Vacation home owners have won a legal judgment against the developer of East End’s Castaways’ Cove in a landmark case that ensures stratas must be run as “community democracies.”
Justice Ingrid Mangatal struck down bylaws that lawyers argued gave Thompson Resorts Ltd. a “permanent controlling interest” in running the beachside holiday resort.
The case was brought by U.S. resident Carl Clappison on behalf of multiple owners who believed they were being overcharged by Thompson Resorts’ Kel Thompson, who contracted his own company to manage Castaways’ Cove, which forms one part of Wyndham Reef Resort, prior to the sale of any units.
According to an affidavit from Mr. Clappison, the vacation home owners felt they were being charged unreasonably high strata fees, essentially subsidizing the Reef Resort, which Mr. Thompson operates on the same property with shared facilities.
When they questioned the fees and rejected the strata’s annual budget plan, Mr. Thompson invoked bylaws giving the developer an automatic majority in any poll, and pushed the budgets through, the court documents indicate.
The judge ruled last week that those bylaws were “ultra vires” [meaning beyond legal powers] and that the Strata Titles and Registration Law envisioned “a democratic, inclusive process” enabling “majority rule, and allowing the proprietors to make collective decisions.”
She said the owners were entitled to a say in how the complex was run.
Justice Mangatal declined a separate request that an independent administrator be appointed to take over running the complex, saying the owners’ complaints did not meet the high legal threshold for such an extreme remedy.
She said she was not satisfied that “substantial misconduct or mismanagement” had been proven on the part of the strata’s executive committee, controlled by the developer, and suggested that many of the problems would “fall away” once the “offending bylaws” were removed and a new democratically elected committee was chosen.
Residents had raised concerns about what they viewed as excessive charges for services such as beach cleaning and maintenance, as well as the administration of properties in a “rental pool.” They also highlighted a lack of transparency over finances, including the absence of audited accounts.
Justice Mangatal wrote, “It is obvious that there have been personal clashes between Thompson Resorts Limited, in particular Mr. Kel Thompson, Mr. Clappison, and other owners. It is also plain that the preparation of accounts and accountability has been less than satisfactory.”
But she said many of those problems came about because Thompson Resorts had, on numerous occasions, used the bylaws to “carry resolutions and approve accounts when there is objection or disagreement by other proprietors.”
She suggested that removing the bylaws should be enough to empower the residents to deal with the issues raised themselves, without the need for an administrator to take control.
The origins of the dispute date to 2003 when Thompson Resorts Ltd., the developer and at that time the sole owner of all the units in Castaways’ Cove, amended the strata bylaws to include clauses giving it an automatic majority in all owner votes for 50 years or until all the units were sold to third parties.
According to the evidence of Mr. Thompson, it is not uncommon for developers to include similar provisions at the outset of a development to enable them to ensure consistency of operations in resort stratas.
James Kennedy of Samson and McGrath, who brought the case on behalf of the residents, said the ruling would impact how developments are structured in the future. He said it gave important protection to anyone who bought a home in a condo complex.
“Developers often reserve the power to control the Strata Executive Committee and to vote down purchasers on matters of importance to all owners when registering a strata and owners can get stuck with losing all power until the developer sells all the units or a pre-determined period, usually of five or more years, expires.
“This ruling ensures that when you buy a unit in a strata, you have a right to a say in how it is run from the outset and can ensure the developer is working in everyone’s interests and not just their own.”
Mr. Clappison, who shares ownership of a unit in the complex with his wife and two other couples, said he was pleased with the result of the case.
“It allows the owners of the strata to take our first steps towards self-governance and bringing our costs under control, with hopefully a corresponding increase in our property values.”
Mr. Thompson said the bylaws of Castaways’ Cove were fairly typical of strata developments in Cayman. He said developers needed to have control, particularly during the construction and sales period, to ensure the quality, the theme and the manner in which the resort is operated.
“This is going to have a serious impact on strata development in the Cayman Islands,” Mr. Thompson told the Cayman Compass.
“If that is determined to be ultra vires, then I suspect it is going to affect strata developments in the future. Developers are going to be reluctant to do it.”