A Guide to Land Assembly in BC (2019)

houses arial view

What is a “land assembly”?

A land assembly is simply the joining of adjacent lands to make a larger parcel. This is normally done so that the larger parcel can accommodate the building of more living units (be they houses, townhouses, low rise or high rise condominiums). Selling as part of a land assembly usually means that the vendor will get a much higher price than he or she would on a one off sale to an individual buyer.

A realtor knocks on your door and says that he or she is representing a buyer or developer who is interested in purchasing your property as part of a land assembly.

What should you do?

– Find out as much as you can from the realtor about the assembly including who is behind it (i.e. developer, city hall, school board or other government authority or other), how much land is being assembled, what is going to be built on the property (i.e. townhouses, low rise, high rise or other), what is permitted by the current Community Plan for your neighborhood, who else has signed a sale agreement in your area for this assembly, the time frame for the development, whether the realtor wants to represent you or the buyer (dual agency where the realtor represents both the buyer and the seller is now forbidden in BC except in unusual circumstances). Link.

– Ask the realtor to leave copies of all documentation with you for your review including marketing materials, listing agreement and proposed contract.

– Before you sign any listing agreement or contract of purchase, take it you your lawyer for review. Don’t ask the lawyer to “have a peak at the documents” because you don’t want to spend much money. These are complex documents and the lawyer has to take the time to read and understand them in order to properly advise you. I have had clients who have inadvertently signed two year listing agreements for land assemblies, assuming that they could cancel them if the realtor was not performing to their satisfaction. Unfortunately that is NOT the case. In a recent scenario, a school board presented an offer to a client of mine which had an open ended subject removal date (meaning that it would have tied my client’s property up indefinitely). The offer was drafted by a large Vancouver law firm, so one would have to assume that was not a drafting error. Unscrupulous developers, realtors or others often seek to hide unreasonable clauses in the fine print. Don’t assume that you can void a contract because you didn’t read it before signing (you will have an uphill battle in court on that front). Don’t rely on the buyer’s realtor or other third party to explain it to you, in place of your actually reading it or having your lawyer review it and explain it to you.

– THE DEVELOPER’S GOAL: is to tie up your property for as long as possible without paying you anything unless the proposed development goes ahead. The carrot which is dangled in front of you is the potential to get a lot more money for your home than its normal market value. The developer accomplishes this slight-of-hand by the use of “subject conditions,” which are terms which make the contract binding on him only when they are removed.

Typical subject conditions are:
• A certain number of neighborhood owners signing on;
• Satisfactory Phase I environmental site assessment;
• Satisfactory Feasibility Study;
• Other due diligence searches and investigations such as title review, soil sampling, site assessment etc.

– Often it can take a half a year or more to complete these matters. In the meantime, your property is effectively tied up. It can’t be sold to someone else and it’s unlikely that you would want to renovate or upgrade it with the possibility of a sale on the horizon. On occasion, the developer will want an Option registered on your property as well.

– THE SELLER’S GOAL: is to have your property under contract for as short a time as possible and to get some non-refundable compensation from the developer if the property is going to be tied up for more than three or four months. Options cost money and there is no reason to grant one to a developer and not get paid something if the sale never materializes. I have had clients who have had their property tied up for eighteen months only to have the development cancelled at the last minute. In such a case, keeping $20,000 or more for your trouble makes the situation somewhat more palatable. Beware the Listing Agreement also. These are very complex, one sided standard agreements drafted by the real estate board’s lawyers. Once they are signed, unless modified by you or your lawyer first, they can lock a seller into a long term relationship with the listing realtor –again effectively tying up your home without compensation.

Other considerations are:

– Payment of the deposit on the subject removal date. That deposit should be minimally 5-10% of the ultimate purchase price, non-refundable and preferably, released to the seller forthwith upon subject removal. If not, it’s held in the real estate brokerage’s or developer’s lawyer’s trust account. Stipulate that it be held in an interest bearing account and that the interest accrues to you if the completion date is more than three or four months down the road. If the deposit is to be held in trust, add a clause requiring the developer’s brokerage or lawyer to release the deposit to you or your lawyer forthwith, if the developer fails to close on the completion date (otherwise, you may have to go to court to get it, as the Real Estate Services Act requires either mutual consent or a court order to have a deposit released. Link.

– Rent back. Often, the development may not be built for a year or more after the completion date. In such case the house may be livable during that period and the seller should negotiate for free rent for a year or more, while he or she finds somewhere else to live. Make sure that there is a sub-lease clause so that if the seller finds another property to buy or rent that he can sublease the property to someone else and keep the rent as part of his remuneration.

– VIP or Friends & Relatives status on developer’s other projects. If the developer is a large one like BOSA, Polygon, Pinnacle, West Bank, Onni, etc., you may be able to obtain preferred status on their other developments, if you see something in their other offerings which is appealing.

– Capital gains and other tax implications. Even before your lawyer reviews the documents, a call to your accountant is in order to understand what the tax implications are of your possible sale. In the case of a single family dwelling on a normal sized lot which has been used for residential purposes, it is almost certainly a non-taxable transaction. However if the property was an acre or two and/or used for commercial activities there may be capital gains or GST consequences. In real estate, all surprises are bad as a rule, so it’s best to find out in advance.

– What is out there for you to acquire? Ask your own realtor to advise you about what you could buy for the suggested sale price in the area that you want to re-purchase in. Often people are shocked to find out just how little they can buy for a million dollars these days (particularly if they bought a long time ago for a hundred thousand dollars or less!)

– Never make a rushed decision. Developers and realtors are always pushing for a signature NOW. Take your time and assess the situation in consultation with your lawyer, accountant and your own realtor. In most instances, it’s the land assembler that is coming to you, not the other way around, so you are in the driver’s seat as long as you don’t give in to fear or greed.

Conclusion

Land assemblies are here to stay. With 40-50,000 people moving to the Lower Mainland yearly and every politician and his dog in favor of increasing density (although how that is either “green” or “sustainable” is a mystery to me), it’s wise to at least be aware of the basics if you find someone knocking on your door to buy your property for this purpose.

The corollary of a land assembly for condominium owners of older, low rise buildings is the “strata dissolution” scenario which we have dealt with in a previous blog “Help, my strata wants to sell the building out from under me!

If you have any questions, or want to share your land assembly story we would love to hear from you! Feel free to contact Kenneth Pazder or Melissa Valana at 604-682-1509.

PAZDER LAW CORPORATION © 2018

Disclaimer: The foregoing is not intended as legal advice. It is presented for information purposes only. Always consult legal counsel before signing a land assembly contract or listing agreement for same.

Help! My Strata Wants to Sell My Building From Under Me

scattered puzzle pieces

In cities like Vancouver where the mantra is eco-density (which is actually an oxymoron as there is nothing ecologically friendly or sustainable about increasing density), every property developer and his dog is seeking out older three or four story strata complexes for redevelopment.

A strata council may believe the best decision is to dissolve the strata corporation especially if:

  1. the strata complex is on its last legs;
  2. the future cost of repairs and capital upgrades may no longer make economic sense;
  3. the owners don’t have the financial wherewithal to finance the costs and upgrades; or
  4. the neighbourhood is being redeveloped pursuant to a new “community plan” which is encouraging redevelopment.

However for anxious strata property owners caught in this predicament there are two very important things to be aware of:

Strata councils CANNOT unilaterally make any decisions regarding the dissolution of the strata corporation.

Strata councils CANNOT “sell the building” nor bind the individual owners of the strata units in the building to sell their units to a developer.

Prior to 2017, a unanimous vote of the existing strata property owners was required to allow the strata council to dissolve a strata corporation.

Last year the BC government changed that threshold to 80% of the strata property owners, doubtless as a concession to property developers who have donated tens of thousands of dollars to the liberal party of BC year after year.

As a result, a plethora of realtors and developers have been let loose on unsuspecting strata property owners in older buildings seeking to purchase their units, often one by one with a view to reaching that threshold.

Once the developer has 80% of the units it is pretty much game over for the remaining owners as it can effectively wind up the strata corporation on its own accord, regardless of the wishes of the remaining owners.

What then should the owners of an older, low rise building do?

The first and foremost thing is to be proactive.  Don’t wait until a developer or realtor is knocking on doors to solicit sales in your building.

STEP 1    Organize your owners.  It is easy to break a stick, but difficult to break a bundle of sticks. Get the bundle in place right away.

STEP 2   Set up a Facebook page or website specific to the building so that all the owners can freely communicate with each other.  Unfortunately in many cases when the strata council gets involved, it tends to both restrict and horde new information and then release it to the owners on a redacted basis as it sees fit.  Strata council members may also be in a conflict of interest when they are offered extra incentives by developers to “make the deal happen.” Collectively the complex belongs to all the owners, so every owner should have full, unrestricted access to all available information.

STEP 3   Call a meeting of all of the owners to discuss your options.  Find out who wants to sell and who does not. Develop a protocol for dealing with realtors and developers who attempt to solicit individual owners.

STEP 4   If there is significant interest in selling by a majority of the owners OR its evident that the community plan for the neighborhood is being changed to encourage much higher density, then get some expert legal and marketing advice (How does “winding up the strata” work?  Are there other sale options, like selling 80% or more of the individual units to a developer at the same time? How do you find an interested property developer? How do you know how much to ask for our units? How do you find a good property appraiser? Can one law firm represent everyone?  Should the same sale formula apply to everyone (i.e. 2X or 3X tax assessment value)? Should everyone get the same amount of “free rent,” to allow them to find other accommodation? What does a comparable unit cost “out in the market?”)

These are but a few of the questions to be asked and answered BEFORE anyone agrees to anything.

STEP 5   Get a real estate lawyer, an experienced realtor and an appraiser to attend an owner meeting to discuss the foregoing and answer other questions for the owners.

STEP 6   Have an appraisal done on the building based on what can be built in its place (the appraiser can obtain this information from city hall).  When a property developer presents an offer and proffers am appraisal in support you will have something to compare it to.

STEP 7   Get a consensus on the procedure to market the building and whether the preferred route is to wind up or to sell off the individual units as a group and then engage a realtor or other marketing representative to market the developers for proposals.

STEP 8   When a proposal or offer comes in, call a meeting to discuss it with all the owners and negotiate your best deal.  In my view, it’s best if every owner is treated identically, that is the same sales formula applies to each unit and each owner gets the same amount of free rent or other incentives (such as first dibs on a unit in the new building).

STEP 9    Sell the units directly to the developer concurrently and disburse the proceeds.  If you can get a developer to buy 80% or more of the units in one coordinated sale, that will maximize the value for all of the owners and save you the expense and stress of having to make a court application to dissolve the strata corporation.

Needless to say if there is little or no interest in selling the complex, the protocol should be to have all offers go to a specified owner, the strata’s legal representative or other agent for a firm rejection.

If an acceptable offer comes in to purchase the whole complex (as opposed to purchasing individual units) then the strata corporation must be wound up. In such case the following procedure must be followed:

Notice of General Meeting to Consider Windup Resolution

At least 4 weeks’ notice must be given of a general meeting that includes a resolution to wind up the strata corporation.

Who must be given notice?

Notice must be given to every owner regardless of whether notice must also be sent to their tenant or mortgagee. Notice must also be given to every mortgagee who has given the strata corporation a mortgagee request, and every tenant who has been assigned their landlord’s right to vote. Notice must be given to these individuals regardless of whether a person has previously waived their right to receive notification.

Voting

Effective July 28, 2016, approving a strata wind up resolution requires an 80% vote of approval FROM ALL STRATA OWNERS NOT A QUORUM VOTE of those owners present at the meeting. Previously, passing a wind up resolution required unanimous approval, however, the BC government changed this to 80% to make it easier for strata corporations to wind up.

Voting to wind up the strata corporation is an important matter, thus all owners are eligible to vote despite any provisions in the bylaws making a strata owner ineligible to vote (i.e. if owner has unpaid strata fees).

The termination resolution will authorize termination of the strata plan, authorize the strata corporation to apply to the Supreme Court for termination orders and a vesting order authorizing the cancellations of the strata plan and winding up of the strata corporation; approve expenditures (funding for the lawyer, liquidator, liquidator’s legal representation, fees and commissions); and may also address miscellaneous matters like move out timelines or rent-free periods.

Court Supervision

If the resolution to wind up the strata corporation is passed, then for strata corporations that have more than 5 units, the strata corporation must then apply to the BC Supreme Court for an order confirming the winding up resolution. This must be done within 60 days after the resolution is passed.  If the strata corporation has less than 5 units no application to court is necessary.

The application to court gives strata owners extra protection. The court in confirming a resolution to wind up the strata corporation must consider: (a) the best interest of the owners, (b) the probability and extent, if winding up resolution is confirmed or not confirmed, of the significant unfairness to one or more owners or holders of registered charges and (c) the significant confusion and uncertainty in the affairs of the strata corporation or of their owners.

There are many reasons why owners may oppose the winding up of the strata corporation, including: proximity of amenities, pets, safety of the neighbourhood, money put into renovations, health issues and proximity to medical facilities, strong ties to neighbours and neighbourhood, or their unit was purchased as a life home and they have no intention of selling.

However, despite the protection of court supervision, if the resolution has been passed, the Court will typically not interfere with winding up and confirm the resolution. If you are part of the minority who opposed the resolution, the court may not be the place to rest your hopes as there has been only one instance where a winding up resolution was not confirmed. In The Owners, Strata Plan VR 1966, 2017 BCSC 1661 (“Bel-Ayre”) the court did not confirm a winding resolution because of a technicality that the value estimates of the interest schedule which were an essential term was omitted.

The court has acknowledged that the debate on whether to wind up or not can be heated, passions tend to run high and usually the minority do not feel like they have been adequately heard (Strata Plan NWS837 (Re) 2018 BCSC 564).

However, the court tends to reiterate the words of the Honorable Madam Justice Loo:

“Just because members of the minority were intimidated to speak up and voice their concerns does not mean the majority of the process was significantly unfair. Property rights as a home should not be given greater emphasis in face of 80% or more owners who want to take advantage of the increased profits to be made as a result of redevelopment or rezoning.”

Language Barriers

Living in Vancouver, there are many families that don’t speak English. However, with regards to the process for strata dissolution not speaking/reading English may be an issue. In Strata Plan NWS837 (Re) 2018 BCSC 564, some owners made an application  to court stating that since some of the information materials were in English only, and many of the owners only speak Cantonese, this rendered the dissolution process significantly unfair as not everything was translated.

The court was not persuaded by this argument. The Court found that it would place too much of a burden on Council to discover what each owner’s main language was and to make sure all the information was translated into the many different languages.

Conversion/ Interest Schedules

A conversion or an interest schedule must be approved and attached to the resolution. If a liquidator is to be appointed an interest schedule must be attached to the resolution, otherwise a conversion schedule is required. The Conversion/Interest Schedule must meet the requirements as to form and content.

The Schedule must:

  • State whether or not the Strata Corporation holds lands in its name
  • Identify the land by legal description sufficient to allow the registrar at the land title’s office to identify it in the records of the strata plan
  • List the name and postal address of each owner and registered charge holder
  • List all registered interests in land at the time of the resolution and as they will exist if the registrar grants an order in shares calculated according to the following formula:

Most recent assessed value of an owners’ strata lot

Most recent assessed value of all the strata lots in the

Strata plan, excluding any strata lots held by or on behalf of

The strata corporation

  • If there is no assessed value for the owner’s strata lot or for any strata lot in the strata plan, an appraised value that has been determined by an independent appraiser and that is approved by a resolution passed by a ¾ vote at an annual or special general meeting may be used in place of the assessed value for the above formula.

If a liquidator is appointed and an interest schedule is required, the interest schedule will have all the above information contained in the conversion schedule and in addition will have the name, postal address and interest of each creditor of the strata corporation who is not a holder of a registered charge against the land.

Submitting an Application to the Land Title Office

To cancel a strata plan the strata corporation must submit the following documents to the Land Title Office:

  • The conversion schedule,
  • A reference plan that shows the land shown on the strata plan and the land held in the name of or on behalf of the strata corporation not shown on the strata plan,
  • If the strata corporation has more than 5 units:
    • A Certificate of Strata Corporation stating that the winding up resolution has passed and the strata corporation has no debts other than the debts held by holders of registered charges
    • a copy of the court order
  • If the Strata corporation has fewer than 5 units and does not obtain a court order:
    • The written consent of all holders of registered charges,
    • a Form E Certificate of Strata Corporation confirming the winding up resolution has passed and the strata corporation has no debts other than the debts held by persons who have consented in writing to the winding up of the strata corporation
  • Any other document required by the registrar to resolve the priority interests of any registered charges against the land shown on the strata plan or to transfer title.

Registrar Order

If the registrar is satisfied, the registrar may order that the strata plan is cancelled. Once the order is made, the registrar must file the order, register indefeasible titles to the land referred to in the order and give each owner and registered charge holder shown on the conversion schedule a copy of the order.

When the order is filed, the strata corporation is dissolved. The owners are then tenants in common of the land and the personal property of the strata corporation is held in shares equal to the owners’ shares of the land set out in the conversion schedule.

THE MORAL OF THE STORY

DON’T WAIT FOR EVENTS TO CATCH YOU BY SURPRISE IF YOU LIVE IN AN OLDER, THREE OR FOUR STOREY BUILDING.

Whether you organize a mass sale to an interested buyer or seek a court order approving the dissolution of the strata and approving a sale to a developer, your best chance of getting the optimal result for all the owners is to organize early and act collectively.

This phenomenon is not going away anytime soon in BC, so forewarned is forearmed.

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© 2018 Pazder Law Corporation

Call Kenneth Pazder or Melissa Valana at 604-682-1509 if you have further questions.

DISCLAIMER:  The foregoing is not legal advice.  It is presented for information purposes only. The sale or dissolution of one’s strata complex is important one which merits professional legal and marketing advice well in advance of making such a decision.