Investing in strata windups, How to profit from strata assembly: selling off entire buildings for development can be a windfall

Changes to BC’s Strata Property Act allow for strata owners to dissolve their strata corporation on an 80 per cent vote for voluntary wind-up, which has spurred developer interest in older strata properties for redevelopment purposes.

Prior to the July 29, 2016 change in the statute, the requirement was unanimous approval, which was difficult to meet – one holdout vote was all it took to defeat the wishes of a significant majority.

The new provisions bring B.C. into line with most other provincial condominium statutes.

In anticipation of the new changes, developers have been busy identifying feasible sites and likely candidate strata corporation owners willing to consider wind-up and sale for redevelopment. And strata councils/owner groups have been consulting with their advisors to sort out the navigation processes required for such wind-ups and sales.

Some sites, decades old, are worth more in redevelopment value than non wind-up, as-is value. Some buildings are not built to full allowable or potentially allowable density, or are close to newer rapid transit lines. Other buildings have such high deferred maintenance and repair costs that sale to a developer could yield owners greater returns, while also relieving them from having to pay for significant repair costs to the building, and from the mess and stress of carrying out the repairs.

 

Complex process

However, the termination and sale process, for both developer buyers and owner sellers, can be complex and lengthy. There are requirements for the winding-up, mandatory where five or more strata lots are on the strata plan, including court order approval, procedural rules for obtaining approval, and notice requirements.

The court approval requirement gives those opposed to termination and sale the opportunity to try to convince the court there is significant unfairness to one or more owners or holders of charges, or significant confusion and uncertainty in the affairs of the strata corporation or of the owners.

This is new law for B.C. and as such, time will tell what parameters the BC Supreme Court will establish to determine the best interests of the owners as a whole, and what factors it would consider in its determination of whether or not there has been significant unfairness or confusion to deny approval.

Fairness

A good approach, for both the developer and the majority owners who wish to sell to a developer, is to ensure there are terms benefitting the sellers which show fairness to all owners. As an example, provision for a long turnover possession date where the sellers can live rent free for 12 to 18 months after closing would show the sellers are being given time post closing to find alternate housing.

Some developers have considered entering into contracts with sufficient numbers of owners to enable the developers to effect the 80 per cent vote for wind-up only after it completes the purchase with those owners. In such instances the obtaining of a court order approving the voluntary wind-up and sale by all owners would not be a condition of its purchase. Buyers should understand there could be considerable delays and holding costs to factor in if they opt to go this route, as getting court approval is not guaranteed. Also, if a court does not order a wind-up on an application, a developer buyer may be left, for the short to mid-term, with an 80 per cent or more ownership of a property requiring costly repairs.

Working with legal advisors in advance and during this new process is suggested, for developers and owner sellers alike.

Carol Lee Western Investor
June 22, 2017
www.westerninvestor.com