Developers Have Obligations to the Strata
- Trevor Morley
- May 31
- 4 min read
WHO IS A DEVELOPER OF A STRATA?
The Strata Property Act has a broad definition of a Developer. A single Strata can have multiple Developers and a Developer includes:
The person that owns the land when the strata plan is deposited.
Any person that acquires all the strata lots from the person that owned the land when the strata plan was deposited.
Any person who acquires more than 50% of the strata lots from the person that owned the land when the strata plan was deposited.
Any person who acquires more than 50% of the strata lots from a person that acquired all the strata lots from the person that owned the land when the strata plan was deposited.
The clear intention is that everyone who is materially involved in the development of the Strata is a Developer. This is likely to prevent a ‘genuine’ Developer from avoiding its obligations or accountability for not meeting its obligations by transferring the strata lots to someone else.
However, it is also important to recognize that it is common for a company to be created to be a Developer and then, once all the strata lots are sold, to dissolve that company. Therefore, a subsequent purchaser who believes that a Developer did not meet its obligations may have no Developer to sue to recover their damages.
This problem of a ‘temporary company’ is addressed in part through the Disclosure Statement that needs to be provided to potential purchasers in most situations. The Disclosure Statement needs to state the nature and experience of the developer.
DOES A DEVELOPER OWE A DUTY TO THE STRATA EVEN IF IT AFFECTS THEIR PROFITS?
The Developer of a Strata has a “duty to protect the interests of all unit owners present and prospective as well as the interests of the strata corporation…The developer is not permitted to put its own interest in conflict with theirs” (The Owners, Strata Plan 1229 v Trivantor Investments International Limited, 1995 CanLII 1753, para. 9).
This creates a natural tension, because a Developer creates a Strata for a genuine and appropriate desire to make a business profit but must put the interests of the Strata ahead of their interest in a profit.
The Strata Property Act creates a series of obligations on a Developer that are intended to make it clear to a potential purchaser if a Developer has not met its obligation to the Strata and imposes fines when a Developer fails to meet its obligations. These obligations include:
WHAT POWER DOES A DEVELOPER HAVE REGARDING STRATA MANAGEMENT?
The Developer is required to exercise the powers and perform the duties of a council until a council is elected. However, the Developer does not need to have a council or hold or conduct council meetings. The Developer is also permitted to make decisions for the Strata even when the Developer has a personal interest in a contract or matter that is the subject of that decision.
The reason a Developer can act without a council or holding council meetings is because a Strata is created when the strata plan is deposited and before any strata lots are sold to an Owner. Therefore, there is no one else that would be on the Council.
The reason a Developer can enter into contracts on behalf of the Strata even though the Developer has a personal interest in the contract is because often a Strata is created before the construction or operation of the Strata is completed.
However, this creates two possible significant problems.
The first is that there is no clear ‘break’ for the Developer between their duties before the creation of the Strata and after the creation of the Strata. This can be a problem because before the creation of the Strata, the Developer has no obligation to care about the interests of the Strata. Prior to the creation of the Strata, the Developer has essentially unconstrained freedom to do whatever they believe will generate the most profit or meet their business goals and the Strata Property Act does not apply. However, after the creation of the Strata, the Developer loses that span of freedom and must act as required by the Strata Property Act. It is easy to imagine a situation where a Developer has difficulty understanding that this transition has occurred, particularly when there is no requirement to hold meetings or make minutes of decision.
The second is that there is no transparency for Owners regarding what decisions were made by the Developer or when those decisions were made. Without the requirement to have council meeting there is no formalized decision-making process that is recorded as a record of the Strata. This can create a situation where after the Developer is no longer involved with the Strata, the Owners and Council are unable to understand why certain decisions were made by the Developer.
A DEVELOPER SHOULD BE AWARE THAT THEY ARE BUILDING A STRATA COMMUNITY
The Developer has a significant impact on the viability and time it can take to develop a Strata Community. The Disclosure Statement includes statements that can set the expectations of Owners. The Developer must protect the interests of future Owners and that should create the conditions for a smooth handover to the first Council. However, the fact that a Developer does not need to hold Council meetings or produce minutes can make it difficult for Owners to understand the decisions made by the Developer after the Developer is no longer involved with the Strata.
