Dear Tony: Our strata has had an insurance deductible of $100,000 for several years due to a number of claims and the inability to approve a resolution to replace our piping.
In November, we had another claim over $100,000. In one of your articles, you indicated the strata corporation could levy that amount to the owners without approving a three-quarter vote at a general meeting.
Our property manager and president told the council we either had to pay this amount from our contingency fund or call a meeting, and they paid the amount from our contingency fund without a vote of the strata council.
We are concerned about the significant reduction of our reserve funds, because we would not have any funds to pay for emergencies that are not insurable. Who has the authority to make these decisions?
Decisions that relate to bylaw enforcement, major expenses, selection of contractors, when general meetings are called, the agenda and resolutions of general meetings, the recovery or back charging of damages and insurance deductibles, and when a strata decides to levy owners for an insurance deductible are all decisions of the strata council by majority vote.
It is critical that the decision is voted on and minuted, as the decision will delegate authority to the strata manager to act on your instructions. In the event of an action to recover a deductible, or proceed with further bylaw enforcement — such as a tribunal or court application — the decision and minutes provide valuable evidence of the actions and authority of the strata council and the strata corporation.
There is more than one benefit to the owners when you issue a special levy for an insurance deductible, in addition to reducing the pressure on your reserve fund: Owners are in a position to apply their share of the insurance deductible to their homeowner policies if they qualify.
This is one of the many reasons we recommend homeowners purchase condo insurance. Unfortunately, we have created a culture in strata corporations where owners and tenants assume the strata corporation takes care of everything.
In addition to neglecting their personal insurance obligations, condo owners often exhibit the same behaviour in use of energy. We still commonly hear from owners that they use their gas fireplaces 24 hours a day to heat their units, as the gas is paid by the strata, resulting in excessive energy consumption and fuel costs for strata corporations.
In your strata, the insurance claim resulted from a failed pipe that damaged five units, and the damages were $138,000.
The $100,000 deductible applies as a common expense of all owners based on unit entitlement. Your options for payment are your operating fund, the contingency reserve fund or a special levy for owners.
If a strata corporation does not have sufficient cash flow, it will have no choice but to levy the owners. The special levy of $100,000 is approved by a resolution of the strata council at a council meeting. As with all levies, there must be a due date for payment and it must include the purpose of the levy (payment of an insurance deductible) and the method of calculating payments, which is unit entitlement, the same formula applied to all common expenses, such as strata fees.
The strata corporation/manager then manages a collection process, as with any special levy. Owners could have liens applied to their units if they fail to pay the amount.
Because this is a special levy, your strata corporation must also report this account separately as part of your fiscal year-end reports.
When in doubt about who has authority to make decisions, always err on the side of inclusion and bring the matters to council.
Tony Gioventu is executive director of the Condominium Home Owners Association.