As there becomes less and less open land available for development, developers are beginning to look at under densified strata corporations as source of development land. As older strata corporations begin to face expensive repair bills, selling to developers becomes an attractive option. The needs of the two can be met through the winding up process.
The Strata Property Act (“SPA”) provides three ways to windup a strata corporation. They are:
1. Voluntarily without a liquidator – s.272
2. Voluntarily with a liquidator – s.277
3. By court order – s.284
Both methods of voluntarily winding up a strata corporation require approval by way of an 80% vote, which is defined as:
“a vote in favour of a resolution by at least 80% of the votes of all the eligible voters”
This is different from a ¾ vote in that 80% is calculated out of all the strata lots, not only those present at the meeting. A bylaw which prohibits an owner from voting when the strata corporation is in a position to file a lien does not apply to an 80% vote.
The key difference between the two voluntary methods is what happens once the strata corporation is wound up. Winding up without a liquidator results in the strata corporation being dissolved and the land upon which it is situate being registered in the names of the owners as tenants-in-common. Winding up with a liquidator results in the land being registered in the name of a third party whose task it is to complete a sale of the land and distribute the proceeds amongst the owners. Most strata corporations will be wound up using the latter method.
A court ordered winding up can only be sought by an owner. It is not an application that can brought by the strata corporation should an 80% vote fail.
The process of winding up a strata corporation is not a quick one. It involves several steps over several months. The accepted process (set out below) was affirmed by the court in The Owners, Strata Plan VR2122 v. Bradbury 2018 BCCA 280. It is considered the preferable approach since the owners will know the sale price at the time they are deciding to wind up the strata corporation. (As opposed to winding it up, hoping for a good price and then having to reinstate the strata corporation if a favourable price is not achieved). It also allows the court to make a meaningful assessment of the situation when being asked to approve an order under s.278.1.
1 Gage the interest of the owners in winding up the strata corporation. This is best done through an information meeting.
2 Convene a special general meeting to seek formal authorization of the owners pursuant to s.27 of the SPA to pursue the winding up process including authorizing council tolist the property for sale (subject to approval of the owners and the court)
3 Council will hire a real estate agent to list the property for sale. Council will review offers and select one to present to the owners for approval.
4 Prepare and present a resolution (based on the offer selected) to the owners:
- Approving the dissolution of the strata corporation
- Appointing a liquidator
5 If the resolution is passed by an 80% vote, apply to court under s.278.1 for approval of the same. (This must be done within 60 days).
6 If the resolution is approved by the court, the liquidator makes a second application to be appointed and have the land vested in their name.
7 The liquidator, before completing the sale, must seek final approval of the owners by way of a ¾ vote under s.79.
8 The liquidator applies to cancel the strata plan, registers the land in their name, completes the sale and distributes the sale proceeds and any other monies held by the strata corporation.
The purpose of the court approval required under s.278.1 is to ensure that the interests of all owners, including the minority, are protected. In The Owners, Strata Plan VR2702 (Re) 2018 BCSC 390 the court set out the “principles [which] emerge to inform the application of the s. 278.1 test”:
a) the statutory requirements in s. 277 and 278 of the Act must be complied with unless specific provision is made there or elsewhere in the Act to relax them;
b) the onus is on the opposing respondents to establish the factors that would justify refusing an application for an order to confirm a winding-up resolution;
c) in determining what is in the best interests of the owners for the purpose of s. 278.1(5)(a), the interests of all of the owners must be weighed, not just those of the dissenting minority;
d) any alleged unfairness or uncertainty must be significant enough to override the interests of the majority who voted in favour of the winding-up;
e) the kind of "significant unfairness" referred to in s. 278.1(5)(b)(i) includes conduct that is "burdensome, harsh, wrongful, lacking in probity or fair dealing, done in bad faith, unjust, or inequitable, and might extend to less severe conduct as well"; and
f) in determining whether confirming or refusing to confirm the winding-up order would cause significant unfairness, the court must consider whether the evidence supports the reasonable expectation asserted and if so, whether that expectation was violated in a way that is significantly unfair.
In The Owners, Strata Plan VR2122 v. Wake 2017 BCSC 2386 the court confirmed that simply because an owner might face difficulty in finding a comparable new residence, that did create a reason to refuse approving the winding up.
Once the court confirms the winding up resolution, the liquidator must apply to be appointed. At that time the liquidator can then proceed toward completing the sale. The court in Bradbury confirmed that the liquidator must have the sale confirmed once again by way of a ¾ vote prior to completing the transfer. It is possible at that point for the owners to cancel the sale, despite having voted to windup.
The sale proceeds (after payment of any debts of the strata corporation as well as the liquidator’s fees, real estate commission and other costs) are distributed amongst the owners in one of two ways:
1. In accordance with an Schedule of Interest on Destruction if the strata corporation has one; or
2. The assessed value of each strata lot relative to the assessed value of all other strata lots.
From each strata lot’s share of the sale proceeds, any mortgage(s) on title must be repaid. Unfortunately there is no means for the owners to agree to an alternate formula from the two above for dividing the proceeds. If the owners do not like the division which would result from using the Schedule of Interest on Destruction they can cancel it by way of a unanimous vote. There is no ability, however, to change the relative assessment formula. If the assessments do not represent the true values of the strata lots, the results may be skewed.
Strata corporations wishing to engage in the winding up process should ensure they have legal advice and assistance throughout. Errors in the approval documents could result in having to start over again. In The Owners, Strata Plan VR 1966 (Re) 2017 BCSC 1661 the court refused to approve a winding up resolution which was missing one of the required schedules. A failure to strictly comply with the requirements of the legislation can be an easy means for a dissenting owner to attack the process.
This article is intended for information purposes only and should not be taken as the provision of legal advice. Shawn M. Smith is lawyer whose practice focuses on strata property law. He frequently writes and lectures for strata associations. He is a partner with the law firm of Cleveland Doan LLP and can be reached at (604)536-5002 or email@example.com. He can be followed on Twitter @stratashawn.