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The Lay of the Land DEVELOPMENTS IN CANADIAN REAL PROPERTY LAW

BCSC Declines to Confirm Strata Wind-Up Resolution for the First Time

Posted in Policy
Connor Bildfell

Introduction

In July 2016, the Strata Property Act (British Columbia) (the “Act”) was amended in order to make it easier for strata corporations[1] to voluntarily wind themselves up using a liquidator.[2] Previously, a resolution initiating the wind-up process and appointing a liquidator required unanimous approval from the owners. Unanimous approval was, not surprisingly, rarely achieved. To address this issue, the Act was amended to provide that a resolution receiving 80% approval would suffice, provided a court subsequently confirms the resolution. In The Owners, Strata Plan VR 1966, 2017 BCSC 1661, the B.C. Supreme Court declined, for the first time, to confirm a wind-up resolution. As the decision illustrates, court confirmation in this context will not be forthcoming in the face of certain defects in the resolution. Indeed, even where a strata corporation actually wants to “wind up in court”, it may not succeed in doing so where its wind-up resolution was flawed in fundamental respects.

Facts

The strata corporation at issue administered a three-story condominium complex in Vancouver. According to the strata, the building was nearing the end of its life cycle. Major repairs had been undertaken, and further repairs – potentially costing some $700,000 – appeared to be on the horizon. Prompted by concerns over the potential costs of repairs, a number of strata council members began considering the alternative of a wind-up and sale. They were advised by a commercial real estate company that the property had value as a redevelopment project, and following the passage of certain resolutions, the property was listed on the market. A buyer was eventually found and a sales contract executed. Because the strata had no power to sell the individual strata lots or common property, the obligation to complete the sale was made subject to the completion of the steps set out in the Act regarding approval for the wind-up process, including court confirmation.

A special general meeting was held for the purpose of passing a resolution to initiate a wind-up. As required by the Act, the resolution was circulated in advance, and attached to the resolution was an “interest schedule” that was required under the Act to be approved as part of the resolution. The purpose of an interest schedule in this context is to provide the liquidator with a “roadmap” for the ratable distribution of the proceeds of sale to the owners and their creditors. The interest schedule listed all of the information that was statutorily required, with one exception: the “estimated value of the interest of each holder of a registered charge against the land” had not been indicated. Nonetheless, the resolution was approved by 83.3% of voting owners. With the wind-up resolution in hand, the strata commenced a proceeding in the B.C. Supreme Court seeking, among other things, confirmation of the resolution.

B.C. Supreme Court’s Decision

The central issue before the B.C. Supreme Court was whether confirmation of the wind-up resolution could be obtained despite the defect in the resolution – namely, the fact that the interest schedule had omitted the value estimates required under the Act. The strata submitted that the omission was a “rectifiable procedural irregularity”[3] and that the resolution should be confirmed despite the defect. It maintained that the oversight was inconsequential, as there was no evidence that anyone had been prejudiced by the omission or that it had any distorting impact on the vote. Moreover, it argued, the defect had been cured, as the strata had, in its application to the court, added the missing value estimates to the interest schedule.

The Court rejected the strata’s position. It stated that to overlook the deficiency would be to “rewrite the legislation”.[4] The Court observed that, pursuant to the Act, the value estimates were “essential ingredients” in a valid winding-up resolution.[5] Their omission was one of substance, not mere form, and there was nothing in the Act to suggest that the Court had discretion to overlook such a deficiency. Moreover, there was no mechanism in the Act to rectify the omission, regardless of whether it actually caused prejudice. Finally, the strata’s attempt to “cure” the defective resolution after it had been passed was of no avail, as the interest schedule contemplated in the Act was one approved by the owners in a wind-up resolution, not one subsequently amended and attached to a court application. Accordingly, due to this fatal defect, the resolution was found to be invalid and not capable of confirmation by the Court.

Key Takeaway

One overriding lesson emerges from this decision: strict compliance with the statutory provisions bearing on the essential content of a wind-up resolution is necessary if a wind-up resolution is to be confirmed by the court. Court confirmation of a wind-up resolution is not a mere formality or a “rubber stamp”. Rather, it involves a careful analysis of the validity of the resolution. Where the strata corporation has failed to comply with certain statutory provisions, the court may refuse to give effect to the resolution, no matter how high the margin of approval and whether or not anyone was actually prejudiced by the defect or the vote skewed by the defect.

The consequences of a failure to secure court confirmation in this context can be severe. In circumstances where other agreements – such as an agreement to sell the property – are contingent on the strata’s being wound-up, the potential for delays or even transaction failures looms large. In short, when it comes to wind-up resolutions, strata corporations need to ensure they “get their house in order” (or perhaps more accurately, get their strata in order).

If you have any questions about how this decision may affect your business, please feel free to contact one of our lawyers in the Real Property & Planning Group.

[1] This procedure applies only to strata corporations with a strata plan containing five or more strata lots.

[2] Winding up a strata corporation without the involvement of a liquidator involves a separate process subject to different requirements.

[3] At para. 8.

[4] At para. 36.

[5] At para. 36.