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Managing Major Repairs
A Condominium Owner’s Manual

Chapter 4 (Part B)
Developing the Solution

The Legal Strategy

The strata corporation will incur legal costs related to:

• advice about the Condominium Act
• reviewing any contracts entered into by the strata corporation
• cost recovery for the repairs

There are at least three avenues available to recover costs from potential defendants. Using the court system to resolve disputes - litigation - is probably the option with which most people are familiar. Mediation and arbitration are other dispute resolution options. These are referred to as "alternate dispute resolution" options.

Alternate Dispute Resolution

Provisions of the Homeowner Protection Act give the government the ability to make regulations concerning the use of mediation and arbitration processes for the resolution of residential construction disputes, and to define the requirements for dispute resolution in warranty contracts. A regulation establishing a mediation process for residential construction disputes has been in place since May, 1999.

A significant aspect of this regulation is that any party to a residential construction dispute will be able to invoke a "Notice to Mediate" process. Interested parties can obtain the Notice to Mediate (Residential Construction) Regulation from the Homeowner Protection Office internet site: www.hpo.bc.ca. Questions and answers are posted on the Ministry of Attorney General Internet site: www.ag.gov.bc.ca/DisputeResolution/q%26a.htm

Important features of this process:

• It is limited to residential construction actions, meaning a Supreme Court action arising from, or in connection with, residential construction.
• The process may be initiated by any party to the dispute.
• Once the process is invoked, all parties to the dispute are required to participate in mediation.
• The time lines for this process are set out in the regulation and will promote timely resolution of the dispute.

It is important to note, however, that anyone can consider mediation or arbitration voluntarily.

Mediation

• an alternative to going to court; takes place in a private, informal setting
• parties agree to meet with an impartial third party to assist them in making their own settlement
• the parties participate in the negotiation and the design of the settlement
• a mediator is trained to help people settle conflicts collaboratively and does not have decision-making power
• the dispute is settled only if the parties come to an agreement - if they don't, they can pursue more formal methods appropriate to their situation
• can be used in a variety of disputes, including contract disagreements and real property or construction disputes

Mediation is generally less costly and faster than formal methods of dispute resolution. The parties maintain control; they are only bound by it if they agree to the resolution. Mediation is private and the resolution does not need to be publicized.

Mediation is particularly useful in situations where each party needs something from the other. The only requirement is that the parties have a willingness to meet and talk. Creative solutions are possible. It is an attractive option when the parties have a continuing relationship that they wish to preserve.

Arbitration

• a more formal option than mediation
• the arbitrator is an impartial third party who may be:
  • appointed by a clause in the contract that gave rise to the dispute - for example, the construction contract may have a clause stating that the parties agree to a process for settlement by way of mediation then arbitration
  • appointed by statute
  • chosen by the parties
• the arbitrator makes decisions that are binding on all parties
• decisions are based on evidence presented and consideration of legal rights

Currently, the Condominium Act allows arbitration as an option for dispute resolution in specific situations involving:

• two or more owners
• the strata corporation and an owner

Arbitration is generally faster than litigation. However, the parties are bound by the arbitrator's decisions.

Litigation

To litigate means to sue. This is the most familiar option, but generally the most expensive, the most time consuming and the most formal. As well, the results or proceedings are made public. Typically, the strata corporation starts off thinking that this is "the answer" - in certain cases, it may be, however, consider the following:

• A lawsuit can be very time consuming and expensive. From the time the lawsuit is initiated, it could take three to five years before it comes before a judge. The strata corporation will be paying legal fees for years before they see any possible cost recovery.
• There is little chance that a lawyer will work on a contingency basis. (Contingency means the lawyer takes a percentage of the recovered amount as their fee.)
• Even if successful against any of the potential defendants, the defendant may not have the means to pay.
• Even if successful, the defendant may appeal the decision. This can add another year or two to the process, with additional legal costs to both parties.
• If the strata corporation is unsuccessful in its action against any of the defendants, they may have to pay the legal costs of that defendant.
• If any proceeds are forthcoming, they cannot be used to finance the major repair, as they will come long after the repairs are done.

The benefit of this formal process is that:

• it may be the only solution for highly adversarial parties;
• it enables the strata corporation to get at "all the facts," and
• it will eventually produce a final decision

If the strata corporation does choose this route, the owners will need to identify in advance:

• how the litigation will be financed
• if successful, how the proceeds will be disbursed and who should rightfully receive the proceeds: current owners, or the ones who financed the major repair - remember, with the extensive time frame involved, some owners will have moved and will no longer be part of this strata corporation

Your lawyer can assist with these decisions and can provide information about dispute resolution options. A lawyer who specializes in construction litigation is required. Obtain an estimate, in advance, of the costs to proceed and the likelihood of success.

Many of the lawsuits undertaken by strata corporations are settled before they go to court. The amount of the settlement will be influenced by the costs of going to court.

Small Claims

Another option is for each owner to initiate a small claims action to seek compensation for special assessments. This court is limited to amounts up to $10,000. Talk to your lawyer about this possibility.

Reference:

Resolving Residential Construction Disputes
published by:
The Homeowner Protection Office
604-646-7055 (in Vancouver), or
toll free 1-800-407-7757

Mediation in BC information bulletin
Ministry of Attorney General
Phone: 250-356-8147
Fax: 250-387-1189
On the Internet: www.mediator-roster.bc.ca

See Appendix 5 - Alternate Dispute Resolution Summary and Appendix 6 - Sample Cost Recovery Legal Process for more information.

Issues for a General Meeting

The strata corporation requires a general meeting to make decisions about:

• the repair option
• the repair budget
• the financing solution
• authorizing the legal strategy
• tendering the contract

As described in the last chapter, it is important to provide adequate information to the owners in advance of the meeting, as well as an opportunity for them to ask questions. At this point, the professionals involved will be the lawyer and the building envelope professional.

It is recommended that an information package, sent out before the meeting, include:

• the report of the building envelope professional which outlines repair options
• the repair budget
• a special resolution authorizing the repair and the method of funding the repair
• a special resolution authorizing the lawyer to undertake a stated legal strategy and the allocation of funds to the lawyer

Tendering the Contract

The Tender Package

To tender means to offer. The tender package is all the documents that describe the work to be done - the specifications of the work, the drawings, the contracts that will be used, etc. - together in a package that is offered to construction firms for their bid.

The building envelope professional will create the tender package. It is important that some members of the strata corporation are available to review the package, to ask questions and ensure that they understand the significant features of the package. It could be the strata council or a committee that is created for this purpose.

The Construction Contract

The construction contract is part of the tender package. The parties to this contract are the strata corporation and the contractor who is successful in winning the contract.

In most cases, the construction contract is a standard form created by the Canadian Construction Documents Committee (CCDC contracts.)

These standard forms represent years of extensive input from experienced and knowledgeable experts from various sectors of the construction industry. They are intended for use by owners, design professionals and contractors. In all cases, the strata corporation lawyer should review the contract to ensure the interests of the strata corporation are protected.

There are different forms of CCDC contracts to accommodate payment options. The forms are:

CCDC 2 - 1994 Stipulated Price Contract:

The work is performed for a single, pre-determined fixed price or lump sum, regardless of the contractor's actual cost.

CCDC 3 - 1998 Cost Plus Contract:

The work is performed on an actual cost basis, plus a percentage or fixed fee which is applied to actual costs. This contract should contain an option for a Guaranteed Maximum Price to protect the strata corporation from unlimited costs.

If this type of contract is being considered, the strata corporation should obtain a guide called CCDC 43 C A Guide to the Use of CCDC 3 - 1997 Cost Plus Contract.

The building envelope professional can obtain this guide for the owners, or information for ordering it can be found on the Internet: www.cca-acc.com

CCDC 4 - 1982 Unit Price Contract:

The work is performed for a pre-determined, fixed amount for each specified unit of work. The total price is determined by multiplying the unit price by the actual measured quantity of work performed for each specified unit.

The following graphic depicts the range of risk for owners related to construction contracts.

Scale of Risk in Construction Contracts

& Case Study: A large engineering firm that has done many major repairs for strata corporations recommends that their clients use a Stipulated Price Contract for the repair job, and the Unit Price Contract for the unexpected repair work that is discovered as the demolition progresses.

Each repair project is unique. In all cases, the strata corporation should obtain advice from their building envelope professional and their lawyer regarding the type of contract to use.

If it becomes necessary to modify the text of a CCDC Standard Contract Form, this is done by adding supplementary conditions to the contract. The strata corporation's building envelope professional will do this. These clauses should be discussed with the representatives of the strata corporation to obtain feedback on their suitability. All of the supplementary clauses must be reviewed by the strata corporation lawyer.

Information about CCDC Standard Contract Forms can be obtained on the Canadian Construction Documents Committee Internet site: www.ccdc.org/documents.html

Bidding

The tender package may be:

• sent to selected contractors
• advertised in the paper and bid on by any contractor who responds, or
• sent to just one contractor

There are differing opinions about the best way to tender the contract. Some lawyers feel that the strata corporation could be challenged by a strata unit owner if a process to obtain competitive bids is not used. Some architects/engineers who are experienced in this area, say that the best contractors will not engage in bidding wars. Therefore, they feel that the bidding process does not necessarily bring out the best contractor.

It is important for the strata corporation to obtain both legal guidance and advice from their building envelope professional about the bidding process.