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Strata developers often use long-term leases to generate revenue from the sale of leasehold interests in parking stalls and storage lockers. A recent case1 reminds licensees about the importance of the lease documentation.2
In a lease over land, recall that the tenant acquires exclusive possession for the term of the lease. Sometimes, in the early stages of a development, the developer will lease the intended parking or storage areas to an associated corporation for a lengthy term (e.g., 99 years). Later, the developer will designate those areas as common property in the strata plan.
When the developer eventually files the strata plan, the common property parking stalls and lockers are subject to the prior long-term lease. If a first purchaser wants to use a stall or locker, the purchaser pays extra. In exchange, the developer causes the associated corporation to partially assign or sub-lease that stall or locker to the first purchaser.
In Christian v. Calvano, the complex contained parking stalls as well as two-car garages and storage lockers. Before filing its strata plan, the developer — as the landlord — entered a long-term lease with an associated corporation — as the tenant — for all of the parking stalls, garages and lockers. After registering the lease at the Land Title Office, the developer later deposited its strata plan.
When the seller, Mr. Calvano, bought his strata lot from the developer, he also acquired a partial assignment of the long-term lease from the long-term tenant for the use of parking stall 30 and a locker. Later that year, needing more space, Mr. Calvano paid a further $60,000 for a partial assignment of the long-term lease for the use of Garage 3.
In early 2011, the seller listed his strata lot for sale, including his leasehold interest in parking stall 30, the locker and the garage respectively. When the property did not sell, he reduced the price and excluded from the listing his leasehold interest in the garage. Apparently, he asked the listing licensee to say that the garage lease was available for an additional $65,000.
In October 2011, the seller entered a Contract of Purchase and Sale to sell his strata lot to the buyer with an assignment of the seller’s respective leasehold interests in parking stall 30 and the locker. The contract did not expressly deal with the garage. Despite some negotiation, there was no agreement to assign the seller’s leasehold interest in Garage 3 to the buyer.
Shortly after completion, the strata corporation notified the buyer that her purchase included the leasehold interest in the garage. When the seller disagreed, the buyer sued to confirm her leasehold interest in the garage.
In Christian, the lease documentation was critical. It provided, in effect, that an owner is only entitled to further assign their leasehold parking or locker rights so long as the owner owns a strata lot. Should the owner sell the strata lot without assigning their leasehold parking or storage interest to another owner or purchaser, the lease would deem that leasehold interest would be automatically assigned to the purchaser. Since the parties’ contract did not include the seller’s leasehold interest in Garage 3, the court confirmed that it was automatically assigned to the buyer.
These long-term parking and storage leases are seldom registered. If the seller does not have the relevant documentation on hand, the Real Estate Council of British Columbia suggests asking the seller to check for information about the lease in the contract by which the seller bought the strata lot. Alternatively, a licensee may inquire with the Superintendent of Real Estate. If the developer filed a disclosure statement, it should disclose the lease. If there is still confusion, the seller should seek legal advice.3
Often, a long-term parking or locker lease will require the long-term tenant to own a strata lot in the complex. Upon selling the strata lot, if the owner fails to transfer their leasehold parking or storage rights to the buyer, the lease usually deems that leasehold interest to be assigned to the buyer anyway.
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