No Rights and No Review:How Housing Cooperatives haveCircumvented Procedural Fairness

British Columbia is in the midst of an affordable housing crisis, with over 14,400 households on B.C. Housing’s waiting list for subsidized housingi and forecasts that an additional 2,256 low-cost units will be required in the Vancouver region each yearii. As part of the government response to this issue, Canada Mortgage and Housing Corporation and B.C. Housing provide publicly funded subsidy pools to housing cooperatives (“cooperatives”). Cooperative housing in British Columbia expanded significantly in the 1970s and 1980s with the principles of community and affordability at the forefront of the growth. Today, there are more than 255 cooperatives in British Columbia, providing 14,300 housing units to primarily low-income individuals and families. Members purchase a share in the cooperative and pay monthly housing charges thereafter. In some cases, where housing charges are disproportionate to the member’s income, the member is allowed to pay a percentage of income, usually 25 to 30%, and draw on the subsidy pool to make up the difference.

In recent years, many cooperative boards have adopted rules that enable them to expel members without triggering the extensive procedural fairness provisions otherwise mandated by cooperative legislation.

Authored by: Susan Mossing and Shannon Salter

At their best, cooperatives can be an empowering way for low-income families to obtain safe and affordable housing, security of tenure and a sense of community. However, in recent years, many cooperative boards have adopted rules that enable them to expel members without triggering the extensive procedural fairness provisions otherwise mandated by cooperative legislation. Not only is this practice unfair to cooperative members, but it undermines the philosophy of cooperative housing and endangers some of the more vulnerable members of our society. This paper reviews how these rules have circumvented statutory provisions meant to protect the rights of cooperative members, examines the courts’ reaction to this scheme and proposes legal recourse which may be available to cooperative members confronted with this type of expulsion.

The Legislation

The Cooperative Associations Act (the “Act”)iii governs the formation, structure and operation of all cooperative associations, including housing cooperatives. Cooperatives are formed when a memorandum and rules of association are filed with the Registrar of Companies. Under s. 18 of the Act, the rules are binding on each member to the same extent as if they had been signed by the member. Among other things, the rules empower the elected cooperative board to terminate a membership in the cooperative for reasons set out in the rules. Section 35 of the Act provides grounds for termination that may be adopted in the rules, including:

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non-payment of housing charges or dues which remain unrectified within a reasonable •time after receiving notice;

breach of a material condition of the occupancy agreement, based on reasonable •grounds, where the breach remains unrectified within a reasonable time after receiving notice; and

conduct detrimental to the cooperative.• iv

Section 171 of the Act states that any right to possession of residential premises which is dependent on membership in a housing cooperative is terminated when the membership is terminated.

The Guide to the Co-op Act published by the Cooperative Housing Federation of British Columbia (“CHFBC”) recognizes that terminating membership is a “serious decision” and that “[a] co-op should use termination of membership as a last resort, only after trying other ways to solve the problem.”v In keeping with the gravity of the consequences of termination, the Act sets out extensive procedural fairness provisions relating to termination of membership. These provisions include:

Seven days’ notice of a meeting where termination of membership is to be considered •[s.36(1)];

The right to attend and make submissions [s. 36(1)];•

Written notice of the decision within seven days [s. 36(2)];•

The right to appeal the decision at the next meeting of the association [s. 37(1)]; •

If termination is confirmed, notice of the decision and the member’s right to appeal •to the Supreme Court, as well as provision of the relevant court forms and, if the member is not in arrears, filing fees, [s. 37(2.1) and s. 4(1)(a) of the Cooperative Association Regulationvi];

The retention of member status during the appeal process [s. 37(2) and (3.1)].•

A member’s relationship to the housing cooperative is defined both by member status, through the purchase of shares in the association, and by possession of a unit in the cooperative, which is governed by an occupancy agreement. While the Act accords extensive procedural rights in relation to termination of membership, it is silent with respect to the rights incidental to the termination of an occupancy agreement. For this reason, the distinction between occupancy and membership for the purpose of the Act has potentially devastating consequences for cooperative members if the cooperative board seeks to expel them. As discussed below, cooperative boards have capitalized on this legislative oversight by adopting rules that trigger a “deemed withdrawal” of membership when an occupancy agreement is terminated.

The “Deemed Withdrawal” Loophole

Housing cooperatives were encouraged to revise their rules to ensure compliance when the Act came into force. To facilitate this process, the CHFBC published a set of Model Rules and a Model Occupancy Agreement which were to be consistent with the Act. These forms are not mandatory; however, the CHFBC has made concerted efforts to make the Model Rules and Occupancy Agreement standard in the housing cooperative sector.vii Copies were provided to cooperatives throughout the Provinceviii and the Registrar of Companies cautioned against deviations from the Model Rules. ix

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Rule 4.3 of the Model Rules, which is not identified as an optional rule, provides:

If the Co-op terminates the Occupancy Agreement, the member will be deemed to have given notice of withdrawal of their membership effective immediately.

(the “Deemed Withdrawal Rule”)

Not surprisingly, given its voluntary connotation, a “withdrawal” of membership is afforded no procedural safeguards under the Act. However, the effect of the Deemed Withdrawal Rule is that a member is not withdrawing from the cooperative voluntarily, rather they are being forcibly ejected as the result of a purported breach.

Cooperatives have seized on the Act’s failure to address all forms of termination by drafting rules and occupancy agreements that circumvent the procedural fairness safeguards statutorily prescribed where cooperative membership is terminated.

Clause 16.03 of the Model Occupancy Agreement provides that it can be terminated for the breach of any term of the Occupancy Agreement, the Rules or the cooperative’s policies as well as for default of payment where the default is not rectified within ten days of receiving notice. Despite the fact that the contemplated grounds are similar, the two methods of termination involve vastly different levels of procedural protection. Moreover, unlike the grounds for termination of membership contemplated in the Act, the termination provisions under the Model Agreement do not include a right to rectify a breach after notice has been provided. Accordingly, not only are terminations pursuant to occupancy agreements exempted from the procedural fairness provisions in the Act through the Deemed Withdrawal Rule, the grounds for termination are less forgiving than those contemplated for termination of membership. The fact that a member could have their occupancy agreement terminated for arbitrary or inconsequential policy violations, such as the type of flowers planted in a flower box, further highlights the injustice of the situation.

In summary, cooperatives have seized on the Act’s failure to address all forms of termination by drafting rules and occupancy agreements that circumvent the procedural fairness safeguards statutorily prescribed where cooperative membership is terminated. The leading authority on this issue, Corbett v. Still Creek Housing Cooperative (“Corbett”),x demonstrates how this loophole operates.

The Corbett Decision

In Corbett, the appellant member had fallen into arrears in paying his housing charges and had agreed to a payment plan with the cooperative. When the member failed to meet his obligations under the payment plan, the cooperative terminated his occupancy agreement. Like the Model Rules, the respondent cooperative’s rules provided that the termination of an occupancy agreement amounted to a deemed withdrawal of membership. The member applied to the Supreme Court for a declaration that the deemed withdrawal was subject to ss. 35-39 of the Act and the cooperative’s termination of his occupancy agreement was therefore ineffective. The chambers judge dismissed the application, finding that the Deemed Withdrawal Rule did not attract the procedural safeguards set out in the Act.

Mr. Corbett argued on appeal that the language of the Act did not support a distinction between the two types of termination and that such a restrictive interpretation would defeat the underlying purpose of ss. 35-39 of the Act, to ensure due process and security of tenure. The Court of Appeal upheld the lower court’s decision on a plain reading of the Act, the cooperative’s rules and occupancy agreement. The Court’s reasoning was based in part on the fact that the Act did not provide safeguards for withdrawals and that to extend safeguards to

About Susan Mossing

Susan joined the firm as a student in 2005 after completing an internship at the International Tribunal for the Former Yugoslavia in the Hague. After completing her articles with the firm she became an Associate in 2006. Susan is a member of the firm’s litigation group and has assisted senior counsel in a variety of matters before the British Columbia courts.

Susan can be contacted by phone at (604) 661-9336 or by email: smossing@farris.com

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deemed withdrawals would be absurd where, for example, the deemed withdrawal was triggered by the death of a member. Furthermore, the Court found that Mr. Corbett was afforded adequate procedural safeguards under the terms of his occupancy agreement; 10 days’ notice to pay the amount owing, failing which, 30 days’ notice to vacate the unit.

The safeguards found to be adequate in Corbett are akin to the safeguards typically allowed commercial tenants. In fact, cooperatives seeking an order of possession pursuant to the termination of an occupancy agreement must bring an application under the Commercial Tenancy Act.xi However, commercial tenants and cooperative members are not appropriate comparator groups. A better comparison would be the procedural safeguards enjoyed by residential tenants under the Residential Tenancy Act,xii where tenants are always entitled to challenge lease terminations before a dispute resolution officer. However, based on the scheme set out above, cooperative members who are generally from a more vulnerable demographic than residential tenants, are deprived of the procedural rights extended to residential tenants.

As demonstrated in Corbett, cooperatives have exploited the distinction between membership and occupancy by drafting Rules that equate the termination of an occupancy agreement with a withdrawal from membership.

The disparity in rights is most obvious within the cooperative itself. Imagine that a cooperative board has terminated Neighbour A’s membership and Neighbour B’s occupancy agreement, both for identical reasons. Neighbour B must vacate his unit in 30 days without any right to appeal or dispute the termination, while Neighbour A has a full complement of procedural safeguards to ensure that he is not unfairly expelled from his home. The absurdity of the Deemed Withdrawal Rule is evident. Based on the finding in Corbett, a member could have their occupancy agreement terminated for the most insignificant policy violation and be expelled from their home without notice, if that accords with the terms of the occupancy agreement. The injustice is underscored by the fact that cooperative boards can elect arbitrarily which method of termination they will employ. The Deemed Withdrawal Rule is an easy way for cooperative boards to rid themselves of unwanted or disliked members and free up highly sought after units.

As demonstrated in Corbett, cooperatives have exploited the distinction between membership and occupancy by drafting Rules that equate the termination of an occupancy agreement with a withdrawal from membership. The result is inconsistent with the intention of the legislature to protect the rights of members as demonstrated by the extensive procedural safeguards set out in the Act respecting termination of membership. Unfortunately, the Court of Appeal has found that the Deemed Withdrawal Rule is not contrary to the Act and has paved the way for cooperatives to use this precedent where the termination of an occupancy agreement is based on violations less significant or clear-cut than the default in housing charges at issue in Corbett.

Possible Legal Remedies

The decision in Corbett dealt with the narrow issue of whether the protections in ss. 35-39 of the Act apply to the Deemed Withdrawal Rule. Neither court considered the arguments set out briefly below, which though mostly untested, may be raised by lawyers as a means to set aside terminations pursuant to the Deemed Withdrawal Rule.

Contract arguments

A member challenging an occupancy agreement termination is confronted with the plain meaning of its contractual provisions and the court-protected freedom of parties to make their

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own bargain. However, there are well-established defences to contract, such as unconscionability, which may apply since there is a clear inequality of bargaining power between cooperatives and prospective members. The English courts referred to this aspect of the doctrine of unconscionability as the principle “which prevented any oppressive bargain, or any advantage exacted from a man under grievous necessity and want of money, from prevailing”,xiii a principle which has found good footing in Canadian jurisprudence.xiv

In this regard, occupancy agreements typically contain boilerplate language imposed by cooperatives on a vulnerable group of people who have no ability to negotiate since the alternative is often homelessness. Furthermore, a member’s lack of awareness of rules that impact how the terms of the agreement operate against them may help establish an “oppressive bargain.” The unconscionability argument must be limited to specific clauses in the agreement, such as the termination clause vis a vis a Deemed Withdrawal Rule, in order to avoid rescinding the entire agreement, which would leave the member with no right to possession at all. Counsel should also look carefully at the terms of the applicable occupancy agreement and rules to determine whether other contractual arguments may apply.

Procedural fairness in voluntary associations

Though the procedural fairness requirements in the Act do not apply to the Deemed Withdrawal Rule, there are common law requirements for voluntary associations to adhere to a minimum threshold of procedural fairness including the right to notice, the opportunity to make representations and an unbiased tribunal. These procedural fairness mechanisms are more stringently applied where the interest at stake involves property. The Supreme Court of Canada established this minimum threshold in Lakeside Colony of Hutterian Brethren v. Hofer, xv in which a communal religious group attempted to evict several members from the colony and confiscate their interest in the commune’s property. This case has been applied to First Nations band elections,xvi the expulsion of members of a churchxvii and the internal affairs of a professional regulatory board,xviii but has not yet been applied to cooperatives. Procedurally, there is some authority that common law rights to procedural fairness can only be granted in an action, rather than a petition.xix Since the other remedies discussed below must be brought by petition, in order to make this argument, a member may need to file a petitionas well as a writ. However, if one proceeding is unsuccessful before the other is heard, res judicata or estoppel arguments may be raised. Applying to have the writ and petition consolidated, if such a concern arises, would be a way to address this issue.

The Act

Despite the Act’s failure to contemplate termination under the Deemed Withdrawal Rule, a member faced with such termination may be able to make use of s. 172.1, which provides that, “a member of a housing cooperative who has a right to possession or occupancy of residential premises that is dependent on his or her membership may apply to the court for an order of possession of the residential premises.” The Act does not specify what test the court should use in deciding whether to grant an order of possession and this section has only been used in cases where termination of membership was in issue. Arguably, the court could interpret this section as conferring upon it a discretion to grant an order of possession to a member facing a deemed withdrawal of membership on the grounds of fairness.

The Law and Equity Act

Section 24 of the Law and Equity Actxx permits the court to “relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses, damages, compensations and all other matters that the court thinks fit.” Relief from forfeiture is the

About Shannon Salter

Shannon practices in the area of general commercial and civil litigation, and has represented individuals and corporations before the Provincial and Supreme Courts of British Columbia. Shannon has also assisted senior counsel in a variety of commercial and class action matters before British Columbia courts and tribunals.

Shannon can be contacted by phone at (604) 661-9301 or by email: ssalter@farris.com

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most accessible remedy for unrepresented members facing an order of possession.xxi If the member demonstrates that he or she acted in good faith and would face hardship if the order of possession were granted, the member may obtain discretionary relief from the court without any complicated pleadings or procedures.

However, s. 24 has a number of limitations. Relief from forfeiture is generally granted only once, so if a member has previously obtained relief, it is unlikely to be ordered again. For this reason, members should be cautious about using this remedy over others that may apply since they could be foreclosing the possibility of relief in the future. Further, because there must be a finding of the member’s violation before relief from forfeiture can be granted, this finding can be used in future proceedings as evidence of the member’s history of violations. Section 24 can be pleaded as an alternative to the remedies discussed in this section.

Interlocutory relief

While it is important to identify means of setting aside a termination under the Deemed Withdrawal Rule, the most pressing matter for the member and their family is some assurance that their immediate housing needs are going to be met. To this end, obtaining an interlocutory injunction, on short leave if eviction is imminent, relieves the member’s anxiety, and gives the lawyer time to consider the options available. Members facing removal from their cooperative will often meet the test for granting an injunction.xxii In our view, the remedies discussed above raise a serious question to be tried with respect to the enforceability of the Deemed Withdrawal Rule, with the common law rules of procedural fairness holding the strongest possibility of success. In most cases, irreparable harm to the member and their family will inevitably result from being removed from the cooperative. Given the waiting list for new units and the generally low vacancy rate in most areas of the province, removal from the unit presents a real risk of homelessness. This loss of emotional and physical security is not easily quantified or compensated with damages. Conversely, in most cases the cooperative will not suffer any harm, and any financial loss can be remedied with damages. In this context, the balance of convenience will likely favour granting the injunction.

Conclusion

Faced with an unfortunate Court of Appeal precedent, lawyers have few options to offer clients who fall prey to the effects of the Deemed Withdrawal Rule. The challenge is further compounded by the fact that the possible legal remedies are complex, untested and procedurally challenging. The affordable housing crisis in British Columbia has made the consequences of this type of termination particularly devastating for cooperative members and their families. As an increasing number of members expelled under the Deemed Withdrawal Rule seek pro bono legal advice, it is our hope that the information in this paper will provide a starting point for lawyers willing to take up their cause as well as create awareness in the legal community of the legislative deficiencies that have permitted this scheme to operate. Only through increased awareness will the ultimate solution of legislative reform be possible.

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i Robyn Newton, “B.C. Housing Budget Offers Few Housing Solutions”, (Vancouver: The Social Planning and Research Council of BC, Winter 2007)

ii PriceWaterhouseCoopers, Forecast Demand for Affordable Housing in Greater Vancouver: Final Report, (Vancouver: Greater Vancouver Regional District, April 2004)

iii S.B.C. 1999, c. 28

iv Under Rule 5.2 of the Model Rules, published by the Cooperative Housing Federation of British Columbia, “Conduct detrimental to the Co-op” is defined as:

Conduct detrimental to the Co-op can include, but is not limited to, such things as:

[a] failure to comply, or failure to ensure compliance by any resident or person visiting the member, with any term or provision of:

[1] these Rules or the Occupancy Agreement; or

[2] any house rule or policy which may be in effect;

[b] causing, permitting, or threatening wilful damage to the property or physical premises of the Co-op or the Unit;

[c] causing, permitting, or threatening violence directed against persons on the Co-op’s property;

[d] unauthorized detention of property of the Co-op; or

[e] causing, permitting, or threatening injury or harm to the reputation of the Co-op.

v Cooperative Housing Federation of British Columbia, “Guide to the Co-op Act”, , p. 22, article 3.5

vi B.C. Reg. 391/2000

vii In the test case discussed below, Corbett v. Still Creek Housing Cooperative, 2006 BCCA 567, the Court cited the cooperative’s assertion that “[a]lmost all other Co-ops in BC have adopted this particular [Deemed Withdrawal Rule] within their Rules of Association.”

viii Cooperative Housing Federation of British Columbia, “Guide to the Model Rules”, p. 9

ix The introduction to the Rules Guide states:

You may find that the Model Rules suit you exactly as written, once you have selected from the options that come with it. Or you may decide that you want to make changes that are not included in the options. It’s up to you, of course. But if you choose wording that is not in the model or the options, be sure to consult your lawyer first. The Registrar will be paying extra attention to wording that is not in the approved model.

The preface also includes a letter from the Registrar of Companies approving the Model Rules.

x 2006 BCCA 567

xi R.S.B.C. 1996, c.57

xii S.B.C. 2002, c. 78

xiii Barrett v. Hartley (1866), L.R.2 Eq. 789 at 795

xiv S.M.Waddams, The Law of Contracts, 4th ed. (Toronto: Canada Law Book, 1999) at pp.373-375

xv [1992] 3 S.C.R. 165 at para. 79

xvi Desnomie v. Peepeekisis First Nation, 2007 FC 426

xvii Lutz v. Faith Lutheran Church of Kelowna, 2009 BCSC 59

xviii Wang v. British Columbia Medical Association, 2008 BCSC 1559

xix Parks v. B.C. School Sports (1997), 145 D.L.R. (4th) 174 (S.C.) at para. 7

xx R.S.B.C. 1996, c. 253

xxi C. Grant Haddock, “Not for Profit and Charity Co-operatives” (Continuing Legal Education, North Vancouver, October 2004) at 4.1.12

xxii RJR-MacDonald Inc. v. Canada (Attorney General), [1994] S.C.J. No. 17, 111 D.L.R. (4th) 385