Since strata property legislation was first introduced to British Columbia in 1966, condominium owners have been able to wind up their strata corporations for a variety of reasons but the most usual are:
- Dilapidation and depreciation Older buildings, particularly those that are wood-framed, start to look their age. The cost of maintaining their building envelopes and building systems year over year may be more than owners can afford or wish to spend. This cost must now be set out in a depreciation report (see Letter of the Law, Spring 2013).
- Value The land occupied by a strata-titled building may, over time, have appreciated in value to the extent that it is worth more without the building than with. Rezoning potential may add to this trend as allowable residential densities increase on building lots in certain areas.
The Process of Winding Up a Strata Corporation
Part 16 of the Strata Property Act—the current law(the Act)—deals with the cancellation of a strata plan and winding up a strata corporation. We are mainly concerned here with the process set out in Division 1 of Part 16 and Section 52 of the Act, allowing owners to voluntarily cancel their strata plan and wind up their strata corporation. To succeed, they have to meet the following criteria.
- The owners must pass, unanimously, a resolution to wind up their strata corporation. Next, they apply to the Registrar at the Land Title Office to cancel the strata plan. Once the strata plan is cancelled, the strata corporation’s former owners become owners, as tenants in common, of the land that was previously part of the strata plan.
- The undivided interest of each owner as a tenant in common is based on the value of the owner’s former strata lot, divided by the aggregate value of all former strata lots.
- If all the owners cannot agree to wind up their strata corporation, Section 52 of the Act allows the corporation to apply to court to dispense with the need for a unanimous vote if there is only one owner who dissents or no more than five per cent of the owners are opposed. A court will grant the order if it is in the best interest of the strata corporation and does not unfairly prejudice the dissenting voters. Courts can also add conditions, such as ordering strata corporations to offer to purchase the strata lots of dissenting voters or provide alternative compensation.
Practical Considerations
When considering whether to wind up their strata corporation, owners tend to be in one of three groups:
- Those not in favour These owners are prepared to pay their share of the cost to maintain the existing strata lots and the common areas of the strata-titled building even if the value of their interest in the land as tenants in common exceeds the value of their strata lot. They do not want to move for a variety of reasons.
- Those in favour of winding up the strata corporation if they can purchase a strata lot in a future strata development on the same site at a discounted price These owners like the neighbourhood that they live in. Obviously, this option is not available if a proposed redevelopment does not include strata-titled residential units.
- Those in favour without qualification They wish to sell the land to the highest bidder, receive their share of the sale proceeds, and move elsewhere.
It is possible that strata owners themselves will start the process of winding up their strata corporation to redevelop the land they own but, in our experience, it is more usual for a developer to approach owners with an offer to purchase the land.
Selling one’s home can be an emotional and stressful experience so it’s understandable that, when considering winding up a strata corporation, owners can have serious disagreements. To ease the process for all owners, we suggest the following steps be followed:
- If it appears during the normal course of a strata corporation’s affairs that many owners want to consider winding it up, or if the strata corporation considers it a valid topic for other reasons, the strata council should call an informational meeting. An outside consultant should chair the meeting to remove any hint of bias. This consultant should have a working knowledge of the Act and experience in winding up a strata corporation as well as understand real estate development.
- The agenda should include explaining the winding-up process mandated by the Act and reviewing one or two hypothetical scenarios. In addition, the assessed value of each strata lot should be presented and compared to the estimated value of an equivalent share as tenant in common of the land and improvements if the strata corporation is wound up.
- After presenting this information and answering owners’ questions, a straw vote should be held. If there is no overwhelming support for winding up the strata corporation, there should be no further discussion. However, when most owners overwhelmingly favour the idea, they can give the strata council a mandate to market the lands, subject to compliance with the Act.
- If a developer makes an unsolicited offer, the owners should decide, in consultation with a qualified advisor, whether to negotiate the terms of a purchase and sale with that developer or, alternatively, list the property for sale to solicit other offers.
- Any offer that the owners receive can only be accepted subject to compliance with the Act’s winding-up provisions.
- Even if all owners indicated at the initial informational meeting that they agreed to sell, some may change their minds after a formal offer to sell is made. However, if the dissenting owners represent less than five percent of the owners, the other owners can apply to court to have the sale approved.
- When all owners agree to sell the property, or court approval of the sale is obtained, there must be sufficient time allotted before the closing date to allow all owners to vacate their strata lots and obtain new accommodation.
In summary, when considering winding up a strata corporation, the strata council must ensure that the process is transparent and keep all owners fully advised as the process unfolds.