The B.C. Court of Appeal recently released its decision in Findlay v The Owner, Strata ESP401 ("Findlay") where it states, for the first time, that strata corporations do not have standing to bring a claim against developers on behalf of individual strata unit purchasers for misrepresentation in the developer's disclosure statements. This case involves an issue of statutory interpretation of section 22(3) of the Real Estate Development Marketing Act ("REDMA") and section 171 of the Strata Property Act ("SPA").
In Findlay, a developer corporation of a residential property (the "Developer") converted an apartment building into a strata development. Following the deposit of a strata plan in the Land Title Office, the Developer provided prospective purchasers with brochures detailing information on the development, including the Developer's promise to contribute a specific amount of funds to the contingency reserve fund and to replace the plumbing supply lines, the asphalt parking surface, and the entrance communication system. A disclosure statement filed by the Developer pursuant to s. 14 of REDMA also included these promises. This disclosure statement was signed by the Developer's director in his personal capacity and on behalf of the Developer. The strata corporation alone brought an action under s. 22(3) of REDMA against the director since the Developer was dissolved as a corporation prior to the commencement of the action.
The trial judge found that section 171 of SPA gives the strata corporation standing to bring a representative action on behalf of the individual owners. The trial judge concluded that the language of section 171 indicates that the scope of the capacity of strata corporations to bring representative action under REDMA is quite broad. The court allowed the action by finding that the misrepresentation by the Developer in this case relates to common property and use or enjoyment of strata lots, two areas of representative action allowed under sections 171(1)(b) and 171(1)(c) of SPA.
The decision was appealed to the Court of Appeal of B.C., where the contextual and purposive approach to statutory interpretation were employed to interpret section 171 of SPA and section 22(3) of REDMA. The court found that the trial judge erred by focusing on the meaning of s. 171 of SPA in isolation from s. 22(3) of REDMA. According to the Court of Appeal, REDMA is a consumer protection legislation that is intended to protect purchasers as consumers and to regulate "the marketing of real estate developments and to ensure that purchasers are protected". Further, the wording of section 22(3) of REDMA specifically indicates that a purchaser of a development has a right of action for damages for misrepresentation. Given the legislative intent of REDMA and the specific words of section 22(3), the court concluded that section 22(3) limits standing to initial purchasers of a strata unit who made the purchase directly from a developer. The court, therefore, denied standing to both strata corporations and subsequent purchasers of strata units with respect to misrepresentation claims under REDMA. That being said, the Court stated that this decision did not prohibit those original purchasers from bringing individual actions, or a class action, subject to limitation period issues.
Findlay highlights the limits to the liability faced by developers under REDMA for misrepresentation in disclosure statements. It confirms that only a subset of purchasers, namely those purchasing units directly from the developer, have standing to sue developers in this respect. This case therefore diminishes the possibility of REDMA-based actions being advanced by strata corporations.
From a strata corporation's perspective, therefore, this decision adds yet another incentive, if obligations of the owner developer remain unfulfilled, to take proactive steps and seek legal advice early on with respect to other potentially available remedies (pursuant to the Strata Property Act, Homeowner Protection Act, etc.) and work with the original owners who purchased directly from the developer.
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