Classification of Strata Lots Used for Short-term Overnight Accommodation (SAPs)

Transcription

1 Classification of Strata Lots Used for Short-term Overnight Accommodation (SAPs) Last Document Review Date: September 29, 2014 Last Legal Review Date: May 3, 2012 TABLE OF CONTENTS Introduction... 2 Executive Summary... 2 Resources... 3 Compliance Checklist... 4 Classification Direction... 5 The Preliminary Threshold... 5 Grandfathering Strata Lots into Class Special Grandfathering Issues... 6 Split Classification for Strata Accommodation Properties... 7 Conditions for Split Classification... 7 Exclusion of Strata Accommodation Properties from Class Reporting Usage Information and Confirmation of Use... 9 Strata Properties Under Construction Checklist to Grandfather Strata Lots Criteria Checklist for SAPs Appendix A: Frequently Asked Questions Appendix B: Case Studies for Grandfathering Strata Lots into Class Appendix C: Case Studies for Split Classification Appendix D: Relevant Caselaw Assessment Practices and Procedures Classification of SAPs 1

2 INTRODUCTION This document provides guidance for the consistent classification of the category of short-term overnight commercial accommodation properties (STOCAPs) comprised of strata lots that are: o part of a strata plan or contiguous strata plans of 20 or more strata lots; and o rented or offered for rent as overnight accommodation on a short-term basis. The goal of this document is to help BCA staff: EXECUTIVE SUMMARY o identify the strata lots that qualify to be grandfathered into Class 1 residential; o identify the strata lots that qualify as SAPs; o identify the SAPs that qualify for split classification; and o understand the criteria for excluding SAPs from the split-classification methodology. The Assessment Act (the Act) requires BC Assessment (BCA) to: o determine whether strata lots meet the legislated criteria to be grandfathered into Class 1 under section 19.1 of the Act; and o if they do not, determine whether the strata lots are strata accommodation properties under section 19(1) of the Act that might qualify for split classification between Class 1 and Class 6 business and other. If a strata lot meets the definition of a strata accommodation property (SAP), it may or may not qualify for split class under the Prescribed Classes of Property Regulation, B.C. Reg. 438/81 (the Classification Regulation). The Classification Regulation: o establishes criteria a SAP must meet to qualify for split classification; Assessment Practices and Procedures Classification of SAPs 2

3 RESOURCES o permits the split of a SAP s actual value between Class 1 and 6 depending upon the how the strata lot is used throughout the year; o requires owners to report usage information to BCA by a set date (i.e., August 31); and o prescribes a percentage for the purposes of the definition of a SAP in section 19(1) of the Act (i.e., 20 percent). This document is intended to provide the benefit of split classification to strata lots with both personal and commercial use, while preserving the status quo for those stratified STOCAPs that were in Class 1 when the SAPs legislation came into force, as long as those strata lots continue to meet the requirements to retain their grandfathered status. Assessment Act, R.S. B.C. 1996, c. 20 Business Corporations Act, S.B.C. 2002, c. 57 Prescribed Classes of Property Regulation, B.C. Reg 438/81 Strata Property Act, S.B.C. 1998, c. 43 Tourist Accommodation (Assessment Relief) Act, R.S.B.C. 1996, c. 454 Assessment Practices and Procedures Classification of SAPs 3

4 COMPLIANCE CHECKLIST The following is a list of items that must be completed in order to be considered compliant with this document: 1. Consider the criteria for grandfathering strata lots into Class 1 under section 19.1 of the Act, and ensure that strata lots meeting those criteria are placed in Class 1 for a taxation year. 2. Consider whether strata lots that do not qualify to be grandfathered into Class 1 meet the definition of a strata accommodation property (SAP) as defined in section 19(1) of the Act. 3. Ensure the strata lots not meeting the definition are in Class 1 for a taxation year. 4. Apply the split-classification criteria in the Prescribed Classes of Property Regulation to the strata lots meeting the definition (e.g., SAPs) and classify the SAPs accordingly. Assessment Practices and Procedures Classification of SAPs 4

5 CLASSIFICATION DIRECTION The Preliminary Threshold First, determine whether the strata lot is part of a strata plan or contiguous strata plans of 20 or more strata lots. If not, the strata lots should be placed entirely in Class 1. If the strata plan has fewer than 20 strata lots, but is contiguous to another strata plan that is managed as part of the same overall resort operation, with the result that there are 20 or more strata lots on the strata plan or contiguous strata plans, then these strata lots should be considered for grandfathering or split classification. Grandfathering Strata Lots into Class 1 Second, determine whether a strata lot qualifies to be grandfathered into Class 1. For 2009 and onward, a strata lot must be grandfathered into Class 1 if: o the strata lot was entirely in Class 1 on the previous roll by reason only of complying with the grandfathering criteria the previous year; 1 o the strata lot is part of a strata plan or contiguous strata plans of 20 or more strata lots; o the strata lot is used or available for overnight accommodation; and either as of October 31, the strata complex is not managed by a single rental accommodation manager which manages 85 percent or more of the strata lots (i.e., the multiple management criterion), or as of June 30, the strata lot was not rented or offered for rent as overnight accommodation for periods of less than seven days for 50 percent or 1 Section 19.1 of the Assessment Act was amended by Bill 13, the Miscellaneous Statutes Amendment Act, 2009, S.B.C. 2009, c. 22, s. 76 to clarify this requirement. Assessment Practices and Procedures Classification of SAPs 5

6 more of the year ending June 30 (i.e., the short-term rental criterion). A strata lot will only be considered for split classification if it does not qualify for grandfathering into Class 1 or the strata lot loses its grandfathered status in any future tax year. A strata lot will permanently lose its grandfathered status if at any time in the future the strata complex is managed by a single rental accommodation manager which manages 85 percent or more of the strata lots, and during the same reporting period, the strata lot is rented or offered for rent as overnight accommodation for periods of less than seven days for 50 percent or more of the year ending June 30. REMINDER: The reporting period commences July 1 and ends June 30. It is important to know that the 85 percent rule applies only to the number of strata lots managed or controlled by a person or persons. It does not apply for purpose of determining how many strata lots are rented or available for rent as overnight accommodation for periods of less than seven days for the majority of the year. District of Whistler v. Assessor of Area #08 North Shore/Squamish Valley (3 January 2001), Appeal Nos (P.A.A.B.). Special Grandfathering Issues Section 19.1 of the Act directs BCA to consider, as of June 30, whether a strata lot has been rented or offered for short-term rent (e.g., periods of less than seven days) for the majority of the year ending June 30. Section 19.1 does not state when BCA is to consider the management structure for the purposes of grandfathering. Where the legislation is silent with respect to the classification date, the relevant date is October 31. Therefore, once the usage statistics for the strata lot have been received (e.g., after August 31), and assuming the strata lot was entirely in Class 1 on the previous roll because it met the grandfathering criteria the previous year, BCA should: Assessment Practices and Procedures Classification of SAPs 6

7 o Determine whether the short-term rental criterion was met as of June 30. If this criterion is met, place the strata lot into Class 1. o If the short-term rental criterion is not met, determine, after October 31, whether the multiple-management criterion is met. If it is, place the strata lot into Class 1. o If neither of the grandfathering criteria is met by the relevant dates, rely on the usage statistics reported by August 31 to determine whether the strata lot qualifies for split classification. TIP See the section below on Reporting Usage Information and Confirmation of Use. Split Classification for Strata Accommodation Properties Third, if the strata lot does not qualify for grandfathering into Class 1, determine whether the strata lot is a SAP. A SAP is a strata lot that is: o part of a strata plan or contiguous strata plans of 20 or more strata lots, and o rented or offered for rent as overnight accommodation for periods of less than 28 days for at least 20 percent (e.g., at least 73 days) of the year ending June 30 (e.g., between July 1 and June 30). Strata lots that do not meet the definition of SAP (e.g., a strata lot that is rented or available for short-term rent for less than 20 percent of the year), should be placed entirely in Class 1. Only SAPs can qualify for split classification. Conditions for Split Classification Fourth, if the strata lot is a SAP, determine whether the strata lot qualifies for split classification. A SAP will only qualify for split classification if it meets the following additional conditions: Assessment Practices and Procedures Classification of SAPs 7

8 o an owner of the strata lot must have the right to use his strata lot for seven or more days in the year ending June 30 (e.g., between July 1 and June 30); 2 and o either an owner (or designated guest) must use his strata lot or another strata lot within the complex for seven or more days in the year ending June 30 (e.g., between July 1 and June 30), or more than 50 percent of the strata lots in the strata plan or contiguous strata plans are used by the owners (or designated guests) for seven or more days in the year ending June 30 (e.g., between July 1 and June 30); and o an owner (or the rental accommodation manager on the owner s behalf) provides BCA with the required usage information by the prescribed date. See the section below on Reporting Usage Information and Confirmation of Use. TIP The 50 percent threshold refers to the number of strata lots and not the number of owners. If there are 200 quarter-share owners of 50 strata lots, 26 of the strata lots must have been used by one or more of the owners for at least seven days during the year. Exclusion of Strata Accommodation Properties from Class 1 Fifth, determine whether the SAP should be excluded from Class 1. SAPs will be excluded from Class 1 and placed entirely in Class 6 if: 2 In City of White Rock v. Assessor of Area 14 Surrey/White Rock, 2010 PAABBC , the Board held that the owners did not have the right to use their strata lots for at least seven days in the reporting period as required by the Classification Regulation. A section 219 covenant registered against the titles of the strata lots restricted the owners to using their strata lots for public rental purposes only. On appeal, the BC Supreme Court held that the restrictive covenant was ambiguous and that the owners did in fact have a right to use their strata lots for at least seven days: Owners of Strata Plan 226 v. City of White Rock (2010), Stated Case 542 (B.C.S.C.). Assessment Practices and Procedures Classification of SAPs 8

9 o any of the criteria for split classification are not met (e.g., if the owner fails to report the required usage information); or o even if the criteria are met, as of November 30, the owner (and where the owner is a corporation, any affiliate of the owner) wholly owns more than 14 strata lots in a strata plan or contiguous strata plans. In that case, all the strata lots owned by such an owner will be entirely in Class 6. 3 Reporting Usage Information and Confirmation of Use Section 11 of the Classification Regulation requires SAP owners to supply BCA with the following information on or before August 31 each year: o the number of days the SAP was rented as overnight accommodation for periods of less than 28 days between July 1 and June 30 (i.e., actually rented and not just available for rent); o the number of days the owner had the right to use the SAP between July 1 and June 30; and o the number of days the owner actually used the SAP between July 1 and June 30. REMINDER: The reporting deadline is August 31. If a specified reporting date or deadline for application falls on a holiday or a non-business day, as per section 25 of the Interpretation Act, the time (deadline) is extended to the next business day. BCA will accept declarations from rental accommodation managers on behalf of owners unless owners directly provide contrary information. 4 Rental accommodation managers and 3 In Ventana Ventures Corp. v. Assessor of Area 08 Vancouver Sea to Sky Region, 2009 PAABBC , the Board held that an owner within the meaning of the Assessment Act and the Prescribed Classes of Property Regulation, did not include beneficial owners. In this instance, it was the number of strata lots owned by the trustee (the legal owner) that was relevant. 4 In the City of White Rock decision, discussed above, the Board also held that the owners had fulfilled their obligation to report usage statistics even where those statistics were reported by a rental accommodation manager Assessment Practices and Procedures Classification of SAPs 9

10 owners may be required to defend the information they provide. NOTE If an office is not successful in contacting the rental accommodation manager after the first mailout, offices should be including affected unit owners in all subsequent attempts to contact the rental accommodation manager in order to ensure a usage declaration is obtained by the August 31 deadline. Where there are multiple owners of a strata lot, the split classification requirements for personal entitlement and personal use (e.g., at least seven days during the year ending June 30) will be met provided at least one of the owners or the combined use of the owners of the strata lot meets those criteria. The entire strata lot will have the benefit of split classification if only one of several owners reports the usage statistics (assuming the other criteria are met). However, that benefit will be based on only that owner s reported information. Furthermore, in the absence of a declaration by the other owners of the strata lot, the strata lot may not meet the definition of SAP (e.g., it may not have been rented or offered for rent for periods of less than 28 days for at least 20 percent of the year), in which case the strata lot would be placed entirely in Class 1 on the assessment roll. A SAP will be placed entirely in Class 6 unless the owner (or rental accommodation manager on the owner s behalf) reports the required information to BCA by August 31 prior to the completion of the assessment roll. Strata Properties Under Construction Accommodation properties under construction and for which a strata plan has been registered do not qualify for the split classification based on dual personal and rental use. Until (an agent) on behalf of the owners. This decision was not appealed to the BC Supreme Court. Assessment Practices and Procedures Classification of SAPs 10

11 there is sufficient operating history, the criteria necessary to qualify the strata lots as SAPs cannot be met, so these properties are entirely in Class 1 because they are condominiums and expressly included in Class 1. If there is a restrictive covenant registered against title, which limits the future use of the property to commercial accommodation, the restrictive covenant will not affect the Class 1 classification for properties that have insufficient operating history to qualify for split classification. See Forsite Developments Inc. v. Assessor of Area 15 Fraser Valley Office, 2006 PAABBC (decided October 12, 2006). Although Forsite Developments was decided under the former section 1(a)(iii) of the Classification Regulation, the rationale applies equally under the amended legislation. Where a strata plan has not yet been filed, the classification of an accommodation property under construction will depend on the developer s commitment and whether construction has commenced. For more detail, refer to Classifying Mixed-Use Development Land. Checklist to Grandfather Strata Lots Work through the following questions to determine whether a short-term, overnight accommodation strata lot should be grandfathered into Class 1. Question 1 Is the strata lot part of a strata plan or contiguous strata plans of 20 or more strata lots and used or available for overnight accommodation? Answer TIP Contiguous means in close proximity and generally adjacent. However, an intervening roadway would not necessarily preclude a conclusion that two strata plans are contiguous. o If yes, go to question 2. o If no, place the strata lot entirely in Class 1. Assessment Practices and Procedures Classification of SAPs 11

12 Question 2 Answer Question 3 Answer As of June 30, was the strata lot rented or offered for rent as overnight accommodation for periods of less than seven days for at least 50 percent of the year ending June 30? o If yes, go to question 3. o If no, place the strata lot entirely in Class 1. As of October 31, was the strata lot managed or controlled by a person who controls or manages 85 percent or more of the strata lots in the strata plan or contiguous strata plans? o If yes, go to the Criteria Checklist for SAPs. o If no, place the strata lot entirely in Class 1. Criteria Checklist for SAPs Work through the following questions to determine whether a short-term, overnight accommodation strata lot is a SAP and whether it should be split-classified. Question 1 Is the strata lot part of a strata plan or contiguous strata plans of 20 or more strata lots? Answer TIP Contiguous means in close proximity and generally adjacent. However, an intervening roadway would not necessarily preclude a conclusion that two strata plans are contiguous. o If yes, go to question 2. o If no, the strata lot is not a SAP. Place the strata lot entirely in Class 1. Question 2 Was the strata lot rented or offered for rent as overnight accommodation for periods of less than 28 days for at least 20 percent of the year ending June 30? Answer o If yes, go to question 3. Assessment Practices and Procedures Classification of SAPs 12

13 o If no, the strata lot is not a SAP. Place the strata lot entirely in Class 1. Question 3 Did the owner have the right to use the strata lot for at least seven days between July 1 and the following June 30 (check for restrictive covenants)? Answer o If yes, go to question 4. o If no, place the strata lot entirely in Class 6. Question 4 Did an owner use the strata lot for at least seven days between July 1 and the following June 30? Answer o If yes, go to question 6. o If no, go to question 5. Question 5 Did the owners of a majority of the strata lots in the strata plan or contiguous strata plans use their strata lots for at least seven days between July 1 and the following June 30? Answer o If yes, go to question 6. o If no, place the strata lot entirely in Class 6. Question 6 Did the owner report the required usage information to BCA by August 31 (i.e., the number of days the strata lot was rented as overnight accommodation, the number of days the owner had the right to use the strata lot and the number of days the owner used the strata lot)? Answer o If yes, go to question 7. o If no, place the strata lot entirely in Class 6. Question 7 Does the owner wholly own more than 14 SAPs in the strata plan or contiguous strata plans (including any SAPs owned by an affiliate if the owner is a corporation)? Answer o If yes, place the strata lot entirely in Class 6. Assessment Practices and Procedures Classification of SAPs 13

14 o If no, split classify the strata lot between Class 1 and 6 in accordance with this formula: Class 1 value = (401 BU) x V 365 Class 6 value = V Class 1 value Where: BU = the number of reported business/rental days or 36, whichever is greater, and V = the actual value of the strata lot in dollars Assessment Practices and Procedures Classification of SAPs 14

15 APPENDIX A: FREQUENTLY ASKED QUESTIONS Question 1. Answer Question 2. Answer Would a strata lot have to be in Class 1 on the 2012 assessment roll to qualify for grandfathering in the 2013 tax year? Yes. The strata lot must have been entirely within Class 1 on the 2012 assessment roll because it met the grandfathering criteria for inclusion in Class 1 and not for some other reason. By what date must an owner report usage statistics to BCA? For the 2009 and subsequent tax years, owners must report usage information by August 31 in accordance with section 11 of the Prescribed Classes of Property Regulation, B.C. Reg. 438/81 (the Classification Regulation ). Question 3. Answer Furthermore, if a specified reporting date or deadline for application falls on a holiday or a non-business day, as per section 25 of the Interpretation Act, the time (deadline) is extended to the next business day. Can rental accommodation managers report usage information on behalf of owners? Yes. BCA will accept reports from rental accommodation managers on behalf of owners. Some rental accommodation managers may choose not to do so without the express consent of owners. If rental accommodation managers do choose to report, BCA will accept that information as the basis for making a classification decision unless an owner provides contradictory information in which case BCA will accept the owner s declaration in priority. The rental accommodation managers or owners may be required to defend the information they provide. Assessment Practices and Procedures Classification of SAPs 15

16 Question 4. Answer Question 5. Answer Question 6. Answer Question 7. Answer Question 8. Answer Will BCA accept usage statistics as reported by owners or rental accommodation managers in 2012 for the 2013 tax year? Yes. For the purposes of preparing the 2013 roll, BCA will accept the information as it is reported by August 31, What is BCA s authority for requesting information from rental accommodation managers? Section 11 of the Classification Regulation places an obligation to report only on owners. BCA is asking for the assistance of rental accommodation managers. They are under no obligation to report on behalf of owners. What if an owner provides BCA with information that contradicts information provided by a rental accommodation manager in respect of the same strata lot? BCA will accept the owner s information over that provided by the rental accommodation manager. What if a strata lot is on a strata plan with only 10 strata lots, but is part of a resort comprised of another strata plan with 100 strata lots? If those strata plans are contiguous (meaning close in proximity, even if a laneway intervenes) and are managed/operated as part of a single resort, then strata lots in the 10-strata lot complex should be considered for either grandfathering or split classification as appropriate. What is the relevant reporting period for short-term rentals? The relevant reporting period is the 12-month period between July 1 and June 30. The reporting period no longer ends October 31. Assessment Practices and Procedures Classification of SAPs 16

17 Question Has the meaning of short-term been changed from periods of less than seven days to periods of less than 28 days? 9. Answer Question 10. Answer Question 11. Answer Question 12. Answer The phrase short-term may apply to both grandfathering and split classification. For grandfathering, short-term refers to rental periods of less than seven days. For split classification, short-term refers to rental periods of less than 28 days. What if strata lots are comprised of more than one rental unit (e.g., the strata lot is a two-door unit or a lock-off unit? The legislation looks at how the legal parcel (e.g., the strata lot) is used and not at the number of rooms within the strata lot. The usage statistics should be reported on a strata lot and not an individual room basis. What if there are multiple owners of a strata lot (e.g., quarter-share owners) and only one of those owners has the right to use the strata lot for at least seven days, and only one of the owners actually uses the strata lot for at least seven days, will the strata lot qualify for split classification? The strata lot will qualify for split classification provided the owner reports the usage statistics as required, and provided the same owner does not wholly own more than 14 strata lots in the strata complex (i.e., provided the strata lot is not disqualified on some other ground). Is the personal use requirement met by an owner of a strata lot using some other strata lot in the complex because his or her own strata lot is unavailable? Yes. Provided the owner uses his or her own strata lot or another strata lot within the complex (because the owner s strata lot is unavailable), the personal use criterion will be met. Assessment Practices and Procedures Classification of SAPs 17

18 Question 13. Answer Question 14. Answer Question 15. Answer Question 16. Answer Is the personal use requirement met if the owner s strata lot is used by a guest of the owner instead of the owner? Yes. The personal use requirement will be met if the owner or the owner s designated guest uses the strata lot provided the use by the guest is free of charge. What if the strata lots are held in trust and the trustee (e.g., the legal owner) owns more than 14 strata lots, but the beneficial owner owns fewer than 14 strata lots in the complex? Will the strata lots be placed in Class 6? It is the legal owner (e.g., the trustee) and not the beneficial owner that matters for the purposes of this exclusionary rule. In this example, the strata lots owned by the trustee would be in Class 6 despite the fact that beneficial owner owns fewer than 14 strata lots. Do strata properties that benefit from split class also qualify for assessment relief under the Tourist Accommodation (Assessment Relief) Act ( TAARA )? Yes. TAARA will be applied to those strata lots which qualify even if they also benefit from split class. How should maintenance days be treated in determining the classification of a SAP? Days that a SAP is booked out of the rental pool (i.e., the strata lot is unavailable for rent) will count as personal use days by the owner. Assessment Practices and Procedures Classification of SAPs 18

19 APPENDIX B: CASE STUDIES FOR GRANDFATHERING STRATA LOTS INTO CLASS 1 These case studies are based on clauses (A) to (D) of the former section 1(a)(iii) of B.C. Reg. 438/81 (the old STOCAP rules). However, they are still relevant for the purpose of determining whether a strata lot qualifies for grandfathering into Class 1 under section 19.1 of the Act, and have been altered as appropriate. In each case study, the overall use of the strata lot governs its classification, regardless of the number of owners. Properties in some resort communities may be encumbered with covenants that restrict the owners personal use of the property. The effect of these covenants may be to eliminate the opportunity to reduce the availability of the strata lot for commercial accommodation to a period less than the regulatory threshold of six months required to qualify for grandfathering. Scenario Grandfathering Criteria Classification Decision Scenario 1: The resort complex is comprised of 105, mixed-use strata lots. 105 strata lots are in a single strata plan or contiguous strata plans s. 19.1(b)(i) All the strata lots are part of a strata plan or contiguous strata plans of 20 or more strata lots and therefore potentially qualify for 15 strata lots are used for commercial purposes other than overnight accommodation (e.g., parking, lobby, etc.) 90 strata lots are used or available for overnight accommodation (may or may not be in rental pool) 70 (of the 90) strata lots were rented or offered for rent for periods of less than seven days for more than grandfathering. s. 19.1(2) These 15 strata lots would not be grandfathered into Class 1 because their use does not come within the meaning of used or available for overnight accommodation. They would be in Class 6. s. 19.1(b)(ii) These 90 strata lots are used or available for use as overnight accommodation and potentially qualify for grandfathering. ss. 19.1(b)(iii)(A) and (B) These 70 strata lots do not qualify to be grandfathered into Class 1 because of the rentals and the Assessment Practices and Procedures Classification of SAPs 19

20 Scenario six months of the year ending June 30 before roll closure; all 105 of the strata lots are managed by the same management company Grandfathering Criteria Classification Decision management structure. They should be considered as candidates for split classification. The remaining 20 of the strata lots used or available for overnight accommodation qualify to be grandfathered into Class 1. Scenario Grandfathering Criteria Classification Decision Scenario 2: The resort complex is comprised of 326, mixed-use strata lots. 326 strata lots are in a single strata plan or contiguous strata plans s. 19.1(b)(i) All the strata lots are part of a strata plan or contiguous strata plans of 20 or more strata lots and therefore potentially qualify for 6 strata lots are used for commercial purposes other than overnight accommodation (e.g., parking, lobby, etc.); these six strata lots are managed jointly by Companies A, B and C 320 strata lots are used or available for overnight accommodation (may or may not be in rental pool) 280 strata lots used or available for overnight accommodation are managed by Company A (more than 85 percent); 180 (of the 280) are rented grandfathering. s. 19.1(2) These 6 strata lots would not be grandfathered into Class 1 because their use does not come within the meaning of used or available for overnight accommodation. They would be in Class 6. s. 19.1(b)(ii) These 320 strata lots are used or available for use as overnight accommodation and potentially qualify for grandfathering. s. 19.1(b)(iii)(A) and (B) Of the 280 accommodation strata lots managed by Company A, 180 of the strata lots do not qualify for grandfathering. These 180 strata lots should be placed Assessment Practices and Procedures Classification of SAPs 20

21 Scenario or offered for rent for periods of less than seven days for more than six months of the year ending June 30 before roll closure 20 strata lots used or available for overnight accommodation are operated as timeshares and are managed by Company B (~six percent) Grandfathering Criteria s. 19.1(b)(ii) and (iii)(b) Classification Decision in Class 6 because they are rented or offered for rent for more than six months of the year, and Company A manages 85 percent or more of the strata lots in the strata plan or contiguous strata plans. These strata lots should be considered for split classification. The remaining 100 strata lots managed by Company A qualify to be grandfathered into Class 1 because they were not rented or offered for rent for periods of less than seven days for at least 50 percent of the year. These 20 strata lots should be placed in Class 1 because although they were used or available for overnight accommodation, they were not rented or offered for rent. If a timeshare interest provides a residual interest in the property, then the amount paid for points is not rent, but rather the purchase of an ownership interest. Where the purchase of points only gives a right to occupy without any ownership interest, the payment for points if compensation in the form of rent. This is Assessment Practices and Procedures Classification of SAPs 21

22 Scenario 20 strata lots used or available for overnight accommodation were rented or offered for rent for periods of less than seven days for more than six months of the year ending June 30 prior to roll closure, and are managed by Company C (~six percent); Grandfathering Criteria s. 19.1(b)(iii)(A) and (B) Classification Decision consistent with the definition of rent and has been applied in cases such as Les Dames Religieuses de Notre Dame de Charite du Bon Pasteur v. The King and Assessors of Sunny Brae, [1952] 2 S.C.R. 76. These 20 strata lots qualify to be grandfathered into Class 1 because although these strata lots are rented or offered for short-term rent for more than half the year, Company C manages fewer than 85 percent of the strata lots in the strata plan or contiguous strata plans. Assessment Practices and Procedures Classification of SAPs 22

23 APPENDIX C: CASE STUDIES FOR SPLIT CLASSIFICATION These case studies are based on the definition of strata accommodation property in s. 19(1) of the Assessment Act and the criteria set out in ss. 1(a)(iii) and (iii.1), 11 and 12 of B.C. Reg. 438/81. In each case study, the overall use of the strata lot governs its classification, regardless of the number of owners. Properties in some resort communities may be encumbered with covenants that restrict the owners personal use of the property. While unlikely, the effect of these covenants may be to eliminate the opportunity to benefit from the split classification methodology. Scenario Criteria Classification Decision Scenario 1: The resort complex is comprised of 100 strata lots, 50 of which are owned by a single corporation and 50 of which are held by owners with a 1/4 share interest. The strata lots are only used for accommodation and none of the strata lots qualify for grandfathering. 100 strata lots are in a single strata plan or contiguous strata plans 25 strata lots (owned by fractional owners) are not rented or offered for rent for periods of less than 28 days for at least 20 percent of the year ending June strata lots are rented or offered for rent as overnight accommodation for periods of less than 28 days for at least 20 percent of the year ending June 30 The owner of each of the 75 strata lots has the right to use his or her strata lot for at least two weeks during the year ending June 30 s. 19(1)(a) All the strata lots are part of a strata plan or contiguous strata plans of 20 or more strata lots and therefore potentially qualify as SAPs. s. 19(1)(b) These 25 strata lots are not SAPs. They should be placed in Class 1. s. 19(1)(b) These 75 strata lots are SAPs and should be considered for split classification. s. 1(a)(iii)(A) (B.C. Reg. 438/81) The personal entitlement requirement is met in respect of all 75 strata lots. Assessment Practices and Procedures Classification of SAPs 23

24 Scenario Criteria Classification Decision All owners use their strata lots for at least seven days during the year ending June 30; the corporate owner ensures that each of its strata lots is occupied by a guest for a seven-day period during the year ending June 30 s. 1(a)(iii)(B)(I) (B.C. Reg. 438/81) The personal use requirement is met for all 75 strata lots. All the owners report the prescribed usage information to BCA by the prescribed date. 50 strata lots are wholly owned by a single owner (the corporation) ss. 1(a)(iii)(C) and 11 (B.C. Reg. 438/81) s. 1(a)(iii.1) (B.C. Reg. 438/81) The reporting requirement is met in respect of all 75 strata lots. The 25 strata lots held by fractional owners qualify for split classification. The actual value of the strata lots should be apportioned between Class 1 and 6 in accordance with the strata lot s use (with the first 36 days of rental use being attributed to Class 1). These 50 strata lots do not qualify for split classification because they are wholly owned by a single owner. They should be placed in Class 6. Scenario Criteria Classification Decision Scenario 2: The resort complex is comprised of 100 strata lots, which are only used for accommodation and none of which qualify for grandfathering. All owners have the right to use their strata lots for at least seven days during the year ending June 30 and all owners reported the required information to BCA by the prescribed date. 100 strata lots are in a single strata plan or contiguous strata plans s. 19(1)(a) All the strata lots are part of a strata plan or contiguous strata plans of 20 or more strata lots and therefore potentially qualify as SAPs. Assessment Practices and Procedures Classification of SAPs 24

25 Scenario Criteria Classification Decision 51 strata lots are owned by a single corporation and are rented or offered for rent for periods of less than 28 days for the entire year ending June 30 ss. 19(1)(b) and s. 1(a)(iii.1) (B.C. Reg. 438/81) The 51 strata lots are SAPs but they are excluded from Class 1 because they are wholly owned by a single owner. They should be placed in Class strata lots are wholly owned by separate individuals who never occupied their strata lots, but rented or offered them for rent for periods of less than 28 days for 100 days each during the year ending June 30 s. 19(1)(b) and ss. 1(a)(iii)(B) and (iii.1) (B.C. Reg. 438/81) The 20 strata lots are SAPs but do not qualify for split classification because none of the owners used their lots for at least seven days during the year ending June 30 and neither did the owners of the majority of the strata lots (51 owned by a corporation and rented out all year). 9 strata lots are wholly owned by separate individuals each of whom occupied their strata lot for 21 days and rented or offered the strata lot for rent for periods of less than 28 days for 100 days each during the year ending June strata lots are wholly owned by separate individuals each of whom occupied their strata lot for 10 days, rented them for 36 days each, and offered their lots for rent for the remainder of the year ending June strata lots, wholly owned by separate individuals, were removed from the rental pool for 300 s. 19(1)(b) and s. 1(a)(iii)(B)(I) (B.C. Reg. 438/81) s. 19(1)(b) and s. 1(a)(iii)(B)(I) (B.C. Reg. 438/81) s. 19(1)(b) and s. 1(a)(iii)(B) (B.C. Reg. 438/81) These strata lots should be placed in Class 6. The five strata lots are SAPs and qualify for split classification because the personal entitlement, personal use and reporting requirements were all met. The actual value of these strata lots should be split between Class 1 and 6. The 10 strata lots are SAPs and qualify for split classification. However, the strata lots should be placed entirely in Class 1 because the first 36 days of rental use are attributed to Class 1. The 10 strata lots are not SAPs because they were not rented or offered for rent for periods of less than 28 days Assessment Practices and Procedures Classification of SAPs 25

26 Scenario Criteria Classification Decision days during the year ending June 30; each occupied his or her strata lot for 15 days and rented the strata lot for periods of less than 28 days for 50 days during the year ending June 30 for at least 20 percent of the year ending June 30. The strata lots should be placed in Class 1. Assessment Practices and Procedures Classification of SAPs 26

27 APPENDIX D: RELEVANT CASELAW CAUTION Several of the decisions summarized here were decided before the Assessment Act was amended in 2007 by Bill 32. The grandfathering criteria, formerly set out in s. 1(a)(iii) of the Prescribed Classes of Property Regulation, are now contained, with some modification, in s of the Assessment Act. The relevant reporting period is now July 1 to the following June 30. Still, some of the principles in these decisions continue to be applicable. 1. Village of Harrison Hot Springs v. Forsite Developments Inc. and Assessor of Area 15 Fraser Valley (2007), Stated Case 511 (B.C.S.C.) Used for Residential Purposes The Harrison Beach Hotel was comprised of 45 strata lots, three of which were designed and used for commercial purposes and properly classified as Class 6. HELD: Appeal dismissed. Residential purpose includes shortterm occupancy, which is why hotels and motels are excluded from Class 1. However, individual strata lots are not hotels. Further, the remaining 42 residential strata lots were not operational for a sufficient period of time (i.e., they were not available for occupation until June 22, 2005) to determine whether they should be excluded from Class 1 based on their use. It could not be said that they were rented or offered for rent for periods of less than seven days for at least 50 percent of the 12-month period ending October 31, Legends Owners Association et al. v. Assessor of Area 08 North Shore/Squamish Valley (2006), Stated Case 493 (B.C.S.C.) Occupancy Statistics The appeal concerned the classification of 121, ¼-share, strata lots. Each ¼-share owner was entitled to 12 nonconsecutive weeks of use. The strata lots had to be placed in the rental pool when not being used by an owner. The assessor relied on averaged statistical information to Assessment Practices and Procedures Classification of SAPs 27

28 determine that the strata lots were rented or offered for short-term rent for at least half the year and therefore excluded from Class 1. HELD: Appeal dismissed. The court found the strata lots were being used for residential purposes, but that the assessor had erred by averaging the occupancy statistics. Occupancy data for each strata lot should have been individually considered to determine whether the strata lots met the threshold of being rented or offered for short-term rent for at least half the year. The court also concluded that the strata lots were offered for rent unless they were reserved or occupied by their owners. NOTE This decision has also been overtaken, to some extent, by legislative amendments that now permit classification based on conditions other than use or type (e.g., ownership). 3. Strata Plan VIS3164 and Strata Plan VIS4998 v. Assessor of Area 04 Central Vancouver Island (2005), Stated Case 490 (B.C.S.C.) Contiguous Two strata plans at the Tigh-Na-Mara Resort, separated by a road, were comprised of 159 strata lots. These strata plans were adjacent to other plans making up different resort facilities. At issue was the meaning of contiguous as that term was used in s. 1(a)(iii) of the Prescribed Classes of Property Regulation. HELD: Appeal dismissed. The court upheld the Board s decision, finding that it was appropriate to draw the line between contiguous parcels based on whether the strata plans were part of the same operation, under the same management umbrella. 4. Talbot v. Assessor of Area 08 North Shore/Squamish Valley (2004), Stated Case 461 (B.C.C.A.) Controlled or Managed Tantalus Lodge was comprised of 76 strata lots operating as a hotel in Whistler. The issue was whether or not 85 percent or more of the strata lots were controlled or managed by the Assessment Practices and Procedures Classification of SAPs 28

29 same person(s) in order exclude the strata lots from Class 1. The owners of 14 strata lots agreed with Delta that they would no longer form part of the Hotel and instead entered into agreements with another management company. The second management company (Function Junction) then entered into a contract with Delta giving Delta the day-to-day administration of those 14 strata lots on the same terms and conditions as Delta managed the other strata lots. HELD: Appeal dismissed. The court upheld the Board s view that there was no distinction between the terms, control, manage or administer. On the facts, the court found that all the strata lots were effectively controlled or managed by Delta. The contracts and evidence did not support the claim that the agreement between Delta and Function Junction transferred responsibility to control or manage the 14 strata lots. 5. Ventana Ventures Corp. v. Assessor of Area 08 Vancouver Sea to Sky Region, 2009 PAABBC Meaning of Owner Each of the appellants was the beneficial owner of several, but fewer than 14, SAPs within a strata complex. The appellants took the position that none of the beneficial owners owned more than 14 SAPs in the strata plan even if the trustee (the legal owner) did. The beneficial owners argued that their SAPs should not be wholly excluded from Class 1 under section 1(a)(iii.1) of the Prescribed Classes of Property Regulation because the definition of owner in the Assessment Act is expansive enough to include beneficial ownership. HELD: The Board rejected the appellants argument, finding that although the definition of owner is inclusive, it is not so expansive to include estate-hold interests that are not expressly listed. The appellants are not owners within the meaning of the Assessment Act. The registered owner of the 32 SAPs under appeal was the relevant owner for the purpose of section 1(a)(iii.1). The SAPs were classified as being entirely within Class 6. Assessment Practices and Procedures Classification of SAPs 29

30 6. Owners of Strata Plan 226 v. City of White Rock (2010), Stated Case 542 (B.C.S.C.) Right to Use and Reporting The City of White Rock appealed, to the Board, the split classification of the SAPs in the Ocean Promenade All Suites Hotel on the basis that the owners did not have the right to use their SAPs for at least seven days in the reporting period (i.e., July 1 to the following June 30) as required by section 1(a)(iii)(A) of the Prescribed Classes of Property Regulation. In the alternative, the City argued that the owners had failed to report as required because the strata management company and not the owners reported the usage statistics required by BCA. BCA had split-classified the SAPs based on declarations of use submitted by the strata management company on behalf of the owners. The Board concluded that a section 219 covenant negotiated between the developer and the City prevented the owners from using their strata lots for any purpose other than public rental residential use, which was defined in the covenant to mean commercial rental use by the public. Because the owners were not permitted to occupy their strata lots for their own purposes, it could not be said that they had the right to use them for the required amount of time. The Board did not, apparently, give any weight to a second and contradictory covenant registered on the titles. The Board also went on to find that the owners had complied with their obligation to report by reporting through an agent. The owners appealed the decision about their right to use their strata lots to the BC Supreme Court. HELD: The court held that the section 219 covenant was ambiguous and that on a proper reading, the owners did actually have the right to use their strata lots for at least seven days. The restrictive covenant only required the strata lots to be used for public rental residential use for at least 50 percent of the year. The assessor s decisions on split classification were restored. Assessment Practices and Procedures Classification of SAPs 30