Summary of the Shores Decision: Questions, Options & An Update

Summarized by John McDougall
CCI South Alberta Chapter Vice President
Managing Partner, Scott Venturo LLP

In October 2012, the Alberta Court of Queen’s Bench issued its decision in Maciejko et al v. The Owners: Condominium Plan No. 9821495 (the “Shores” decision). The case dealt with a bareland condominium with townhouses that operated in what I would say is the “usual” bareland fashion. That is, the condominium units were marketed as “care free” and the bylaws contained a definition of “managed property” which the Corporation was responsible for maintaining. There was a Restrictive Covenant registered on individual unit titles that confirmed that fact. The Corporation had been collecting reserve fund assessments for the reserve fund, which included the maintenance of the managed property.

Without going through the mechanics of the entire decision, suffice it to say the Court concluded two major issues:

1. The bylaws and Restrictive Covenant were upheld – a bareland Condominium Corporation can be charged with the responsibility and obligation of maintaining what was defined as “managed property”; and

2. The Condominium Property Act was clear that reserve funds and the collection of fees for same was exclusively for common property and there can be no pre-collection of funds to be put into a reserve fund for managed property.

The Judge giving the decision was obviously unhappy in doing so as several pages of the decision are devoted to what he calls “the worst possible outcome from a business point of view” and he only suggests a change in the bylaws to a true bareland scenario or legislative amendment as the possible alternatives to the problem at the Shores, and presumably, other condominiums in the same position.

Not only has the Shores decision caused confusion and was appealed, it left lawyers in a situation of not being able to answer very appropriate questions posed from bareland condominium boards in the same position as the Shores, namely:

• Should bareland condominiums continue with collection of fees for the reserve funds (and if they do, could they be personally liable for doing so given they know about the Shores decision)?

• Can boards use the money in the reserve fund for expenses this year?

• Should the money that is in the reserve fund be paid back to the owners given it was collected improperly (and to whom, if there has been a change in ownership of units)?

The Government became aware of the problem that the Shores decision gives rise to, and indicated it would rectify that problem with an amendment to the legislation. It was not clear initially whether the legislative change would be by a “miscellaneous amendments” Act or to the Condominium Property Act when it is amended completely. While the miscellaneous legislation amendment would be quicker, it was not known when it would occur. Similarly, it was not known when the appeal of the decision would be heard, or what its outcome might be.

A number of options dealing with the Shores decision were discussed amongst condominium lawyers, and they were:

1. Amend the bylaws to true bareland bylaws as suggested by the Judge in Shores;

2. Amend the Condominium Plan to a conventional plan from a bareland plan;

3. Apply to Court for a stay of the Shores decision as it applies to a particular bareland condominium;

4. Do nothing and continue as before until someone challenges it.

There were numerous condominiums that did request lawyers to apply to the Alberta Court to have the decision in Shores revisited and perhaps stayed, however that was ultimately unnecessary as the Government made good on their promise to amend the legislation. On May 6th 2013 the government tabled bill 24 which amended Section 38 of the Condominium Property Act to provide as follows:

1(1) The Condominium Property Act is amended by this section.

(2) Section 38 is amended

(a) in subsection (1) by striking out “and” at the end of clause (a), by adding “and” at the end of clause (b), and by adding the following after clause (b):

(c) any property of an owner in respect of a bare land unit that the corporation is required by bylaw to repair and replace,

(b) by adding the following after subsection (1):

(1.1) If, before the coming into force of subsection (1)(c), a corporation was required by bylaw to repair and replace property of an owner of a bare land unit, the collection and expenditure of funds to repair and replace that property are valid if

(a) the collection and expenditure occurred on or after the date the bylaw took effect under this Act, and

(b) the collection and expenditure would have been incompliance with subsection (1) if subsection (1)(c) had been in force at the time the collection and expenditure occurred.

The bill passed all three required readings in the first week it was introduced and then received royal assent and was proclaimed to become law on May 27th 2013. The amendment effectively solved most of the problems associated with the Shores decision listed above. It should be noted that the amendment does not resolve ALL issues dealing with the Shores decision. The amendment deals with property in respect of “bare land units” rather than all property that the bylaws require a condominium to repair manage and maintain. There could be issues where conventional condominiums are required to pre-collect money in a reserve fund for property that is not caught by the new amendments. Perhaps this will be dealt with when the entirety of the Condominium Property Act is amended through the review process that it is currently underway.