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The Lay of the Land DEVELOPMENTS IN CANADIAN REAL PROPERTY LAW

Court Confirmation of Strata Wind-Up Resolutions – The Experience So Far in B.C.

Posted in Policy, Residential
Connor Bildfell

 

Introduction

Before July 2016, in order to wind-up a strata corporation voluntarily through a liquidator in B.C., unanimous approval of the strata owners was generally required. The unanimity requirement made strata wind-ups a rare event, and consequently it was exceedingly difficult for owners to sell a strata complex in its entirety for redevelopment. In an influential 2015 report, the B.C. Law Institute (“BCLI”) identified some of the problems with the unanimity requirement:

It is widely conceded that it’s very difficult, if not impossible, to obtain unanimous consent in all but the smallest stratas. This means that majorities may often find their wishes thwarted. As a result, many strata owners will suffer significant financial losses. And the broader society may also find its plans for urban renewal and redevelopment to be frustrated. For these reasons, most jurisdictions avoid making unanimous consent the lynchpin of their termination regimes.[1]

Based on the recommendations issued in the BCLI report, the B.C. Strata Property Act[2] (the “Act”) was amended to make it easier for strata corporations to wind themselves up. As of July 2016, 80% approval now suffices, provided the resolution is subsequently confirmed by the B.C. Supreme Court. The confirmation requirement is primarily intended to protect against significant unfairness to those who oppose the wind-up. Accordingly, in determining whether to grant such confirmation, the Act directs the court to consider the best interests of the owners, the probability and extent of significant unfairness to one or more owners, and the probability and extent of significant confusion and uncertainty.[3]

From the perspectives of strata owners and developers alike, the July 2016 amendments opened up a world of opportunity. Previously, a handful of dissenting strata owners had the ability to thwart the wishes of the majority to sell an aging property to a developer. The result was both to constrain the supply of properties available in the redevelopment market and to deprive the willing majority of the ability to sell their lots together at a substantial profit, likely for far more than they otherwise would receive if they were to sell their lots individually.  The new regime strikes a new balance that favours the will of the majority and, in turn, increases the stock of potential development properties on the market.

Since the July 2016 amendments, it appears that at least four separate strata corporations have sought court confirmation of wind-up resolutions. In two of those cases – Twelve Oaks in Vancouver and Brandywine in Coquitlam – the applications were uncontested, and the B.C. Supreme Court approved the applications without issuing written reasons.  In the other two cases, however, the wind-up resolutions were hotly contested.  Notably, in its reasons for judgment in these cases, the Court reached opposite results, with one wind-up resolution being confirmed and the other being found invalid.  The purpose of this blog post is to explore these two cases in search of guiding principles that can be carried forward.

Bel-Ayre

As summarized in an earlier blog post, in The Owners, Strata Plan VR 1966[4] (“Bel-Ayre”), the applicant strata corporation administered a three-storey, 36-unit, wood-frame condominium complex in Vancouver known as Bel-Ayre Villa. The complex was nearing the end of its life cycle, having been built in 1974. Major repairs had been undertaken, and further repairs – at an estimated cost of over $710,000 – appeared to be on the horizon. Prompted by concerns over the potential costs of these repairs, a number of strata council members began considering the alternative of a wind-up and sale.

A real estate company advised that the property had considerable value as a redevelopment project, with unit owners poised to enjoy a 25–40% premium over what they would otherwise receive if they were to sell their units individually in the market. The strata engaged the firm to list the property. A buyer was found and a sales contract executed at a price of $19 million. The obligation to complete was made subject to, among other things, court confirmation of a wind-up resolution.

The strata held a special general meeting in order to pass a wind-up resolution. 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 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 wind-up resolution in hand, the strata commenced a proceeding in the B.C. Supreme Court seeking, among other things, confirmation of the resolution.

The central issue before the Court was whether the wind-up resolution could be confirmed notwithstanding the defect.

The Court observed that, pursuant to the Act, the value estimates were “essential ingredients” in a valid winding-up resolution.[5] The value estimates were integral to the liquidator’s mandate, and therefore their omission undermined the validity of the vote approving the wind-up resolution. Their omission was one of substance, not a mere “procedural irregularity”,[6] and there was nothing in the Act to suggest that the Court had discretion to overlook such a deficiency. To overlook the deficiency would be, in the Court’s words, to “rewrite the legislation”.[7] Further, the fact that there was no evidence that anyone was prejudiced by the omission, or that it had any distorting effect on the vote, did not change this result.

In the result, the Supreme Court declined to confirm the wind-up resolution, marking the first such refusal in B.C.

The Hampstead

In The Owners, Strata Plan VR2122 v. Wake[8] (“The Hampstead”), released just three months after Bel-Ayre, the Supreme Court once again had occasion to consider a contested application for confirmation of a wind-up resolution. Many of the facts bear a resemblance to those in Bel-Ayre.

The applicant strata corporation operated a four-storey, 33-unit, wood-frame strata complex known as The Hampstead, built in 1988 and located in Vancouver’s West End. As with many other wood-frame complexes of similar vintage, The Hampstead had seen better days. Nearly $500,000 had been expended on capital replacement costs in the span of just over a year, and total anticipated repair costs for 2018 exceeded $675,000. Hoping to find an alternative solution, and knowing that The Hampstead’s redevelopment value was at a peak due to recent re-zoning in the area, the strata council began exploring the potential for a wind-up and sale.

The council retained a real estate company to market the property. The firm succeeded in finding a developer willing to purchase the property for $45.25 million. Based on this price, owners stood to receive roughly two and a half times as much as they would receive if they sold their units individually. A purchase agreement was prepared and signed in due course. The obligation to complete was made subject to, among other conditions, court confirmation of a wind-up resolution.

In June 2017, the strata passed a wind-up resolution that met the 80% threshold. That resolution, however, did not set out the name and address of the proposed liquidator, despite the requirement in the Act that the resolution “give the name and address of the liquidator”.[9] Instead, the resolution stated that the identity of the liquidator would be determined by council at a later date. Nonetheless, the strata corporation brought an application for court confirmation of the resolution. Later, after having selected a liquidator, council held a second meeting in November 2017 at which a new wind-up resolution – this time naming the liquidator – was passed, again by the requisite 80%. The strata subsequently sought to amend its application to allow it to rely on both resolutions.

Four dissenting owners, each of whom wished to continue living in his or her unit, opposed the application. These dissenting owners maintained that the application was a nullity because the June 2017 wind-up resolution, on which the application was based, was flawed. The dissenting owners emphasized two points in particular:

  1. The interest schedule contained in the resolution did not name the City of Vancouver as a charge holder as required under the Act, and the City was not listed as a party in the strata corporation’s application.
  2. The resolution failed to give the name and address of the liquidator as required under the Act.

The B.C. Supreme Court disagreed.

On the first point, the Court noted that the City, which held a registered charge against a sidewalk on the common property, had not taken a position on the application and would not be affected by the relief sought. The City’s charge would remain on title whether or not a wind-up and sale took place. The Court concluded that the omission of the City as a charge holder on the interest schedule, and as a party listed in the application, was not fatal.

On the second point, the Court distinguished Bel-Ayre on the basis that the name and address of the liquidator was not “essential to the liquidator’s mandate or the roadmap of the liquidation process.”[10] That information did not, in the Court’s view, form part of the essential information required under the legislation, and therefore it was not required as a substantive component of the resolution.

Thus, the June 2017 resolution could not be attacked on these bases, and the application was found not to be a nullity.

The dissenting owners also argued that the Court should refuse to confirm the wind-up resolution based on various factors. Again, the Court disagreed.

The Court’s analysis turned primarily on a consideration of the best interests of the owners, the probability and extent of significant unfairness to one or more owners, and the probability and extent of significant confusion and uncertainty. The Court first rejected the notion that, in considering these factors, “property rights as a home should be given greater emphasis in the face of 80% or more of the owners who want to take advantage of the increased profit to be made as a result of rezoning and redevelopment”.[11] It also clarified that, within this analytical framework, it is not the role of the Court to question the wisdom of the City of Vancouver’s decisions regarding social housing, densification, rezoning, or community planning that allowed for the redevelopment of the property. Those matters fell within the municipality’s purview, not the Court’s.

The Court found that owners who had purchased units before the wind-up requirements in the Strata Property Act were relaxed could not reasonably have expected to live in their units as long as they wanted. In so finding, the Court observed that the legislation did not restrict the new 80% approval threshold to wind-up resolutions relating to strata corporations that came into existence only after the threshold was amended. Further, the Court underscored, reasonable expectations change over time.

The Court was satisfied that dissenting owners would not be displaced from their community, as the proceeds from the proposed sale would enable all owners to acquire comparable units in the West End. The Court went on to find that the owners were kept informed throughout the process, which the Court characterized as “transparent”,[12] and were provided with any information they sought.

The Court was not satisfied that the wind-up resolution would result in “significant unfairness” to one or more owners, with that term encompassing “oppressive conduct and unfairly prejudicial conduct or resolutions”.[13] Although the Court acknowledged that the dissenting owners may feel stressed by having to move, it reasoned that it would be significantly unfair to thwart the wishes of the majority.

Finally, the Court rejected the argument that the move would result in “significant confusion and uncertainty” within the meaning of the Act.

In the result, the Court confirmed the wind-up and sale and made various related orders.

Takeaways

Bel-Ayre and The Hampstead both make clear that court confirmation of a wind-up resolution is no rubber stamp. The courts will scrutinize whether the wind-up resolution meets the statutory requirements. Following proper procedures throughout the wind-up and sale process forms an integral part of satisfying these requirements. More broadly, this process should be characterized by transparency, with every effort being made to furnish owners with all relevant information and provide owners ample opportunity to have their voices heard and their questions answered.

Yet, Bel-Ayre and The Hampstead are somewhat difficult to square. Bel-Ayre suggests that if an “essential ingredient” is missing in the wind-up resolution, then court confirmation will not be forthcoming. The Hampstead does not question that proposition. Indeed, the Court in The Hampstead proceeded on the basis that the defects related to non-essential matters of no consequence to the validity of the resolution, as thus court confirmation remained available. Yet, we might reasonably ask: Why is the name and address of the liquidator not an “essential ingredient” of a proper wind-up resolution, given that the resolution “must”, under s. 277(3) of the Act, “give the name and address of the liquidator”? More broadly, what distinguishes “essential” information required under the Act from “non-essential” information? The answer is not made clear in the case law.

In any event, both decisions reveal the tension that arises in the context of strata wind-ups. On the one hand, there is a supermajority of owners who, potentially facing a hefty repair bill, see an opportunity to sell their units at a premium and are quite willing to pack up their bags and head for sunnier skies. On the other hand, there is a dissenting minority who, for any number of legitimate reasons, do not want to leave the place they call “home”. Policy makers must strike a balance between competing values – flexibility and stability, majority rule and minority protection, collective decision making and individual autonomy, etc. – in shaping the mechanisms through which the fate of a strata will be decided. Equally, those operating within this framework must tread carefully.

Media reports indicate that an appeal from The Hampstead is likely.[14] Accordingly, we may well see the Court of Appeal weigh in on court confirmation of wind-up resolutions in the not-so-distant future. This is an important and rapidly evolving area of the law, and the consequences of a failure to secure court confirmation 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. Accordingly, developments in this area of the law should be monitored closely.

Stay tuned to The Lay of the Land for a follow-up post outlining several recommendations with respect to the sale process.

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

 

 

[1] British Columbia Law Institute, Report on Terminating a Strata, BCLI Report no. 79 (February 2015) at 51–52, online: <http://www.bcli.org/wordpress/wp-content/uploads/2015/02/2015-02-20_BCLI-SPL-Ph2-Report-on-Terminating-a-Strata-FINAL.pdf>.

[2] S.B.C. 1998, c. 43 [Act].

[3] Ibid, s. 278.1(5).

[4] 2017 BCSC 1661 [Bel-Ayre].

[5] Ibid at para. 36.

[6] Ibid at para. 51.

[7] Ibid at para. 36.

[8] 2017 BCSC 2386 [The Hampstead].

[9] Act, s. 277(3).

[10] The Hampstead at para. 72.

[11] Ibid at para. 129.

[12] Ibid at para. 136.

[13] Ibid at para. 140.

[14] Frances Bula, “Condo Unit Owners Can’t Block Building Sale, B.C. Supreme Court Rules”, The Globe and Mail (29 December 2017), online: <https://www.theglobeandmail.com/news/british-columbia/condo-unit-owners-cant-block-building-sale-bc-supreme-court-rules/article37464250/>.