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B.C. offers flexibility for redevelopment

Proposed bill will make dissolving condo corporations, selling buildings easier
Monday, November 2, 2015
by Erin Ruddy

A proposed amendment to British Columbia’s Strata Property Act could make it easier for apartment developers to scoop up prime real estate in B.C.’s hottest neighbourhoods. While current legislation calls for condominium owners’ unanimous consent to dissolve a corporation, the new bill would lower that threshold to 80 per cent in a change that could take effect as early as the end of 2015.

“This change to the Strata Property Act would make it easier for strata owners to sell off the entire building,” says Casey Weeks, Vice President, Investment, at Colliers in Vancouver. “We believe this will free up some prime redevelopment opportunities and allow for newer, better building construction.”

Given that Vancouver’s first condominiums were constructed in the 1960s, unit owners are now facing tough decisions as their buildings age and depreciate. From the expense of unit repairs to the cost of upgrading common areas and amenities, often the financial investment isn’t worth the payoff as owners likely won’t recover those costs from the expected increase in value.

“Many of the existing developments are three- and four-storey wood frame walk-ups located in prime traffic areas and near light rapid transit stations,” says Pat Williams, Partner, Clark Wilson LLP. “These developments are strata corporations that can only be replaced if they are cancelled, or effectively destroyed. The change in legislation would allow developers to canvass existing complexes and enter into negotiations.”

Williams says having the option to cancel the strata corporation by selling the building may be the best course of action for those facing costly repairs. “The option will likely result in a higher price being paid because the value is in the footprint that can accommodate a 20-storey building, rather than the existing three-storey building,” he says.

Condo vs. purpose-built rental

Even if changes to the Strata Property Act do result in more opportunities for redevelopment, history indicates that the competition may favour condominiums over apartments.

“In the City of Vancouver, all things being equal, condos will generally outperform purpose-built rental,” says Weeks. “That said, given the success of their purpose-built rental incentives, we believe the City of Vancouver will continue to encourage the development of purpose-built rental through their rezoning policies.”

Weeks notes that, historically, the profit margin for condominium development has typically superseded the capitalized value of income created by purpose-built rental properties.

“This has changed in recent years as the City has created incentives for purpose-built rental buildings through their rezoning policies,” he says. “For instance, in the west end and in East Vancouver, the City will relax its parking stall ratios and provide additional density, to encourage development of purpose-built rental. These incentives combined with rising rents, a low interest rate environment, and an aging building stock are stimulating a boom in purpose-built rental properties in Vancouver.”

Opposing the move

Noting two recent high profile cases in North Vancouver in which buildings were developed before the current strata legislation (1966), Williams anticipates some opposition to the 80 per cent threshold. “Even if a unit-holder is getting a substantial increase due to the value being in the footprint,” he says, “once the complex is sold the unit-holder must move out.”

In both cases cited, Williams says a percentage of unit-holders did not want to move from their existing buildings due to ties to friends, family and children attending district schools. Many believed that if their corporations were dissolved and sold, they would no longer be able to afford to live in North Vancouver despite a substantial return on existing value.

“Although the vote threshold will be reduced from 100 per cent to 80 per cent with the new legislation, the cancellation must be approved by the court,” he says. “Though a potential developer/buyer must persuade a court that their offer is the best one the owners will receive, we know that there will be individuals who will attempt to persuade the court that they are being unfairly prejudiced by having to move. Each situation will be decided based upon its own particular circumstances.”

As per Williams comment, the proposed amendments will require the strata to obtain an order from the Supreme Court of British Columbia confirming the owners’ resolution. In deciding whether to make such an order, the court will be required to consider, among other things, the best interests of the owners and the probability and extent of significant unfairness to one or more owners or holders of registered charges.

Erin Ruddy is the editor of Canadian Apartment Magazine

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