Westsea Construction has refused in writing to provide financial disclosure to address astoundingly basic concerns about the spending of Orchard House lessees’ money. The lack of disclosure by B.C.’s long-term residential lease landlords was the primary concern of our former MLA Carole James, and should be now for MLA Grace Lore and for Minister of Housing David Eby.
Here are 10 questions that I put to Westsea President Julie Trache in a registered letter dated 1 December 2019, not one of which the company is willing to address:
- Whether the 16 Orchard House suites (my best guess) to which Westsea itself or a sister company hold the lease assignments contribute monthly to the building’s operations and to capital-project assessments. Since 2008 my studio suite has paid approximately $40,000 in capital assessments (new roof, replacement windows, etc.). On that basis the company’s suites, which are mostly larger, were responsible for about $1 million. We need to see that these amounts were contributed, and that they are for future capital assessments and for future years of operating costs.
- Whether about $90,000 per year in “Salaries and employee benefits” paid by lessees is also paying for site staff and perhaps even Westsea head office staff to administer and advertise for the company’s portfolio of rental suites at Orchard House, as opposed to only administering the functions of the building. Lease clause 7.01 specifies that operating expenses are only those “…in connection with the maintenance, operating and repair of the building…”.
- Whether about $70,000 per year in “Accounting and administrative costs” is limited to the operation of Orchard House, or whether it inappropriately pays a portion of Westsea Construction’s corporate operating expenses. Unlike some other Westsea leases, the Orchard House lease does not authorize the charging of “management costs”.
- Whether the combined $160,000 annual cost of the two just-mentioned line items is a reasonable amount to administer a building operation that has little complexity, noting again that the O.H. lease does not authorize the billing of management costs. In other words, the lease intends that the administration of the building by Westsea be a revenue-neutral function.
- Whether $426,675 in “Repairs and maintenance” billed to lessees during 2018–more than double the 2017 amount—was incurred with discretion, and for what projects.
- Whether about $35,000 year after year in “Scavenging” is properly incurred on lessees’ behalf. Discretion in this would have seen cameras installed in the refuse-bin area and notice posted that those leaving furniture or debris will be billed for its removal.
- Whether lessees cover the expenses for 34 indoor parking stalls (my estimate) that Westsea Construction holds for its own use or rental profit. Discretion in incurring expenses for lessees means that they should not pay expenses for a building function that does not benefit them, and that may be earning the company profit. A calculable portion of building operating costs, property tax and capital-project expenses can be attributed to parking stalls.
- Whether $659,525 in “Legal” billed to lessees during 2019 (41.8% of spending) was in any way connected with actual operation of the building or contracts to serve it. Also, whether Westsea is incurring unnecessary expenses by referring to its costly legal team straightforward administrative matters.
- Whether $2,825 awarded in August of 2017 by Madam Justice Power to litigant Hugh Trenchard against Westsea was subsequently recovered by the company from him and from other Orchard House lessees under the budget heading “legal”, rather than properly paid as a corporate expense by the company.
- Whether Westsea billed lessees its expenses (well over $10,000 by my guess) for the just-mentioned loss–with costs awarded to Mr. Trenchard—AND then the appeal of that loss, which it later abandoned, of the company’s application to strike his notice of civil claim regarding the cost of replacement windows.
The 10 December 2019 reply from the company’s property manager rejected my assertion to Ms. Trache that the company’s duty to exercise “prudent and reasonable discretion” in the spending of our money requires disclosure to lessees beyond a one-page summary of annual spending.
Regardless of lease interpretation by the courts, why would Westsea not have an open-book policy? But whether to hide fraud or more likely due to a policy of non-disclosure about anything, to anyone, ever, if Westsea and other leasehold landlords won’t be open about the supposedly break-even operation their buildings at lessees’ expense, legislation should require it.
- My 1 December 2019 letter to Ms. Trache is here (opens a new tab): Demand on WS for disclosure
- A 6 December 2019 follow-up letter to Westsea’s audit firm is here (also opens a new tab): Ltr to auditor re info demand on WS
- The 2019 year-end tells-us-little operating statement is here (‘new tab): 2019 operating costs
- Westsea’s 10 December 2019 reply is here (opens a new tab): WS replies to Ger demand ltr The opening-sentence reference to my letter of December 3 is likely a typo and means to refer to my December 6 letter to the auditors. Note that the lengthy and likely lawyer-drafted Westsea reply makes assertions to which I say the following:
* The lack of a provision in the Orchard House lease–and in most if not all other such leases in B.C.–for disclosure to lessees does not preclude a full-disclosure approach to budgeting and spending by this or by any lessor. In short, what’s the secret?
* There is no “privilege”, be it solicitor-client or any other, involved in the spending to operate a leasehold building. No one is asking any question beyond the collection and spending of our money to run the building we live in. Once again, what’s the secret?
* The so-called annual audited statements we receive contain only a one-page summary list of general categories that do not make it possible to answer a single question posed in my letter. The accompanying pages just speak to the auditors’ best efforts, note the limits of their ability to detect fraud, and state that the auditors rely on information provided by the lessor.
* The cost-of-windows court decision is portrayed as supporting Westsea in all of its interpretations of the lease, but the case only considered those clauses regarding whether a lessee or the lessor was responsible for the cost of replacement windows. The ruling said nothing about billing to lessees of other expenses, nor about disclosure to lessees regarding those expenses.
* Westsea portrays as a benefit to all lessees that it opposed Mr. Trenchard’s suit regarding the windows expense and that it then charged lessees its litigation expenses to do so. But the owner of any residential building has duties of maintenance regardless of the source of funding. Anyway, I didn’t ask about windows replacement, but demanded financial disclosure to lessees.