.

The test for hardship in a rental scenario was determined by the Supreme Court of British Columbia in the case of Als v. Strata Corp. NW 1067, 2002 BCSC 134. In this case, the Court looked to the dictionary definition of hardship that provides "hardness of fate or circumstance; severe toil or suffering; extreme privation." Whether or not circumstances amount to hardship must be assessed on the facts of each particular case. With that said, the Court has found that an owner's inability to sell a strata lot or potentially sustaining a loss on a sale does not in and of itself establish a case of hardship (Von Schottenstein v. Strata Plan 730 (1985), 64 BCLR 376; Als v. Strata Corp. NW 1067, 2002 BCSC 134).

Playing by the Rules

Regardless of whether your strata community is called "Tranquility Estates", enforcing rental bylaws can be a common source of conflict. Even when rentals are permitted, conflicts can arise regarding how a tenant eventually uses the rental property and common areas. When regulating and restricting rentals in strata communities, a Strata Council must learn to play by the rules and know which rules apply. While there may well be an exception to ever rule, there is no exception to knowing the rulebook.

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