Legislative amendments make it easier to dissolve a Strata and sell it!

(February 16, 2016 )

The article has kindly been contributed by Cora Wilson and Elaine McCormack of Wilson McCormack Law Group, who has over 50 years of combined legal experience with strata being their preferred area of practice.

We are pleased to advise that significant legislative amendments to the Strata Property Act (the “Act”) relating to termination of a strata plan and winding up a strata corporation were approved on November 16, 2015. These changes will not be effective until supporting regulations are put in place. This is expected to occur sometime in 2016.

These amendments are viewed as a “game changer” since they will allow owners to dissolve the strata plan and terminate the strata corporation without a unanimous vote. Since a unanimous vote was generally impossible to obtain, owners of many strata corporations simply could not meet the requirements for dissolution, except perhaps with a costly court application. The recent amendment reduced the voting threshold to an 80% vote of eligible owners. Sections 272 – 289 of the Act address the scheme to cancel a strata plan and wind up a strata corporation. These provisions have been in existence since the adoption of the Act in 2000; however, they have rarely been used due to a combination of anticipated failure of the unanimous vote resolution and costs. In our experience, dissolution of a strata plan without a liquidator is relatively straight forward, particularly for small strata corporations. However, this is not the case when dealing with dissolution of a strata plan with a liquidator. A liquidator is required to terminate a strata plan when the strata corporation is unable to certify that it has no debts, excluding registered charges. Liquidation is the process by which a strata corporation with assets and liabilities is “wound up” in that its debts and liabilities are satisfied (or adequate provision is made for their satisfaction) and the remaining assets are distributed to the owners.

The liquidator steps into the shoes of the council and manages the strata corporation during dissolution with the objective of bringing operations to an end. It is not managed as a going concern. Assets are called in and converted into money, liabilities are paid and disputes are compromised. The liquidator is not just an interim manager, he or she is also an officer of the court with special powers to meet the objectives.

The strata plan may be cancelled and the corporation wound up with or without a liquidator. (s. 277, Act). A liquidator is responsible to administer the debts and assets of the Strata Corporation and to wind up the estate. The liquidator’s role can be compared to that of a trustee in bankruptcy.

The voluntary winding up of a strata corporation with a liquidator can be a complex and time consuming process involving the following:

1) appointment of a liquidator;
2) resolution to terminate;
3) preparation of an interest schedule (conversion schedule);
4) obtain a vesting order from the Supreme Court;
5) file the vesting order with the Registrar of the land title office;
6) approve disposition of the property; and,
7) apply for other Supreme Court orders related to the dissolution.

Thereafter, an application is made to the Registrar of the Land Title Office for dissolution
of the strata plan.

Upon cancellation of the strata plan, the owners will hold the property as tenants in
common. At this point, the strata corporation vehicle is gone and the owners may choose
to sell the property to a developer or subject to appropriate approvals from the authority
having jurisdiction, redevelop the lands using a conventional subdivision, a replacement
building strata plan or a bare land strata plan.

This restructuring opens the door to the redevelopment of projects which have lived out
their useful life, which will be important as the first strata corporations created in the late
1960’s and early 1970’s age. Instead of paying for costly renewals to buildings which
may not make sense financially, the owners now have the option of terminating the strata
plan, winding up the strata corporation, and selling the lands as a redevelopment site or
developing it themselves.

Some homeowners may resist giving up their home. However, dated properties may
constitute a financial burden to all owners or a health and safety hazard due to, for
example, wet building syndrome, fire safety deficiencies, lack of a fire sprinkler system
or woefully inadequate seismic installations which fail to meet minimum standards.
Due to timely legislative amendments, owners will now have options regarding how to
address such matters.

For example, upon dissolution and subject to appropriate approvals, an old, tired
townhouse complex with 50 units could be torn down and replaced with a new 100 unit
apartment building. If restructuring a dated project using a development plan which
utilizes the highest and best use of the lands adds significant value to the land, then after a
detailed cost benefit analysis, owners may find dissolution of the strata plan financially
beneficial.

Redevelopment of the lands with a higher density could add value for the benefit of the
owners which might not otherwise exist. There are many other available options. The
shackles associated with the restructuring of an existing strata corporation are removed
upon dissolution.The amendments to the termination provisions apply to both a convention stratacorporation and to a bare land strata.

Summary of Legislative Changes:

The legislative changes may be summarized as follows:

1. A new voting threshold of 80% has been created in place of the unanimous vote to authorize termination of a strata defined as follows (s. 1(1), Act):
“80 percent vote” means a vote in favour of a resolution by at least 80 percent of the eligible voters”

2. An “eligible vote” is defined by reference to the strata’s Schedule of Voting Rights or by the statutory default standard of one vote per strata lot. The vast majority of strata corporations will rely upon the statutory standard of one vote per strata lot. However, mixed-use or non-residential strata corporations may have a different voting power in the Schedule of Voting Rights. The resolution authorizing the termination of a strata plan will be approved on a “total-votes” basis, rather than on a “votes-cast” basis.

3. A resolution to cancel the strata plan requiring an 80% threshold vote must be prepared and presented to the owners at a general meeting (s. 45, Act). The same threshold vote is required for the voluntary winding up of a strata plan with a liquidator or without a liquidator.

4. An extended notice period of at least 4 weeks’ written notice is required in order to address the termination resolution at a general meeting of owners. We recommend that 37 days’ notice be provided to ensure that the strata corporation is on solid legal ground.

5. The notice must be provided to: 
a. owners,
b. tenants who have been assigned a landlord’s right to vote and have notified the Strata Corporation of that assignment, and,
c. registered chargeholders, including mortgagees who have given the strata corporation a Mortgagee’s Request for Notification.

6. We recommend that title searches be conducted of every strata lot to ensure that all of the chargeholders are properly identified and provided with notice. As noted below, the chargeholders will be provided with notice; however, the owner has the right to vote at the general meeting.
7. The text of the proposed resolution authorizing the termination of a strata plan must be included in the notice of the general meeting in the ordinary course (s. 45(3), Act).

8. Given the importance of a dissolution resolution, an owner will have the right to vote on this resolution even if the bylaws state that his or her vote cannot be exercised if the strata corporation is “entitled to register a lien against that strata lot” due to non-payment of strata fees or special levies (s. 53(2), Act).

Mortgagee’s right to vote:
9. The legislation clarifies that although a mortgagee may be entitled to notice of the termination resolution, it does not have the right to “exercise a strata lot’s right to vote” on this resolution. The amendments clarify that the owner has the right to vote on the dissolution resolution at a general meeting called for this purpose (s. 54.1, Act). The mortgagee’s interests are protected by other provisions of the legislation.
Court appointed Voter:

10. If a person is not available to vote in respect of a strata lot, then the Supreme Court of British Columbia (“Supreme Court”), may appoint someone to vote on behalf of that strata lot (s. 58(3), Act).
Termination Resolution:

11. The termination resolution will:

a. authorize termination of the strata plan;
b. authorize the strata corporation to apply to the Supreme Court for termination orders and a vesting order authorizing the cancellation of the strata plan and winding up of the strata corporation (ss. 177(4) and 278.1, Act);
c. approve expenditures; and,
d. address miscellaneous matters.

Role of the Supreme Court:
12. Subject to exemptions for small strata corporations, a strata corporation will be required to obtain orders from the Supreme Court authorizing the cancellation of the strata plan and the winding up of the Strata Corporation. Thereafter, the strata corporation will apply to the Registrar of the Land Title Office to cancel the strata plan (s. 273.1, Act).

13. A strata corporation with less than 5 strata lots is exempt from the requirement to apply to the Supreme Court for termination orders authorizing termination and winding up (ss. 273.1(1)(b)) and 278.1(1), Act). Those applicants may apply directly to the Registrar of the Land Title Office to wind up the strata corporation without a liquidator. This legislative amendment results in a significant cost saving for small strata corporations and streamlines the process.

14. Each owner and chargeholder must be served with a copy of the Petition to the Supreme Court by personal service (s. 273.2). This is consistent with current practice.

15. The Supreme Court will grant the termination order if it is satisfied that termination is in the “best interests of the strata corporation” (273.3, Act). The Supreme Court will play an oversight role to protect the interests of dissenting owners and chargeholders and to ensure that the process is fair and efficient.

Miscellaneous Amendments:
16. There are miscellaneous amendments such as, for example, the requirement to disclose the dissolution resolution in the Information Certificate (59(3), Act). These amendments are not referred to in detail.

Conclusion:
The new legislation opens up the door to many new and exciting possibilities. Please seek legal advice from a qualified strata lawyer if you would like to investigate your options.

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