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The Lay of the Land DEVELOPMENTS IN CANADIAN REAL PROPERTY LAW

Strata Wind-Up and Sale Process: A Practical Overview

Posted in Construction, Residential
Connor Bildfell

Introduction

As reported in a previous blog post, the B.C. Strata Property Act[1] was recently 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 relaxed threshold for passing a wind-up resolution has opened up a valuable opportunity – for both strata owners and developers alike – to market aging strata complexes for redevelopment. Yet, to seize this opportunity, strata councils, strata owners, and developers must ensure that the wind-up and sale process satisfies the essential legal requirements in order to be successful.

The purpose of this post is to provide a general overview of the wind-up and sale process, and to offer practical tips for ensuring that process meets legal requirements.[2]

The general information outlined below should not be relied on as legal advice. While we hope you will find this overview useful, the following discussion is no substitute for professional advice tailored to the specific circumstances of the individual case.

The Process

In the context of a sale accompanied by a wind-up, there are two options for effecting the wind-up: engaging a liquidator, or proceeding without a liquidator. As summarized in a recent B.C. Supreme Court decision, “The advantage of using a liquidator is that the individual strata lots and common property are vested in the liquidator, who is then empowered to sell them. The process without a liquidator results in the dissolution of the strata corporation and the cancellation of the strata plan with the owners becoming tenants in common, but no sale.”[3] The discussion below focuses on wind-ups involving a liquidator, though this may not always be the preferred or appropriate option.

While the precise sequence of events leading up to a wind-up and sale will vary based on the circumstances, the following procedural framework provides a high-level overview of the process that can generally be expected.

Step 1: Receive Expression of Interest

The first step is the receipt by strata council of an expression of interest in a wind-up and sale. Generally speaking, an expression of interest will arise when the land value substantially exceeds the aggregate value of the existing units. This expression of interest will generally come from one or more strata owners, a developer, or both.

The expression of interest may be motivated by any number of factors. For example, the complex may be deteriorating, in need of costly repairs, and near the end of its life cycle, making it more sensible economically to sell the complex and have it redeveloped from the ground up. Indeed, in Vancouver’s rising real estate market, this option offers strata owners and developers alike the opportunity to reap significant profits, without saddling owners with the stress, hassle, and costs of undertaking major repairs.

Step 2: Hold Town Hall Discussions

Right from the start, the strata council and any interested developers should keep strata owners fully apprised of all material information and all material developments, and these efforts should continue throughout the entire process. The B.C. Supreme Court recently emphasized the value of ensuring that the owners are “informed every step of the way”, that the process is “transparent”, and that all owners are provided with “any information they [seek], answers to any questions they have, and … any document they request[]”.[4]

Open and transparent communication is essential. The strata council and any interested developers should regularly organize open meetings with the owners to provide information and answer any questions they may have, with a view to ensuring the owners are able to make fully informed decisions along the way. The process may be kicked off with a “town hall” meeting, during which owners can openly discuss the prospect of a sale.

Step 3: Retain Legal Counsel

Once initial discussions have taken place and it appears there is sufficient interest to move ahead, the next step is for a majority of strata owners to pass a resolution giving council the authority and direction to hire legal counsel and to begin investigating in earnest the option of winding-up and selling the entire strata.

Retaining counsel at this early stage is essential, as any material missteps in the wind-up and sale process can lead to discord among owners, costly litigation, and transaction failures. Legal counsel can assist in structuring and implementing a robust process and in informing the various parties of their respective rights and duties throughout that process.

Step 4: Retain a Real Estate Broker

Next, the strata council will typically invite real estate brokers to submit proposals for marketing the property. The B.C. Supreme Court has confirmed that council is permitted to solicit offers for the property before wind-up and sale resolutions are passed.[5] Depending on the circumstances, retaining a broker to market the property may still be appropriate even where an offer from an interested developer has already been submitted, as the owners will want comfort that they are getting the best offer available in the market. Evidence that the owners are getting the best deal possible will be a strong factor supporting court confirmation of a wind-up and sale.

Legal counsel will assist in reviewing prospective brokers’ proposals and in drafting a listing agreement with the successful candidate. The chosen broker will then market the property, inviting offers and seeking out potential purchasers. This phase will typically last several months. At the end of the marketing process, the broker will draw up a short list of the most attractive offers.

Step 5: Negotiate a Final Offer

With short list in hand, the broker will meet with the strata council and legal counsel to consider the offers. The strata council will then negotiate with the offerors as appropriate and obtain a final offer. Assuming all goes well, the strata council and the chosen developer will eventually, through the assistance of legal counsel, reach a formal agreement of purchase and sale. This formal agreement will be made subject to various conditions, including court approval of a wind-up resolution.

Step 6: Pass Resolutions Authorizing a Wind-Up and Sale

Once an agreement of purchase and sale has been reached, the next step will be for legal counsel to prepare a resolution to cancel the strata plan and appoint a liquidator.[6] More precisely, the resolution will give the name and address of the liquidator and approve cancellation of the strata plan, dissolution of the strata corporation, the surrender to the liquidator of each owner’s interest, an estimate of the costs of winding up, and an interest schedule intended to serve as a roadmap for the liquidation process.[7] A vote on such a resolution can be taken either at an annual general meeting or at a special general meeting.[8] Written notice of the meeting must be provided to the owners at least four weeks in advance.[9] As noted above, the wind-up resolution must be passed by 80% of owners – not merely those present and voting, but all registered owners. In addition, the owners will vote on a further resolution to approve the disposition of the property by the liquidator. The threshold for approval of this resolution is 75%.[10]

Step 7: Obtain Court Confirmation

If a wind-up resolution is passed by the requisite 80% threshold, then the next step will be to seek court confirmation.[11] An application for such confirmation must generally be filed within 60 days after the wind-up resolution is passed.[12] The requirement for court confirmation is intended to ensure dissenting owners, registered charge holders (such as mortgagees), and other creditors do not suffer “significant unfairness” as a result of the wind-up.

In determining whether to confirm the wind-up resolution, the court will consider three main factors: the best interests of the owners, the probability and extent of significant unfairness, and the probability and extent of significant confusion and uncertainty in the affairs of the strata corporation or of the owners.[13] In considering these factors, the court will closely examine, among other things, the fairness, openness, and transparency of the process leading up to the wind-up resolution, as well as whether the agreement reached reflects a fully marketed, best price.

Step 8: Complete Sale and Termination

After court confirmation has been obtained, the liquidator will apply for a vesting order,[14] file the order,[15] and proceed to effect a sale. The sale proceeds will in turn be distributed to the owners after charge holders have been paid out.

Conclusion

The wind-up and sale process is fraught with legal and business complexities, and the stakes are high. Moreover, the process is a marathon, not a sprint: even when things go smoothly, one can reasonably expect the process to take between 12 and 18 months, if not more. In light of these factors, we encourage you to contact one of our lawyers in the Real Property & Planning Group to find out how we can help guide you through the process.

 

[1] S.B.C. 1998, c. 43.

[2] For further guidance on the strata wind-up process, see Government of British Columbia, “Termination (Winding Up) of Strata Corporations), online: <https://www2.gov.bc.ca/gov/content/housing-tenancy/strata-housing/termination>.

[3] The Owners, Strata Plan VR 1966, 2017 BCSC 1661 at para. 2.

[4] The Owners, Strata Plan VR2122 v. Wake, 2017 BCSC 2386.

[5] Ibid at para. 124.

[6] Strata Property Act, s. 277(1).

[7] Ibid, s. 277(3).

[8] Ibid, s. 277(1).

[9] Ibid, s. 45(1.1).

[10] Ibid, s. 282(1).

[11] Ibid, s. 278.1.

[12] Ibid, s. 278.1(1). The Act clarifies, however, that a failure to bring the application within 60 days after the resolution was passed does not prevent the strata corporation from applying for court confirmation, nor does that failure affect the validity of a wind-up resolution: s. 278.1(2).

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

[14] Ibid, s. 279. The application must be filed within 30 days of court confirmation of the wind-up resolution: ibid, s. 279(3)(b).

[15] Ibid, ss. 280–81.