Canada: Changes To Strata Property Act Pave The Way For Strata Redevelopment

Update: The proposed provisions mentioned below appear in Bill 40, which is named (oddly) "Natural Gas Development Statutes Amendment Act, 2015" about half way down under "Strata Property Act"

This is very big news. And very good news. Today the provincial government issued the following press release:

Proposed amendment to the Strata Property Act

A proposed change to the Strata Property Act will make it easier for owners to terminate a strata corporation by lowering the voting threshold from unanimous to 80%.

Owners may wish to terminate their strata corporation for several reasons. As older strata corporations reach the end of their life cycle, major building and common property components start to fail, resulting in expensive repair bills. In some cases, strata owners want to sell the property to a developer who can put it to better or more profitable uses. For example, strata members living in a low-rise building on a large property may see the opportunity to have the land redeveloped into a larger building with more units.

Currently, a unanimous vote is needed to terminate a strata corporation. The proposed changes would allow termination by an 80% vote of all the owners, making it easier for a majority of owners to terminate their strata corporation, if they decide it's in their best interests.

In developing these proposed changes, the provincial government consulted extensively with the British Columbia Law Institute Strata Property Law Project Committee, which includes: expert strata lawyers; representation from the Urban Development Institute, and the two major strata associations: the Condominium Home Owners Association and the Vancouver Island Strata Owners Association.

In 2014, the provincial government asked the BC Law Institute to review strata termination requirements. The proposed changes to the Strata Property Act are based on the BC Law Institute's recommendation to government and are widely supported.

Coincidentally, just yesterday (!), I presented a paper at the Pacific Business & Law session on Hot Topics in Real Estate Development with my Clark Wilson partner, Pat Williams, entitled Strata Cancellation and Redevelopment. Having been involved in both successful and aborted wind ups of co-ops, common law strata corporations and actual strata corporations (two currently in the works) on behalf of owners, developers and real estate brokers, I have had a keen interest in this topic for years.

Pat is the chair of the BC Law Institute committee referred to in the press release above which proposed the changes to the Act which appear to be moving ahead. Assuming the amendments reflect substantially what was proposed by BCLI, cancellation of a strata plan will require approval by at least 80% of owners, plus court order. The committee's rationale for the court approval requirement was stated as follows:

This procedure affords a dissenting owner a more realistic opportunity to make the case against termination. It also integrates any concerns that registered chargeholders may have with termination into the same process.

What are the implications of having to obtain court approval?

In practice, I expect that owners opposing a strata wind up would make the sort of arguments seen in the Cypress Gardens (Mowat v. Dudas, 2012 BCSC 454) and Seymour Estates (McRae v. Seymour Village Management Inc., 2014 BCSC 714) cases. Those involved cases applications under the Partition of Property Act wherein owners of units in each of the two "common law stratas" (not subject to the Strata Property Act) sought a court order effectively compelling all owners to sell the entire complex. In both of those cases, opponents stressed displacement and fairness factors, including not wanting to be uprooted from their neighborhood because of a lack of affordable replacement accommodation and the unfairness of being forced to sell against their will. Supporters, on the other hand, stressed the looming cost of capital repairs and replacements, the potential windfall prices available based on development values and the unfairness of being held back by a minority of owners.

Another important implication of the court approval requirement is that, as was the case in Seymour Estates and in foreclosure situations, it seems inevitable that the court will wish to see evidence that the owners are receiving fair market value, leading to a requirement that the property be widely marketed. This is great news for real estate brokers, and not so great for developers looking to gain an inside edge.

The details will unfold as the bill is introduced and works its way through all required readings in the legislature. In the meantime, although an 80% (plus court approval) threshold will make the previously-impossible possible, strata councils interested in leading their owners through a possible wind up would be well advised to first familiarize themselves on likely pitfalls and best practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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