Key Themes, Trends, and Principles from the Post-Bill 40 Case Law on Strata Wind-Ups in B.C.

It has been about two years since Bill 40 ushered in a new strata wind-up regime in British Columbia. The bill, which was prompted by a 2015 B.C. Law Institute report, marked a new era in strata wind-ups under the Strata Property Act[1] (the “Act”). Whereas, previously, unanimous approval on the part of the owners was generally required to wind up a strata corporation, the new threshold is a more attainable 80 per cent, provided court confirmation is subsequently obtained.

Thus far, we have seen four contested confirmation applications reach the B.C. Supreme Court, with one refusal and three approvals:

  • In The Owners, Strata Plan VR 1966[2] (“Bel-Ayre”), the Court refused to confirm the wind-up resolution because the interest schedule – the liquidator’s “roadmap” – that was attached to the resolution suffered from a deficiency of substance: it omitted statutorily required value estimates.
  • In The Owners, Strata Plan VR2122 v. Wake[3] (“The Hampstead”), the Court confirmed the resolution over the objections of four dissenting owners, finding that the essential statutory requirements had been met, even though the resolution contained certain flaws.
  • In Re The Owners, Strata Plan VR2702[4] (“Barclay Terrace”), the Court confirmed the resolution despite resistance from two holdout owners who argued that the sale price was too low and that they were not kept informed throughout the sale process.
  • In Strata Plan NWS837 (Re)[5] (“Ascott Wynde”), the Court confirmed the resolution in the face of allegations 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”.

Though the post-Bill 40 jurisprudence is still in its infancy, it is worth taking a moment to step back and take stock of five key themes, trends, and legal principles that have emerged thus far.

1.     The Analytical Framework

In considering whether to confirm a wind-up resolution, the Act requires the Court to consider the following factors:

  1. the best interests of the owners, and
  2. the probability and extent, if the winding-up resolution is confirmed or not confirmed, of
    1. i) significant unfairness to one or more
      1. owners,
      2. holders of registered charges, or
      3. other creditors, and
    2. ii) significant confusion and uncertainty in the affairs of the strata corporation or of the owners.[6]

In Ascott Wynde, the Court provided a helpful summary of several bedrock principles governing applications for court confirmation of wind-up resolutions, including the following:

  • The dissenting owners bear the onus of establishing the factors that would justify refusing an application for an order confirming a wind-up resolution.
  • In determining what is in the best interests of the owners, the interests of all owners must be weighed.
  • Any alleged unfairness or uncertainty must be significant enough to override the interests of the majority who voted in favour of the wind-up.
  • “Significant unfairness” 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”.
  • In determining whether confirming or refusing to confirm the resolution would cause significant unfairness, the Court must consider whether the evidence supports the reasonable expectations asserted by the minority and, if so, whether those expectations were violated in a way that was significantly unfair.[7]

2.     The Fairness of the Wind-Up and Sale Process Is a Familiar Target in Litigation

One of the most striking themes emerging from the case law is the frequency with which the fairness of the wind-up and sale process is targeted in litigation. While the fairness of the process was challenged to some extent in each of the cases to reach the Court so far, in Ascott Wynde the issue truly took centre stage. Among other lessons, we can extract the following principles from that case and the Court’s reasons dismissing the dissenting owners’ arguments:

  • False or Misleading Information: The Court may scrutinize statements made by realtors and strata council members in the lead-up to a vote on a wind-up resolution to determine whether owners have been given false or misleading information. Those involved in managing the process should ensure all information provided to owners is accurate, complete, and balanced.
  • Shared Interests: The mere fact that the strata council, the realtor, and the law firm involved in organizing and managing the process have a shared interest in consummating a sale does not, in itself, mean that the process is flawed.
  • Strata Council’s Role: It is not inappropriate for the strata council to retain and instruct realtors and lawyers and to enter into a provisional sale agreement on behalf of the owners before a liquidator is appointed. The strata council is permitted to take the reins and drive the process from an early stage, provided it acts in the bests interests of all owners collectively.
  • Strata Council’s Commitments: The Court may look to whether the strata council has honoured any and all commitments made to owners about the process (e.g., that council would ensure the sale agreement gives owners a right of priority access to units in the new building following redevelopment), and the consequences of any “broken promises” should be viewed in context.
  • Inadequate Price: The argument that the purchase price for the property is inadequate is unlikely to get off the ground unless the dissenting owners can adduce compelling, objective evidence that the realtor’s efforts in marketing the property were deficient or that the price is demonstrably below what it ought to have been in light of market prices. Barclay Terrace further solidifies the notion that dissenting owners who advance an inadequate price argument face an uphill battle.
  • Forced Move: The mere fact that the dissenting owners will be forced to move against their will cannot be, in itself, the kind of “significant unfairness” or “significant confusion and uncertainty” that may justify a refusal to confirm a duly passed wind-up resolution. The Court in The Hampstead affirmed a similar proposition in rejecting the submission that “property rights as a home should be given greater emphasis in the face of 80% or more of the owners who want to take advantage of the increased profit to be made as a result of rezoning and redevelopment”.[8] In sum, dissenting owners do not have an absolute veto and may be required to move against their will.
  • Translations: There is no general requirement on strata councils to “discern and then cater to the diverse language abilities of their owner populations”, and broadly speaking, translating all informational materials to suit owners’ language preferences will not be strictly necessary.[9]
  • Opportunity to Be Heard: The Court may look to whether dissenting owners have been given a sufficient opportunity to have their voices heard. Providing ample opportunities for discussion and debate – such as through town hall meetings, questions and answer periods, and information sessions – is essential to ensure the process is sufficiently robust, fair, and transparent.

The importance of a fair process was also underscored in The Hampstead. There, the Court rejected the dissenting owners’ argument that the process was significantly unfair, finding instead that “the owners were informed every step of the way, the process was transparent, and all of the owners were provided with any information they sought, answers to any questions they had, and provided with any document they requested”.[10] This is the standard of fairness and transparency that those managing the process should strive for.

3.     The Importance of the Interest Schedule Should Not Be Overlooked

The very first contested strata wind-up case in the post-Bill 40 era, Bel-Ayre, issued a caution: before the Court grants its blessing, the applicant must demonstrate that all essential statutory requirements have been satisfied. As Bel-Ayre illustrates, this principle extends equally to the requirements relating to the interest schedule that must be attached to the wind-up resolution.

The purpose of the interest schedule is to provide the liquidator with a “roadmap” for the ratable distribution of the property’s sale proceeds to the owners and their creditors. The interest schedule must include, among other things, the “estimated value of the interest of each holder of a registered charge against the land”.[11] In Bel-Ayre, this information had been omitted, but the resolution passed nonetheless. Before the Court, the strata argued that the omission was a “rectifiable procedural irregularity”[12] and that the resolution should be confirmed despite that irregularity. The Court disagreed. It observed that under the Act, the value estimates were “essential ingredients” in a valid winding-up resolution.[13] Their omission was one of substance, and there was nothing in the Act to suggest that the Court had discretion to overlook such a deficiency. Accordingly, the Court found the resolution to be invalid and incapable of confirmation.

Bel-Ayre, which drove home the point that court confirmation is no rubber stamp, is not the only case involving interest schedule defects. In The Hampstead, the wind-up resolution failed to set out the name and address of the proposed liquidator, despite a requirement in the Act to do so.[14] In addition, a registered charge holder that held a charge against a sidewalk on the common property was not named in the interest schedule. However, unlike in Bel-Ayre, these defects were not found to be fatal. The Court distinguished Bel-Ayre on the basis that the name and address of the liquidator were not “essential to the liquidator’s mandate or the roadmap of the liquidation process”,[15] and the omission of the charge holder from the interest schedule was of no moment, as the particular charge would remain on title whether or not a wind-up and sale took place.

Bel-Ayre and The Hampstead illustrate an important point: as far as defects are concerned, only a defect of substance will lead the Court to refuse to confirm a wind-up resolution. Still, it goes without saying that best efforts should always be made to ensure the resolution is flawless.

4.     The Typical Wind-Up and Sale Process Is Not the Only Option ­– “Unit Assembly” Is also an Option

The typical wind-up and sale process involves the prospective purchaser entering into a conditional purchase and sale agreement with the strata council (acting on behalf of the owners) for the purchase of the strata complex as a whole. In this scenario, if a condition (such as court confirmation of a wind-up resolution) fails to be satisfied, the prospective purchaser can simply walk away, without having purchased a single unit.

But the typical process is not the only option. Barclay Terrace illustrates an alternative approach. There, two major developers gradually bought up over 80% of strata units and proceeded to use their controlling interest to successfully drive the wind-up process through what one might call a “unit assembly” strategy. The objective of the prospective purchaser in a “unit assembly” strategy will generally be to achieve complete ownership of all units in the strata, though that objective may not always be attainable.

At least in theory, there are some advantages to this transactional approach. For example, the Court in Barclay Terrace suggested that minority owners’ legitimate expectations relating to their participation in the marketing and sale process may be reduced when owners could “see the writing on the wall” as the prospective purchaser sought and achieved a controlling block of units.[16] In these circumstances, minority owners “cannot reasonably expect to exercise any measure of control or a veto over any deal that is struck”.[17] Hence, a prospective purchaser who has acquired an overwhelming majority of units may be permitted to exercise a high degree of control over the wind-up and sale process, without material interference from minority owners.

But the “unit assembly” approach carries significant risk. Even if the prospective purchaser acquires over 80% of the units, thereby guaranteeing a wind-up resolution if desired, this does not obviate the need to seek court confirmation. If confirmation were to be denied – for example, because a wind-up and sale would result in significant unfairness to one or more owners or creditors – the controlling owner may not be able to execute its redevelopment or other objectives. Moreover, unit-by-unit negotiation over an extended period can be costly, and the unit assembly process may introduce pricing dynamics that work against the prospective purchaser, as it can give the last remaining holdout owners significant leverage to thwart the prospective purchaser’s aspirations.

Each case is unique, and prospective purchasers should consult with legal and real estate advisors to determine the optimal approach in the particular circumstances.

5.     The Court Will Not Question the Wisdom of Municipal Planning Decisions

Finally, The Hampstead established an important principle: in deciding whether to confirm a wind-up resolution, the Court will not question the wisdom of municipal planning decisions. In The Hampstead, the question arose as to whether the City of Vancouver’s decisions regarding social housing, densification, rezoning, or community planning that allowed for the redevelopment of the property should be considered in the Court’s analysis of whether to confirm the wind-up resolution. The Court answered this question in the negative, finding that those factors fell within the municipality’s purview, not the Court’s.

Looking Ahead

The law on strata wind-ups in the province is rapidly developing. The Court continues to grapple with important questions bearing on the balance to be struck between:

  • giving effect to the wishes of a supermajority of owners who want to capitalize on the opportunity to sell their units at a significant premium, often in the context of a rapidly deteriorating strata complex in need of costly repairs; and
  • protecting the rights and interests of dissenting owners who, for any number of legitimate reasons, wish to continue calling their units “home”.

This balancing exercise is not an easy one, and it engages difficult questions of law and policy. But at least to date, we have seen a general willingness from the Court to give effect to the wishes of the willing majority, provided essential statutory requirements have been observed. This has been the case even where dissenting unit owners bought into the strata at a time when the law generally required unanimous consent to effect a wind-up, which presumably set up certain expectations among owners as to the stability of their housing situation.

However, uncertainties remain. For example, we have yet to see how the Court would handle a scenario in which there is clear evidence that dissenting owners would be forced from their communities as a result of their inability to find comparable units in the surrounding area. In the cases to date, there was no compelling evidence that dissenting owners would be unable to find comparable units nearby. It is conceivable that the analysis in these cases may have taken a different path had a significant number of dissenting owners faced the prospect of being driven from their communities against their will.

As a further example of uncertainties in the law (or at least how it may apply), we have yet to see a set of facts in which, in the Court’s view, “significant unfairness” arose. We know from Ascott Wynde that “significant unfairness” 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”.[18] We also know from The Hampstead that the modifier “significant” indicates that the unfairness must be “oppressive or transcend beyond mere prejudice or trifling unfairness” – it must be unfairness that is “of great importance or consequence.”[19] But we have yet to see a concrete example of what that would look like in the post-Bill 40 case law. Nor do we have a concrete example of what amounts to “significant confusion and uncertainty in the affairs of the strata corporation or of the owners”.

Finally, we have yet to see the B.C. Court of Appeal issue any guidance on strata wind-ups in the post-Bill 40 era. But it is only a matter of time. Although Bel-Ayre and Ascott Wynde were never appealed, The Hampstead and Barclay Terrace have been appealed.

[Updated June 14, 2018 to reflect the fact that The Hampstead has been appealed.]

If you have any questions about the strata wind-up and sale process, 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.

[2] 2017 BCSC 1661 [Bel-Ayre].

[3] 2017 BCSC 2386 [The Hampstead].

[4] 2018 BCSC 390 [Barclay Terrace].

[5] 2018 BCSC 564 [Ascott Wynde].

[6] Strata Property Act, ss. 273.1(5), 278.1(5).

[7] Ascott Wynde at para. 17.

[8] The Hampstead at para. 129.

[9] Ascott Wynde at para. 66.

[10] The Hampstead at para. 136.

[11] Strata Property Act, s. 278(1)(d).

[12] Bel-Ayre at para. 8.

[13] Ibid at para. 36.

[14] Strata Property Act, s. 277(3).

[15] The Hampstead at para. 72.

[16] Barclay Terrace at para. 46.

[17] Ibid at para. 49.

[18] Ascott Wynde at para. 17.

[19] The Hampstead at para. 140.

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