September 28, 2020

Reform of the Cayman Islands Strata Titles Registration Law

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Screen Shot 2014-10-15 at 2.01.00 PMIn January 2013 the continued its reform of strata titles in the Islands by the publication of the , 2013 and the related discussion paper. The deadline for submission of comments was extended several times from the original March 2013 date and the Commission received comments as late as December, 2013.

  1. The Commission received numerous comments from, among others, strata owners, executive committees, real estate representatives, the legal associations, insurance and banking representatives. The main areas of concern related to the following-

(a)       the variation or termination of strata schemes by the types of resolutions provided for in the amendment by the Government to the Strata Titles (Registration) Law in August, 2012;

(b)      the provisions relating to leasehold strata schemes;

(c)       the provisions which deal generally with the termination of schemes; and

(d)      the methods of collecting arrears of strata fees.

  1. After lengthy consultations in 2014 the Commission now submits for final comments the Strata Titles Bill, 2014. A summary of the main changes which were made to the Bill since the last consultation is contained in an interim report which accompanies the Bill.

The Commission invites comments on the Bill which should be submitted in writing and delivered no later than 31st December, 2014 to the Director of the Law Reform Commission at 4th floor Government Administration Building, by mail to P.O. Box 1999 KY 1-1104 or sent by e-mail to [email protected]

MODERNISATION OF THE REGULATION OF STRATA TITLES IN THE INTERIM REPORT Friday, October 10, 2014

MODERNISATION OF THE REGULATION OF STRATA TITLES IN THE CAYMAN ISLANDS INTERIM REPORT

TABLE OF CONTENTS

INTRODUCTION

RESOLUTIONS OF THE STRATA CORPORATION

COLLECTION OF ARREARS OF STRATA FEES

TERMINATION AND VARIATION OF STRATA SCHEMES

CONVERSION FROM LEASEHOLD SCHEME TO FREEHOLD SCHEME

DISPUTE RESOLUTION

LAYERED STRATA SCHEMES

CONCLUSION

MODERNISATION OF THE REGULATION OF STRATA

TITLES IN THE CAYMAN ISLANDS INTERIM REPORT INTRODUCTION

  1. In January 2013 the Law Reform Commission submitted for public comments the

Strata Titles Bill (the “2013 Bill”) which seeks to reform the regulation of strata titles in the Islands. The deadline for submission of comments was extended several times from the original March 2013 date and the Commission received comments as late as December 2013.

  1. The Commission received numerous comments but the main areas of concern related to the following-

(a)       the variation or termination of strata schemes by the types of resolutions provided for in the amendment to the Strata Titles Registration Law in August 2012 (the “2012 amendment”);

(b)      the provisions relating to leasehold strata schemes;

(c)       the provisions which deal generally with the termination of schemes; and

(d)      the methods of collecting arrears of strata fees.

  1. After lengthy consultations with attorney-at-law Mr. David Ritch who generously gave of his time to assist the Commission in the revision of this complex piece of legislation we now submit for final comments the Strata Titles Bill, 2014 ( the “2014

Bill”). A summary of the main changes which were made to the Bill since the last consultation is the subject of this interim report.

RESOLUTIONS OF THE STRATA CORPORATION

  1. The Strata Titles Registration (Amendment) Law, 2012 was passed by the Legislative Assembly in August 2012 and came into force shortly thereafter. There was at the time, no objection to the revocation of the unanimity requirement under the Law and to the new types of resolutions i.e. special majority and super-majority introduced by the legislation. Section 2 of that Law provided the following definitions for special majority and super-majority resolutions-

“special resolution” means-

(a)       in the case of a strata located wholly or partly in a Beach Resort/ Residential zone, Commercial zone, Hotel Tourism zone or Industrial zone, a resolution passed at a duly convened meeting of its corporation by- (i)    not less than two-thirds of the votes cast at the meeting; and

(ii)       the total of the unit entitlements for the strata lots for which votes are counted for the resolution is not less than two-thirds of the total of the unit entitlements for all strata lots included in the strata; and

(b)      in the case of a strata not located in the zones specified in paragraph (a), a resolution passed at a duly convened meeting of its corporation by-

(i)        not less than three-quarters of the votes cast at the meeting; and

(ii)       the total of the unit entitlements for the strata lots for which votes are counted for the resolution is not less than three-quarters of the total of the unit entitlements for all strata lots included in the strata;

“super-majority resolution” means-

(a)       in the case of a strata located wholly or partly in a Beach Resort/ Residential zone, Commercial zone, Hotel Tourism zone or Industrial zone, a resolution passed at a duly convened meeting of its corporation by- (i)    not less than three-quarters of the votes cast at the meeting; and

(ii)       the total of the unit entitlements for the strata lots for which votes are counted for the resolution is not less than three-quarters of the total of the unit entitlements for all strata lots included in the strata;

(b)      in the case of a strata not located in the zones specified in paragraph (a), a resolution passed at a duly convened meeting of its corporation by-

(i)        not less than nine-tenths of the votes cast at the meeting; and

(ii)       the total of the unit entitlements for the strata lots for which votes are counted for the resolution is not less than nine-tenths of the total of the unit entitlements for all strata lots included in the strata.”

  1. However, after the 2013 Bill, which incorporated the provisions of the 2012 amendment, was submitted for comments, there were myriad complaints, with some persons alleging breach of constitutional and human rights and the retrospective overriding of contractual rights.
  1.      The Commission noted in its response to many persons that the provisions of the 2012 amendment were not recommended by the Commission but by the Cabinet at the time and they had been submitted for public consideration for the usual 21 day period before the passing of the legislation. The Legislative Drafting Department, which prepared the 2012 amendment on the instructions of the Government, had seen no public comments against the Bill prior to its enactment. However, in light of the many complaints, the Commission has provided alternative definitions of those resolutions which are based on legislative precedent in this area of the Law. Thus, clause 2(3) and (4) of the Bill provide as follows in relation thereto-

“(3)     Where a motion must be passed under this Law by special resolution, the resolution is passed where it is passed at a duly convened meeting of its corporation by-

a resolution, the resolution is passed where it is passed at a duly convened meeting of its corporation by-

(a)       not less than eight-tenths of the votes cast at the meeting; and

(b)      the total of the unit entitlements for the strata lots for which votes are counted for the resolution is not less than eight-tenths of the total of the unit entitlements for all strata lots included in the strata.”.

  1. The above definitions omit the unexplained distinction which was drawn between where a strata scheme is located and the type of resolution it could pass which was contained in the 2012 amendment.
  1. Further, the 2014 Bill takes away to some degree the retrospective effect of the 2012 amendments. The 2014 Bill will recognise any resolution made between the date of the commencement of the 2012 amendment and the date of the commencement of the 2014 Bill. However, after the commencement date of the legislation any corporation which existed prior to the date of commencement will be able to revert to using the types of resolutions which existed prior to 9th October, 20121. The new types of resolutions will only be mandated for corporations which are established after the commencement of the legislation.

COLLECTION OF ARREARS OF STRATA FEES

  1. Debate on the most effective ways to deal with delinquent proprietors continued after the submission of the 2013 Bill as many responders felt that the legislation had not gone far enough to deal with this ever present problem. Some persons recommended giving corporations powers to cut off water and other utilities as a method of dealing with delinquency. The Commission does not support such recommendations.

 

1 See Schedule 3 paragraph 20 of the 2014 Bill

  1. The Commission re-examined how some other jurisdictions deal with the collection of strata fees and noted for example the imposition of liens on strata lots in places such as British Columbia. Under the in British Columbia when an owner is in arrears, instead of pursuing a court action, a corporation may obtain a lien against the strata property. Under section 112(2) of the Act it is provided that before a strata corporation registers a lien against an owner’s strata lot under section 116, the strata corporation must give the owner at least 2 weeks’ written notice demanding payment and indicating that a lien may be registered if payment is not made within that 2 week period.2 If payment is not made, the strata corporation may register a lien against the owner’s strata lot by registering in the land title office a Certificate of Lien in the prescribed form. The Act provides that, on registration, the certificate creates a lien against the owner’s strata lot in favour of the strata corporation for the amount owing and the strata corporation’s lien ranks in priority to every other lien or registered charge except-

(a)       to the extent that the strata corporation’s lien is for a strata lot’s share of a judgment against the strata corporation,

(b)      if the other lien or charge is in favour of the Crown and is not a mortgage of land, or

(c)       if the other lien or charge is made under the Builders Lien Act.

  1. On receiving the amount owing, the strata corporation must, within one week, remove the lien by registering in the land title office an Acknowledgment of Payment in the prescribed form. If the amount is not paid after the registration of the lien, the strata corporation may apply to the Supreme Court for an order for the sale of the strata lot. The owner is liable under the lien for reasonable legal costs, land title and court registry fees and other reasonable disbarments.
  1. A similar remedy is available under the Ontario Condominium Act. This remedy was discussed by the Commission which is of the opinion that apart from the fact that it may not harmonize with the provisions of the Registered Land Law, there are many complaints about liens in other jurisdictions. While the imposition of a property lien is viewed by some as a low cost and efficient way to collect condo arrears, it is argued that it is also an easy way to hold property owners hostage and to exert a claim over valuable property. Our research revealed cases where persons go to sell their property but discover their property is charged with a lien registered by their dentist or by a water authority. In an article3 on the effect this has on elderly homeowners it was noted that “if homeowners are behind for just a few hundred dollars, their homes can be sold to investors at a tax lien sale for simply the back taxes owed on the property. If the owner of a $200,000 house fails to buy back the property, for example, it could be sold for as little as $1,200, and then resold for a windfall by the investor.”.

2 In some cases the mortgagee must be notified as well

3 Tax Lien Sales: The ‘Other’ Foreclosure Problem Plagues Elderly Homeowners, July 12, 2012, Susanna Kim

  1. Based on our research the Commission does not recommend the introduction of property liens. However, we found another approach to the collection of arrears of fees in the Canadian jurisdiction to be of interest. Under the Condominium Property Act of Alberta a mortgagee is empowered by section 39 to pay any condominium arrears owed by an owner and to add that amount to the amount owing under the mortgage. Alternatively, where a person other than the owner is in possession of a unit and pays rent to the owner in respect of the unit, and the monthly contributions payable in respect of that unit are in arrears, the corporation may require the person in possession of the unit to pay the rent owing to the owner in respect of that unit to the corporation for the purposes of applying that rent against the monthly contributions that are in arrears. Where a person in possession of a unit, other than the owner, pays the rent to the corporation that person

is deemed to have paid that rent to the owner.4

  1. Under the same section 39 a corporation may file a caveat against the certificate of title to an owner’s unit for the amount of a contribution levied on the owner but unpaid by the owner. On the filing of the caveat, the corporation has a charge against the unit equal to the unpaid contribution and the charge has the same priority from the date of filing of the caveat as a mortgage under the Land Titles Act and may be enforced in the same manner as a mortgage. If a corporation has filed a caveat, the corporation, on the payment to it of the amount of the charge, must withdraw the caveat.
  1. As further protection to the interests of the scheme, if a corporation has filed a caveat and subsequent to the caveat’s being filed another person gains title to the unit pursuant to a foreclosure action, an action for specific performance, or a public auction conducted under the Municipal Government Act, and an amount remains owing to the corporation with respect to the contribution for which the caveat was filed, that caveat shall remain registered against the certificate of title of the unit until the amount owing is paid to the corporation.
  1. It was suggested to us that we should insert some of the provisions relating to collection of arrears which were contained in the proposed standard bye-laws into the main part of the 2014 Bill in order to give them greater effectiveness. Paragraphs 36 and 37 of the model bye-laws in the 2013 Bill provided for a method of collecting arrears which included, similar to Alberta, giving the corporation power to enter into possession of a strata lot and to rent it out until arrears are paid.
  1. The Commission agreed with that recommendation and has taken an approach which bears some similarity to the Alberta precedent. Under the 2014 Bill it is provided that a corporation may proceed to recover arrears, as an alternative to court action, in accordance with the provisions set out in clause 42. Clause 42 provides that where a proprietor has failed to pay contributions levied under clause 41, he shall pay to the corporation within thirty-one days of demand all such contributions and all legal fees and other costs and expenses incurred by the corporation in connection with the performance of its duties under the legislation and under the bye-laws. Where a proprietor does not 4 Section 39(5) make the payments within the thirty-one days, the proprietor must pay interest thereon at the US prime lending rate of the corporation’s bankers plus five per cent from time to time from the date of default and such interest will accrue from day to day until the date of actual payment.
  1. Further to this, where a proprietor does not make the payments within one hundred and twenty days of demand or the due date, where the proprietor becomes bankrupt or makes composition with his creditors, or, the proprietor, being a corporation, enters into liquidation, the proprietor shall be deemed to have authorised the corporation to enter into possession of his strata lot and to have appointed the corporation to be the receiver of the rents and profits of his strata lot until such date as the payments have been made by him to the corporation or received by the corporation pursuant to the appointment. In such a case, the corporation shall have the same powers of receiver as a receiver appointed by the court.5 However, where the chargee of a strata lot pursuant to its powers to do so, has already appointed a receiver of a strata lot, the corporation does not have such power of entry and receivership.
  1. It is proposed that where the corporation enters into possession under this clause the corporation will not incur any liability for any damage or loss caused to the strata lot or chattel therein where such loss or damage may have arisen after action is taken by the corporation and the executive committee unless that loss or damage is caused by the negligence of the corporation or the executive committee.
  1. Where a proprietor refuses to allow the corporation to enter into possession of his strata lot to collect payments which are due and payable or where the corporation is otherwise unable to enter into possession of the strata lot the corporation may commence action in a court of competent jurisdiction. In such a case, a proprietor will be liable to a civil penalty of four thousand dollars and from the date of commencement of the court action, to pay interest on the monies owed at the rate of twelve per cent per annum which interest shall accrue from day to day until payment. However, a proprietor will be liable for a civil penalty only once in any year in an action by the corporation and any such penalty levied shall form part of the fund to which the contribution belongs.
  1. Clause 43 of the 2014 Bill also retains the former clause 41 of the 2013 Bill which sets out the rights of chargees of strata lots. Clause 43 seeks to protect the rights of the chargees by providing that every charge of a strata lot shall be deemed to contain the following terms-

(a)     the chargee has the right to collect the proprietor’s contribution to the administrative expenses and shall promptly pay the amount so collected to the corporation on behalf of the proprietor;

(b)      the chargee has the right to pay-

(i)        the amounts of the proprietor’s contribution to the administrative expenses that from time to time fall due and are unpaid in respect of the charged strata lot; and

(ii)     all interest owing and all reasonable legal costs and reasonable expenses that the corporation incurs in connection with the collection or attempted collection of the amounts described in subparagraph (i);

(c)     payments made by the chargee under paragraph (c), together with interest and all reasonable costs, charges and expenses incurred in respect of the payments, are to be added to the debt secured by the charge and to be payable, with interest at the rate payable on the charge; and

(d)      if after demand the proprietor fails to fully reimburse the chargee, the charge immediately becomes due and payable at the option of the chargee and the chargee shall have such rights as are applicable in the circumstances in accordance with the Registered Land Law.

  1. The ability of the corporation to enter a caveat as in Alberta was considered but not included as further input on this would be useful in making a final decision.
  1. A failure to pay fees among other things affects the ability to insure premises properly or at all and the value of strata lots. It is hoped that these provisions on the collections of arrears will be viewed as being more effective in assisting corporations and protecting the interests of charges and those proprietors who met their obligations. The Commission invites comments thereon.

TERMINATION AND VARIATION OF STRATA SCHEMES

  1. The issue of termination of strata schemes arose following destruction of such schemes by hurricane Ivan but it has also arisen in recent times in the Islands in relation to sale of strata schemes for the purpose of development. In Florida, after the market crashed in 2008, one of the casualties was the value of condo schemes and it was opined in 2010 that in accordance with estimates, as many as 15 percent of the existing condos in Florida were “legitimate targets for termination due to plummeting values caused by high foreclosure rates, unpaid maintenance fees, expired insurance, and serious code violations

that jeopardize a project.”6 The Commission is of the view that the issue of termination for financial reasons is a very real concern in the Islands as witnessed by the many complaints sent to the Commission relating to the inability of owners to sell because of high arrears of maintenance fees, inadequate measures to collect arrears and premises not being properly maintained or insured due to large arrears of fees.

  1. Intertwined with the many objections to the new types of resolutions set out under the 2012 amendment was the impact of using such resolutions in cases where the sale of a strata scheme or variation of a scheme is contemplated. For example, since October 2012 section 23 of the Law has permitted the voluntary destruction of a building in a strata scheme by super-majority resolution. Based on the definition in section 2 of the Law if the scheme is located in Seven Mile Beach the building could be destroyed in accordance with a super-majority resolution of the corporation passed by three-quarters of the votes cast at the meeting and where the total of the unit entitlements for the strata lots for which votes are counted for the resolution is not less than three-quarters of the total of the unit entitlements for all strata lots included in the strata. Thus, 3/4 of the proprietors who also own 3/4 of the unit entitlement of the scheme could decide whether to destroy and rebuild a building whereas previously such a decision had to be made by all owners. If the scheme is however located in Lower Valley for example a majority of nine-tenths is required.
  1. Clause 130 of the 2013 Bill repeated the amendment of the 2012 Law by providing for the voluntary destruction of a building forming part of a strata scheme by a super-majority resolution. Clause 131 provided for the voluntary termination of scheme also by a super-majority vote but provided that the consent of the chargees must be unanimous. Further, where the chargees do not give their unanimous consent to the termination, the strata scheme may only be terminated by an order of the court.
  1. While the Commission understood the complaints regarding the retrospective application of the 2012 amendment to existing strata schemes, it should be emphasised that by legislating for the termination of strata schemes by majority vote the Cayman Islands is not breaking new ground. Rather, our research shows that in many jurisdictions a majority is all that is required for the sale or variation of a scheme.
  1. In the UK, the Commonhold and Leasehold Reform Act, introduced in 2002, includes a procedure for winding up a scheme by a resolution passed with at least 80 percent of the members voting in favour. Where the winding up resolution is approved with less than 100 percent support, a court order is required to determine the terms and conditions on which the termination is to proceed and to specify how the assets of the commonhold association will be distributed.
  1. Most North American condominium legislation provides for termination of a scheme following a resolution passed by at least 80 percent of the unit owners. For example, in Florida where there is a voluntary termination and, unless the declaration which governs the condominium scheme provides a lower percentage, the condominium form of ownership may be terminated for all or a portion of the condominium property pursuant to a plan of termination approved by at least 80 percent of the total voting interests of the condominium if no more than 10 percent of the total voting interests of the condominium have rejected the plan of termination by negative vote or by providing written objections. This does not apply to condominiums in which 75 percent or more of the units are timeshare units. In New York7 the percentage is 80 percent in number in common interests or higher if bye-laws so provide and in California under the Uniform Condominium Act, except in the case of a taking of all the units by eminent domain (compulsory acquisition), a condominium may be terminated only by agreement of unit owners of units to which at least 80 percent of the votes in the association are allocated, or any larger percentage the declaration specifies. The declaration may specify a smaller percentage if all of the units in the condominium are restricted exclusively to non- residential uses.
  2. Section 122 of the Ontario Condominium Act provides for termination by consent. It provides that a corporation shall register a notice terminating the government of the property if-

(a)       the owners of at least 80 percent of the units, at the date of the vote, vote in favour of termination; and

(b)      at least 80 percent of those persons who, at the date of the vote, have registered claims against the property, that were created after the registration of the declaration and description8 consent in writing to the termination.

  1. Section 124 of that Act provides for termination of a scheme upon sale of property. Under that section the corporation shall not sell the property or a part of the common elements (common property) unless-

(a)       the owners of at least 80 percent of the units, at the date of the vote, vote in favour of the sale;

(b)      at least 80 percent of those persons who, at the date of the vote, have registered claims against the property being sold, that were created after the registration of the declaration and description that made this Act applicable to the property being sold, consent in writing to the sale; and

(c)       if the sale is for only part of the common elements and includes common elements that are for the use of the owners of certain designated units and not all the owners, the owners of the designated units consent in writing to the sale.

  1. Section 125 provides for the rights of dissenters and provides that a corporation that has made a sale under section 124 and every owner in the corporation shall be deemed to have made an agreement that an owner who has dissented on the vote authorising the sale may, within 30 days of the vote, submit to mediation a dispute over the fair market value of the property or the part of the common elements that has been sold, determined as of the time of the sale.
  1. Singapore has a very detailed procedure for terminating strata schemes. It facilitates the collective (“en bloc”) sale of the whole strata building to a common purchaser, such as a developer. The Land Titles (Strata Act) regulates strata schemes and the key elements of the Singapore system are:
  1. To initiate a collective sale the following levels of support must be obtained-

if the strata development is 10 years or older – from 80 percent of the owners, or

if the strata development is less than 10 years old – from 90 percent of the owners.

8 Similar to strata plan

  1. Once the required level of support is obtained, the owners must enter into a collective sale agreement with the purchaser.
  1. The collective sale agreement must specify how the sale proceeds are to be distributed amongst all lot owners. The method of distribution is not prescribed by legislation, as the circumstances of each scheme will differ. The owners must agree on the fairest method for their scheme, which may include a distribution based on unit entitlement, the size of the unit or separate unit valuations.
  1. An independent valuation report must be prepared on the value of the development at the date of sale and another valuation report on the proposed method of distributing funds.
  1. An application to the Strata Titles Board for a collective sale order must then be made by the owners.
  1. Before the application is lodged with the Board, notice must be given to all unit owners and registered mortgagees.
  1. An objection may be made by any unit owner who has not agreed in writing to the sale or by the mortgagee of an objecting owner.
  1. Even if there are no objections, the Board must not make an order unless satisfied that there was no bad faith in the transaction by taking into account:

(a)       the sale price for the lots and the common property in the strata title plan; (b)         the method of distributing the proceeds of sale; and

(c)       the relationship of the purchaser to any of the subsidiary proprietors.

  1. Where an objection to the sale is lodged, the Board can refuse to make an order for sale if the objector will suffer financial loss or if the amount the objector receives from the sale would be insufficient to redeem any mortgage. A unit holder will be considered to have suffered financial loss if the sale proceeds for the unit after deductions (e.g. stamp duty and legal fees paid on purchase of the unit and the costs incurred in the collective sale) are less than what was paid for the unit.
  1. Under the Units Titles Act, 2010 of New Zealand a unit plan (strata plan) can be cancelled by application to the Registrar following a special resolution of 75 percent or more of the eligible voters who vote. All owners have the right to object to the cancellation by appealing to the High Court. The High Court may authorise the cancellation of a unit plan if satisfied that the plan is just and equitable to the rights and interests of any creditor of the corporation and every person who has an interest in the unit plan.
  1.  On 15th May, 2014 the British Columbia Law Institute (BCLI) submitted for public comment recommendations regarding the termination of strata schemes under the

Strata Property Act of BC.9 The BCLI made tentative recommendations which included the following-

the Strata Property Act should not continue to require the unanimous consent of strata-lot owners to the voluntary winding up of a strata without liquidator or the voluntary winding up of a strata with liquidator;

the Act should allow at least 80 percent of the eligible votes to authorise the voluntary winding up of a strata without liquidator or the voluntary winding up of a strata with liquidator;

the Strata Property Act should not allow stratas to specify in their bye-laws that a greater percentage of eligible votes than is required under the act is needed to

authorize the voluntary winding up of the strata without liquidator or the voluntary winding up of a strata with liquidator;

an “eligible vote” for the purposes of a vote on a resolution to authorise the voluntary winding up of a strata without liquidator or the voluntary winding up of

a strata with liquidator should be defined as a vote as shown on the strata’s

Schedule of Voting Rights; and

if the strata does not have a Schedule of Voting Rights, then an “eligible vote” is defined as one vote per strata lot.

  1. As noted before, the 2013 Bill provided that chargees must give their unanimous consent to a termination and where they did not give such consent the strata scheme could only be terminated by order of the court. One of the responders to the 2013 consultation queried why the unanimous consent of chargees should be required when unanimity was not required for the proprietors and why should, for example, one chargee have the power to stop or delay the termination of a strata scheme.
  1. The provisions relating to the consent of charges are similar to provisions in most Canadian provinces where registered chargees must give unanimous consent also. This was noted by the BCLI and is being challenged by them as adding an extra layer of complexity to the termination process. The BCLI argue that giving minority objectors the right to object in the court is sufficient protection for chargees. They are of the view that the consent of chargees should not be required at all in such a process- they should be notified of the meeting calling for the vote but should have no power to vote. Instead, they should be able to submit an objection to the court within 30 days of being notified of the outcome of the vote. The BCLI further tentatively recommends that a mere objection should not be enough to entitle the registered chargeholder to a remedy. He should have to demonstrate that he would be significantly prejudiced by the termination of the scheme.
  1. The Commission is of the view that, while the rights of the chargees are to be protected, there should be a middle road between unanimous consent and the ability of 9 Consultation Paper on Terminating a Strata- Prepared by the Strata Property Law (Phase Two) Project Committee, May 2014 one chargee to veto a termination and no participation in the vote at all as advocated by the BCLI. In that regard, the Florida approach was considered where, under the Condominium Act, approval of a plan of termination by the holder of a recorded mortgage lien affecting a condominium parcel in which fewer than 75 percent of the units are timeshare units is not required unless the plan of termination will result in less than the full satisfaction of the mortgage lien affecting the condominium parcel. If such approval is required and not given, a holder of a recorded mortgage lien who objects to the plan of termination may contest the plan of termination by initiating a summary procedure within 90 days after the date the plan is recorded. A unit owner or lienor who does not contest the plan within the 90-day period is barred from asserting or prosecuting a claim against the association, the termination trustee, any unit owner, or any successor in interest to the condominium property.
  1. Clause 133(1) of the 2014 Bill provides that the proprietors of strata lots and chargees of the strata lots whose interest under their respective charges is not less than 50 percent of the value of the charge may, in relation to the building which comprises their strata lots, resolve by super-majority resolution to destroy the building for the purposes of the re-development of the strata scheme. Clause 134 provides that a strata scheme may be terminated by a super-majority resolution of the proprietors and by –

(a)       the written consent of 80 percent of all chargees of the strata lots whose interest under their respective charges is not less than 50 percent of the value of the charge; and

(b)      the written consent of 80 percent of all chargees of the whole or part of the common property.

  1. The Commission believes that the above together with the power to bring an objection to the court provides adequate protection of the rights of chargees while preventing the delay of, what may be in some instances a much needed termination, by one person or institution.
  1. The Bill was changed to apply the notification and objection provisions to the voluntary destruction of a building for the purposes of development. The 2013 Bill in section 130 had provided merely for the type of resolution which was needed and for the method of settling payment for the units. Also, in the 2014 Bill where there is to be a voluntary destruction for the purposes of re-development, in accordance with clause 135, a minimum of three months’ notice must be given to every proprietor, every chargee of a strata lot, every chargee of the whole or part of the common property and any person who is the grantee of an unregistered lease or licence over the whole or part of the common property.

CONVERSION FROM LEASEHOLD SCHEME TO FREEHOLD SCHEME

  1. The 2013 Bill provided for the regulation of leasehold strata schemes which have been existence in the Cayman Islands for many years, but no provision was made for circumstances where there is a desire of the parties to convert to a freehold scheme. This was noted by the Law Society and the Commission agrees that this is a matter which should also be regulated.
  1. Thus, clause 114 provides that a corporation, pursuant to a super-majority resolution, may agree to transfer the freehold reversion in each of the strata lots included in the leasehold strata scheme to each of the proprietors. Where such a resolution is passed the Registrar shall register each proprietor with absolute title to his strata lot and-

(a)       the leasehold strata plan continues as a strata plan and the land shown on the strata plan is not subject to a lease;

(b)      the corporation continues as if it were originally created by registration of a strata plan that was not a leasehold strata plan;

(c)       the leasehold strata lot ceases to exist and the proprietor ceases to be liable for the performance of obligations in respect of the leasehold strata plan and shall thereafter be liable for performance of his obligations in the freehold strata plan; and

(d)      any charge in existence against the proprietor’s interest immediately before the registration of the strata lot becomes a charge against the absolute title acquired by the proprietor, and, if the charge was registered, the Registrar shall register it against the absolute title and shall amend the parcel number if such change is required.

  1. The Registrar may register the absolute title in the strata lot only if the Registrar has received an application for registration accompanied by a certificate that the conversion has been approved by a super-majority resolution and he has determined that all the interests are registrable.

DISPUTE RESOLUTION

  1. The 2013 Bill provided for strata disputes to be dealt with by the summary court, and in the case of complex disputes, by the Grand Court.10 This was included in the Bill after the Commission had asked in its 2011 discussion paper for input on what was the best approach to deal with strata disputes- voluntary mediation or adjudication by the summary court of most disputes and by the Grand Court only where the matter is complex? The few responses to this issue favoured adjudication by the court.
  1. However, the Law Society in 2013 expressed the view that there could be several problems with proceedings in the summary court especially in light of the fact that that court was very understaffed. The Law Society was of the view that consideration could be given to setting up in the Lands and Surveys Department a division to deal with strata disputes and to educate strata committees on how to more effectively manage strata schemes. Local attorney Mr. Ward Sykes who had served on the strata sub-committee of the Commission in 2010 was of the view that alternative dispute resolution such as Tribunal or mediation should be used as this may be a more cost effective way to handle routine matters.
  1. The dispute resolution provisions were re-visited in response to the comments given and clauses 148 to 152 contain such provisions which include mediation. As noted in our 2011 discussion paper the literature researched by the Commission shows that in many instances mediation is often a far less expensive route than court action. In some jurisdictions when a court requires litigating parties to mediate, it usually has a list of volunteer mediators who will work for free or for a nominal fee. The growing number of persons being trained in the Cayman Islands, including a number of public officers, could provide a ready supply for a panel of mediators.
  1. The Commission in its 2008 report11 on the landlord and tenant review called for the appointment of a Residential Tenancies Commissioner who would provide mediation services in landlord and tenant disputes. The Residential Tenancies Law was passed in

2009 and that Law provided for the appointment of one or more Residential Tenancies Commissioners to mediate in tenancy matters. It had been suggested by the Commission that the Commissioner’s post could be a part-time post which may be filled by an officer of the Valuation Office for example. In an emergency situation more than one Commissioner could be appointed. We believe that a similar post could be used to mediate in strata matters. However to date, five years later, the Residential Tenancies Law has not been brought into force. As a result, no similar recommendation for a government appointed mediator will be made by the Commission at this time.

  1. The 2014 Bill provides that a party to a dispute may first apply for mediation of the dispute by a person selected by the parties. Such person may be an attorney-at-law or a person trained in mediation. A mediator appointed by the parties shall, where both parties have agreed to mediation, confer with the parties and endeavour to obtain a settlement with respect to the disagreement submitted to mediation. 12Each party will be required to pay the share of the mediator’s fees and expenses that the settlement specifies, if a settlement is obtained or the mediator specifies in the notice stating that the mediation has failed, if the mediation fails. Where a settlement is reached it must be put in writing by the mediator and signed by the parties.
  1. If mediation fails or if one or both of the parties refuse mediation then the matter must be taken to the summary court or, in the case of a complex or significant matter, to the Grand Court.

LAYERED STRATA SCHEMES

  1. One of the issues belatedly brought to our attention is the need to expressly provide in the legislation for layered strata schemes. Essentially, a layered strata scheme (which does exist in the Islands) is a strata scheme in which a primary strata corporation is created by one strata plan. Primary strata lots are then divided by strata plans to create subsidiary schemes, each subsidiary scheme has its own strata corporation which will be a member of the primary strata company and the primary strata corporation manages the common property of the primary strata scheme.
  1. While the 2013 Bill provided in clause 3 that a parcel may be subject to more than one strata plan it was argued that the Bill seems to contemplate mixed-use non-layered schemes only, by providing only for strata management statements and their regulation of mixed- use in a building. A mixed-use scheme is usually where a building or buildings on a parcel contain a mix of retail, residential and offices areas with different uses being accommodated in separate strata schemes in those buildings. The relationship of those schemes with each other in the building are regulated by management statements.
  1. The Commission was advised that at least one layered scheme exists in the Cayman Islands and that it is regulated primarily through contractual agreements and bye-laws. The main concerns with these types of schemes which were brought to the attention of the Commission include the regulation of the responsibility of the corporations of each schemes especially with regard to the management of the common property, the levying of contributions, consumer protection and the easements which are created.
  1. Western Australia is currently undertaking a reform of its strata legislation and the introduction of layered schemes is being proposed. The matters set out for public discussion include-

(a)     planning and approval issues-e.g.- what level of disclosure should the developer make in the first plan; should the initial development approval limit the future options available?

(b)      development issues- e.g. -should there be a development statement setting out information about subsidiary schemes?

(c)       consumer protection issues-e.g. what information does the purchaser need to receive?

(d)      insurance issues- e.g. in the context of large layered strata schemes with mixed uses and potential significant commercials areas, is the minimum insurance for public liability misleading?

(e)       valuation issues- e.g.-should there be a provision for the re-allocation of unit entitlements at the conclusion of a layered scheme?

  1. The above matters were considered by the Commission and it is recommended that a dual approach to the regulation of layered schemes be followed. In order to avoid more complexity, the 2014 Bill provides a model management statement in Part B of Schedule 1 which would regulate the management of layered schemes. Like the management statement previously proposed for mixed-use schemes and now contained in Part A of Schedule 1, such a statement would have effect as a deed containing certain covenants entered into by each person who is-

(a)       a corporation of a strata scheme for part of the building or part of the parcel; or

(b)      a proprietor, chargee or lessee of any of the strata lots in such strata scheme; and

(c)       any other person who is the registered proprietor in any part of that parcel or the building or its site (being a part affected by the statement) or the chargee of any such part.

  1. The covenants would be those set out in clause 24(2) and these covenants are-

(a)       a covenant by which those persons jointly and severally agree to carry out their obligations under the registered strata management statement in force; and

(b)      a covenant by which those persons jointly and severally agree to permit the carrying out of those obligations.

57       The 2014 Bill also provides for the making of regulations by Cabinet to provide for the management of parcels to which more than one strata plan and strata scheme relates. Such regulations would cover those areas which are not covered by management statements such as initial development issues, initial disclosure regimes; conversion of existing schemes to layered schemes, tailoring phased development to accommodate layered schemes; exemption from certain provisions of the Law where this is necessary and matters which go beyond management issues. The Commission is advised that to date there is only one layered scheme on the Island but as strata development becomes more diverse regulations and management statements would provide an effective and flexible way to deal with such developments.

CONCLUSION

  1. The above is a summary of the areas on which many responders had commented. There were many comments and recommendations on other provisions and as a result the 2013 Bill was substantially re-drafted. The model bye-laws were also amended to ensure that the duties and rights of occupiers of strata lots were effectively covered by the legislation. The Commission has decided, in light of the many changes, to submit the 2014 Bill for a final consultation after which it will be submitted to the Attorney General with a final report.

 

Friday, October 10, 2014

 

 

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