Strata Development Termination
Two recent BC court cases clarify when a strata council might list a terminated development project for sale, or contract to sell it to a buyer.
Many of BC's earliest strata developments are around 50 years old. Aging strata buildings may be located in an area rezoned for higher density development, or need so much remedial work that selling the project to a developer for redevelopment is more cost effective.
Part 16 of the Strata Property Act outlines three methods for terminating a development:
- In the first two methods, owners choose to terminate by passing a vote to approve a winding-up resolution, either with (Division 1 wind up) or without (Division 2 wind up) a liquidator. In most cases the strata corporation must ask the Court to confirm the resolution, giving each dissenting owner an opportunity to object.
- With a Division 1 wind up, the strata plan is cancelled and the underlying land reverts to one or more large parcels of land, now owned by all of the owners together as tenants in common.
- With a Division 2 wind up, all of the land shown in the strata plan is vested in a liquidator who will have the strata plan cancelled, with the land reverting to one or more large parcels.
- In both cases the strata corporation is also dissolved, the relevant land sold, and any personal property formerly belonging to the strata corporation converted to cash. Everyone who was formerly the owner of a strata lot will receive their share of the proceeds (subject to any amounts due to their respective mortgage lenders or other secured creditors).
- In the third method, there is no winding-up resolution and the Court orders the strata to terminate (Division 3 wind up), typically because the strata corporation is too dysfunctional to continue.
In 2016, the province of BC made it easier for strata owners to choose to terminate their development, lowering the threshold for a winding-up resolution to 80%. Since then, the Supreme Court of British Columbia has decided several important termination cases:
Buckerfield v. Strata Plan VR 92
In Buckerfield v. Strata Plan VR 92, several REALTORS® approached a strata council to ask about selling the council's 41-unit complex. The council then organized a presentation to the strata complex's owners about the termination process. In an informal poll, a majority of the owners favoured hiring a real estate brokerage to market the complex to developers for redevelopment, subject to later passing a winding-up resolution.
When the council first announced its plan to ask the owners to vote on whether to retain a brokerage, some dissenting owners sued for a declaration that the proposed resolution required an 80% vote, just like a winding-up resolution. The Court dismissed the dissenters' objection, refusing to require an 80% vote to engage a brokerage, and holding that a strata corporation may solicit offers before any votes on the winding-up resolution.
Strata owners can decide by majority vote at a general meeting to engage a real estate brokerage to market the development. If the owners later receive an acceptable offer, they can then vote on a winding-up resolution. If the resolution passes by an 80% vote, in most cases there will be a confirmation hearing where any dissenting owner may still oppose the wind up.
Strata Plan VR2122 v. Wake
In Strata Plan VR2122 v. Wake, several dissenting owners claimed that the strata council had no authority to market and sell the property without a liquidator, subject to the eligible voters passing a winding-up resolution and complying with related requirements.
After several developers asked about purchasing the complex, the strata council hired a real estate brokerage to market the property. After a sophisticated marketing campaign, the strata council accepted a developer's offer, subject to the strata corporation passing the necessary winding-up resolution and obtaining the requisite Court orders. Later, at a hearing to confirm the winding-up resolution, the dissenting owners argued that only a liquidator had the legal capacity to list and sell their strata complex.
The courts disagreed, confirming on appeal that strata council could engage a brokerage and later contract to sell the project to a developer, subject to the owners passing a winding-up resolution and meeting all other pre-requisites.