B.C. Supreme Court Approves Wind-Up of Richmond Strata, Issues Guidance on Ensuring a Fair Sale Process

Introduction

Since changes to the strata wind-up regime under the B.C. Strata Property Act[1] (the “Act”) took effect in July 2016, we have seen a number of contested applications for confirmation of strata wind-up resolutions reach the B.C. Supreme Court (the “Court”).[2] For applicants, results have been mixed. In the first contested application, The Owners, Strata Plan VR 1966[3] (“Bel-Ayre”), the B.C. Supreme Court (the “Court”) refused to confirm the resolution. However, in The Owners, Strata Plan VR2122 v. Wake[4] (“The Hampstead”) and more recently in Re The Owners, Strata Plan VR2702[5] (“Barclay Terrace”), the applicants got the green light.

On April 10, 2018, the Court issued its most recent decision in this fast-growing line of case law: Strata Plan NWS837 (Re)[6] (“Ascott Wynde”). In the context of a proposed sale of a 102-unit strata complex in Richmond, the largest complex we have seen in the recent strata wind-up case law, the Court approved a wind-up resolution over the objections of a small handful of dissenting owners who alleged that the process leading up to the vote on the resolution was unfair and that permitting the wind-up and sale to proceed would result in “significant unfairness” and “significant confusion and uncertainty”.

The Court’s decision offers guidance on ensuring a fair sale process, a critical factor in the Court’s assessment of whether to confirm a wind-up resolution.

Background

“Ascott Wynde”, a strata complex located in Richmond, consists of two wood-framed buildings over cement foundations, together containing 102 strata lots and associated common property. The two buildings had been built in the late ‘70s and, by December 2013, had seen better days. It was then that the strata corporation commissioned a depreciation report recommending significant maintenance and repair work over the next five to seven years. Based on the strata council’s calculations, the total cost of repairs would be approximately $4.97 million, requiring levies of between $36,600 and $67,600 per unit.

At the strata’s 2016 AGM, with the prospect of costly repairs looming, the owners discussed their options. A majority embraced the idea of exploring a wind-up and sale. The strata council met with a realtor and scheduled a special general meeting to consult with the owners more formally. There, the owners passed a resolution authorizing council to retain legal counsel and engage a realtor to market the property. Six offers emerged.

Council reviewed the offers and, in October 2017, entered into a purchase and sale agreement (the “PSA”) with the successful bidder. Under the PSA, council provisionally agreed to sell the complex for $49.8 million. Two information sessions were held in December 2017 and January 2018 to give owners the opportunity to learn about the details of the PSA.

In late January 2018, the strata held a special general meeting to vote on a resolution approving a wind-up and sale as contemplated by the PSA (the “Resolution”). The Resolution passed with over 84% approval (86 of 102 units), thereby exceeding the requisite 80% threshold. The strata corporation, the proposed liquidator, and several owners (together, the “Petitioners”) then brought an application for court confirmation. A small handful of owners (the “Opposing Owners”) opposed the application.

Court Decision

The Court set out the criteria governing applications for a court order appointing a liquidator winding up a strata under s. 284(3) of the Act:

(a) the best interests of the owners, and

(b) the probability and extent, if the liquidator is appointed or not appointed, of

(i) significant unfairness to one or more

(A) owners,

(B) holders of registered charges … , or

(C) other creditors, and

(ii) significant confusion and uncertainty in the affairs of the strata corporation or of the owners.[7]

Applying these criteria, the Court considered and ultimately dismissed each of the Opposing Owners’ eight complaints, summarized below.

 1.     Misleading Statements

The Opposing Owners argued that the realtor had presented false or misleading information during the information sessions held before the vote on the Resolution. In addition, they called two of council’s assertions into issue:

  1. one council member had stated that he could “guarantee” the owners would receive less for their units should the Resolution be defeated; and
  2. another had stated that council no longer had the ability to renegotiate the sale price.

The Court rejected the Opposing Owners’ arguments. First, although certain Opposing Owners may have misunderstood the information presented at the information sessions, that information had not been shown to be false or misleading. Second, the council member’s “guarantee” was not improper: though couched in hyperbole, it merely signalled a “strong belief in the wisdom of approving the Resolution.”[8] Finally, given the stage negotiations had reached, it was neither incorrect nor misleading to say that council no longer had the ability to renegotiate the sale price.

2.     Alignment of Interests

The Opposing Owners maintained that the sale process was flawed because the strata council, the realtor, and the law firm representing the strata corporation in the sale all shared an interest in consummating a sale. They further asserted that the process ought to have been managed by an independent agent, such as a liquidator.

The Court was not persuaded that the process was flawed merely because of an alignment of interests. It affirmed that council “was required to balance the interests of all of the owners collectively in managing the process”, which it had done, and the realtor and law firm “were required to take their instructions from the council and implement those instructions in furtherance of the best interests of the owners”, which they had done.[9]

In addition, the Court confirmed that it is not inappropriate for council to retain and instruct realtors and lawyers and to enter into a sale agreement before a liquidator is appointed. The Court observed that the Act contemplates that the strata council, not the liquidator, will run the sale process, and that “owners will vote on a winding-up resolution with a sale agreement already in hand so that the owners can make an informed choice about whether to proceed with the proposed transaction and to allow for a meaningful review by the court at the confirmation hearing”.[10]

3.     Broken Promises

The Opposing Owners argued that council had failed to honour certain commitments it had made to them regarding the sale process. In particular, they argued that: 

  1. although the owners had passed a resolution stipulating that “[b]ids and proposals from interested buyers will be reviewed and voted by all owners”, council had not allowed that to occur – counsel for the Petitioners submitted that permitting such a process would have been “unwieldy” and “would have compromised the bidding process”;[11] and
     
  2. council had promised one of the Opposing Owners, and possibly other owners, that they could get “priority access” to purchase a “unit of choice” in the new development that was expected to replace Ascott Wynde, yet no provision for such “priority access” was included in the PSA.

First, the Court agreed with the Petitioners that even if the resolution had contemplated owners reviewing and voting on all bids and proposals, the owners had suffered no prejudice in being permitted to review and vote on only the winning bid.

Second, the Court stated that the extent of unfairness to owners who may have relied on the promise of “priority access” must be viewed in context. The Court reasoned that it was unlikely that this promise induced many owners who would not otherwise have voted in favour of the Resolution to vote in favour, as “it was or should have been apparent by the time the owners were called upon to vote that the PSA did not in fact contain such a clause.”[12]

4.     Exaggerated Repair Costs

The Opposing Owners asserted that council was “actively promoting the winding-up and sale option by exaggerating the urgency and extent of the anticipated repair costs.”[13]

The Court rejected this argument, finding that the Opposing Owners had not demonstrated that the information was misleading or one-sided. The Court added that owners “were able to review the Depreciation Report themselves and draw their own conclusions”.[14] It was for them to “balance the cost of future repairs and their urgency against the anticipated consideration flowing to them if the winding-up and sale proceeds as planned”.[15]

5.     Insufficient Compensation

The Opposing Owners alleged that the compensation they were set to receive was inadequate.

The Court gave this argument short shrift, finding there was no evidence that the price was below market or that the realtor’s marketing efforts were lacking.

6.     Relocation Difficulties

The Opposing Owners submitted that it would be difficult to find comparable replacement accommodation in the area.

The Court acknowledged that, for various reasons, relocation would likely prove difficult for some owners: some were elderly or disabled, some had lived in their units for decades, some had improved their units, etc. However, concluding that the circumstances were akin to those in The Hampstead, the Court found that the owners would not be displaced from their community or unable to find similar units in the area. The Court emphasized that “[a] forced move will be the inevitable consequence of every winding-up and sale of a strata corporation that is not unanimous” and that “the mere fact that a dissenting minority of owners will be forced to move cannot be, in itself, the kind of ‘significant unfairness’ or ‘significant confusion and uncertainty’ referred to in s. 284 that can justify a refusal to confirm a duly passed winding-up resolution.”[16]

7.     Undemocratic Process

The Opposing Owners maintained that the sale process was undemocratic because those opposing the sale were intimidated and not given a proper chance to be heard. They added that most informational materials were circulated in English only, while many owners spoke Cantonese, and information flow was controlled by those in favour of the sale.

The Court was not persuaded that the process was “significantly unfair” simply because not everything was translated, stating that “[t]o impose such a requirement would be to create a new and disproportionate burden on strata councils to discern and then cater to the diverse language abilities of their owner populations.”[17] Further, although debate was heated, there was no evidence that the process was significantly unfair. The Court quoted The Hampstead, confirming that “[t]hose who hold minority views may feel intimidated or fearful to speak up, but that does not necessarily mean that others in the majority, or the process itself, was significantly unfair.”[18] 

8.     Inadequate Service of Court Materials

Finally, the Opposing Owners alleged that they were not properly served with court materials before the hearing.

The Court rejected this argument, finding that the Petitioners had properly effected service.

Outcome

The Court concluded that it was in the best interests of the owners that the Resolution be confirmed and that it would probably cause greater unfairness, confusion, and uncertainty if the Resolution were not confirmed. Accordingly, the Court confirmed the Resolution.

The 30-day appeal period has passed without any appeal having been filed.

Key Takeaways

If there is one overarching theme in Ascott Wynde, it is this: the fairness of the sale process is a central consideration in determining whether a court will approve a wind-up. Nearly every argument advanced by the Opposing Owners took aim at the fairness of the sale process. While none of these arguments ultimately won the day, the fact that they took centre stage demonstrates that the fairness of the sale process will almost inevitably be tested in court in the event of strong dissent.

Based on Ascott Wynde, the factors that may be considered in probing the fairness of the sale process may include, among other factors:

  • whether the information presented to the owners in the lead-up to a vote on a wind-up resolution was free from false or misleading statements;
  • whether the strata council has made promises to owners that have not been honoured;
  • whether the sale price is adequate, having regard to market prices; and
  • whether dissenting owners have been given an opportunity to have their voices heard.

In addition, although it did not feature centrally in the Court’s reasons, the finding that strata councils are not obliged to discern owners’ language abilities and ensure all informational materials about the sale are translated to “cater to the diverse language abilities of their owner populations” is worth noting. It demonstrates that the Court is not quick to impose what it views as disproportionate burdens on strata councils in conducting the sale process. That said, strata councils would be well advised to make reasonable, good faith efforts to accommodate owners’ language preferences. 

Ascott Wynde sends an important message about the role relocation difficulties play in the Court’s analysis: although dissenting owners who wish to remain in their units will undoubtedly suffer hardship by being forced to move against their will, that hardship, without more, cannot justify refusal of a court confirmation. That said, we have yet to see a case in which a significant number of dissenting owners would be displaced from their community due to an inability to find comparable units in the area. In those circumstances, the outcome may differ. 

Finally, Ascott Wynde confirms that there is nothing inherently improper about a strata council engaging realtors and lawyers and driving the sale process. In fact, this is precisely what the legislation contemplates. Provided council acts in a fair manner and in the best interests of all owners collectively, it can take the reins in running the sale process. 

If you have any questions about the implications of Ascott Wynde or the strata wind-up process more broadly, we encourage you to get in touch with one of the lawyers in our Real Property & Planning Group.

 

[1] S.B.C. 1998, c. 43 [Act].

[2] See our previous posts on “Court Confirmation of Strata Wind-Up Resolutions – The Experience So Far in B.C.” and the Barclay Terrace decision.

[3] 2017 BCSC 1661 [Bel-Ayre].

[4] 2017 BCSC 2386 [The Hampstead].

[5] 2018 BCSC 390 [Barclay Terrace].

[6] 2018 BCSC 564 [Ascott Wynde].

[7] Strictly speaking, an application under s. 284(3) is for a court order appointing a liquidator to wind up the strata, whereas an application under s. 278.1(4) is for court confirmation of a wind-up resolution. But the Court in Ascott Wynde effectively treated the application under s. 284(3) as an application for court confirmation of a wind-up resolution. The criteria to be considered under each provision remain the same.

[8] Ascott Wynde at para. 38.

[9] Ibid at para. 41.

[10] Ibid at para. 42.

[11] Ibid at para. 44.

[12] Ibid at para. 51.

[13] Ibid at para. 52.

[14] Ibid at para. 54.

[15] Ibid at para. 54.

[16] Ibid at para. 63.

[17] Ibid at para. 66.

[18] Ibid at para. 67.

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