'Strata Squeeze-Out': B.C. Supreme Court Confirms Strata Wind-Up Resolution Following Developers' Gradual Buy-Up of Units to Achieve Controlling Interest

Introduction

In July 2016, the approval threshold for passing a resolution to wind up a strata corporation under the B.C. Strata Property Act1 (the "Act") was lowered to 80% of all owners, replacing the previous requirement of unanimous approval. To give effect to a wind-up resolution, however, the resolution must receive subsequent confirmation from the B.C. Supreme Court (the "Court").

When we reported on "Court Confirmation of Strata Wind-Up Resolutions - The Experience So Far in B.C." back in January 2018, two contested applications for confirmation of a wind-up resolution had reached the Court and resulted in written decisions:

In The Owners, Strata Plan VR 1966 2 ("Bel-Ayre"), the Court refused to confirm the resolution in issue due to a fundamental deficiency in the interest schedule required to be attached to the resolution. In The Owners, Strata Plan VR2122 v. Wake 3 ("The Hampstead"), the Court confirmed the resolution, finding that the statutory requirements had been met. Since then, the Court has broken the tie and added another wind-up resolution to the "court-approved" column. In Re The Owners, Strata Plan VR2702 4 ("Barclay Terrace"), the Court confirmed a wind-up resolution passed in order to carry out a sale and redevelopment of two adjacent strata properties in Vancouver's West End, over the objections of two holdout owners who argued that the sale price was too low and that they were not kept informed throughout the sale process.

Barclay Terrace is particularly noteworthy because it involved a scenario in which 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 "strata squeeze-out". Developers, real estate agents, and strata owners alike should take note of the Court's comments on how this approach may influence the Court's assessment as to whether to confirm a wind-up resolution.

Background

The strata corporation administered a 26-year-old, seven-story concrete building located in Vancouver's West End known as "Barclay Terrace". The process by which the proposed wind-up and sale proceeded contained an important nuance: whereas the previous two contested cases involved widely dispersed ownership (i.e., the many strata units were owned by many different individuals), 34 of 36 units in the Barclay Terrace property - a full 94% - were owned by two major developers (the "Majority Owners"). The Majority Owners had achieved their ownership position by gradually purchasing up units from individual owners over the course of many months.

With an overwhelming majority of units in hand, the Majority Owners engaged a real estate agent in December 2016 to market the property, together with an adjacent strata complex consisting of four two-story townhouses owned by one of the developers (the "Adjacent Properties" and, together with Barclay Terrace, the "Combined Properties"). The agent found a buyer willing to purchase the Combined Properties for $105 million. An agreement of purchase and sale, subject to various conditions including court appointment of a liquidator, was concluded in June 2017 (the "Sale Agreement", as subsequently amended). The Sale Agreement allocated 75% of the sale price to Barclay Terrace and 25% to the Adjacent Properties.

In September 2017, the strata council held a special general meeting (the "SGM") for the owners to vote on a resolution to wind up the strata corporation and appoint a liquidator (the "Resolution"). To no one's surprise, the Resolution passed with 94% approval. The strata corporation then brought an application for court approval, an application which was opposed by the owners of the two units not held by the Majority Owners (the "Minority Owners").

Court Decision

Writing for the Court, Mr. Justice Milman, who also decided Bel-Ayre, noted that under s. 278.1(5) of the Act, the Court must consider the following factors in determining whether to...