The tipping point for common ownership
Fifty years ago, a new type of common ownership gave ruse to modern condos. Too bad nobody planned for their inevitable demise
March 1, 2012
Cypress Gardens looks its 50 years, in good ways and bad. The complex, in North Vancouver’s Capilano Highlands, was built the year the nearby Trans-Canada Highway opened and the Cuban Missile Crisis nearly took the Cold War terminal. Its low-slung beige townhouses are a little shabby. From Westview Drive, its upper-floor siding—once cedar shakes, long ago replaced by vinyl—stands over a tired-looking fence. But Cypress is also an unpretentious break from the million-dollar houses of the North Shore. Even on this winter day, a couple of kids are running around its bridged ponds while parents sherpa loads of groceries from their cars.
That peace is deceptive. Behind the 177 doors of this jointly owned development, a war has been escalating for almost a year. Documents at the Vancouver Supreme Court refer to elderly people shoved out of their homes, new Canadians at the mercy of shady operators, chronic disrepair, contemptuous and illegal actions by owners, false allegations, and more. For the residents, these depositions make for disturbing reading. For almost a million homeowners around Metro Vancouver, they’re early warning signs of a coming legal apocalypse.
The tussle started last March when local developer Polygon Homes approached each of the residents and investor-owners. The offers to buy them out—totalling nearly $67 million, plus incentives like $30,000 discounts on future units—were far better than the single lowball offer Polygon had made in 2003, which the project’s board summarily rejected. This time, many owners were in favour, seeing the money on the table—more than they could get on the market—as the best way out of an aging complex with big repair and maintenance bills on the horizon. Others in the development pushed back, some arguing that the price was too low for what Polygon would build when the area was rezoned, others that no amount of money would make them leave one of the most affordable places in North Van. In the end, although more than half the owners wanted to sell, a substantial portion did not, and Polygon went away. In response, the pro-sale camp headed to the Supreme Court with a petition asking a judge to order the anti side to allow a sale, accepting any future “best price reasonable obtainable.”
Carlos Ruiz is one of those who refused to sell. Wearing a button-down shirt under a plum-coloured V-neck sweater, young-looking for his 62 years, he sits rigidly on a bench at the coffee shop in the Westview mall next to Cypress Gardens. He says that Polygon offered him $450,000 for his three-bedroom townhouse, $100,000 above current market value. “This complex was built with good materials,” says the onetime lawyer from Colombia. “It can last longer. We need to think about the old people here who can’t go anywhere else.” It’s not just the problems of the elderly, or even his own, that bother him. “What I see is that we Canadians have never foreseen the consequences of living together in a common property. We don’t have a system that allows people to understand what to do at the end of their unit’s life.”
End-of-life condo decisions are coming, and they’re coming quickly, says Tony Gioventu, president of B.C.’s Condo Homeowners Association. “We have a number that are coming up to the point where it’s not worth renovating them. I wouldn’t be surprised if there are up to 3,000 buildings up for redevelopment in the next five to 10 years.” Some buildings—those that were solidly constructed, run by competent strata councils, and built at such low density that they aren’t ripe for redevelopment—won’t face these issues for many decades. But for many other buildings, potentially messy funerals are on the way. Gioventu is already helping with some painful situations, like strata complexes in Vancouver where owners are being offered only 50 or 60 cents on the dollar. Because those owners face special assessments north of $100,000, those offers may be the best deal they get. Gioventu is watching another building where one owner controls the majority of units. He wants to sell and is refusing to approve maintenance; if he gets his way, the other two owners could be forced to accept a price that would bankrupt them.
This is just the first wave of buildings built either immediately before the B.C. Strata Titles Act of 1966 (like Cypress Gardens) or just after.
The province’s first strata project was a 1968 Arthur Erickson-designed complex on 40 acres in Port Moody. Problems will snowball as the massive buildout of the 1990s and 2000s times out. Vancouver has more condos per capita than any other city in Canada. The 2006 census showed 37 percent of people in Vancouver were owner-occupiers. (An unknown number more are renter-occupiers.) By 2009, there were 95,000 units in 4,100 strata-titled buildings, according to UBC professor Douglas Harris, who has documented the ubiquity of this form of ownership. Metro Vancouver statistics show there have been dramatically more strata units than single-family homes built in the last decade—four condos or townhouses for every house last year.
Most of these strata units are owned jointly by numerous individuals who must agree when it comes time to wind down—a scale of consensus that is unlikely at best. Ask anyone who’s tried to come to accord with even one other person—an ex-to-be, say, or a brother who’s deeply attached to the family cabin.
“There is an implied provision in the Act, which is that if you have more than 10 units in a project, there will be one jerk,” says lawyer Patrick Williams, one of the city’s premier condo-law experts. “One jerk can bring down the whole house of cards, hold everyone to ransom.” Gioventu, from the owners association, is also less than reassuring: “If you live in a 64-unit building, think of those other 63 people you have to sell with as being like your in-laws.”
Until now, those dysfunctional relationships have been tested over familiar stresses: leaks, maintenance reserves, noise, pets, prostitution, grow-ops. Williams knows of just two cases in B.C. where judges have issued decisions on impasses between owners who want to stay and those who want to demolish and sell the land. (In both cases—one a three-owner condo in Kitsilano, the other a larger project in Burnaby—the judges ruled in favour of the owners who wanted to demolish over those willing to keep pouring money into maintenance.)
Even getting to those decisions hasn’t been easy. “The Strata Property Act here is really in its infancy,” explains Williams. Buyers don’t realize how fuzzy the law is when it comes time to shut it all down. It also sets the bar high for how much agreement is needed: 100 percent. Condo owners who can’t get that in their buildings have to go to court—as the Cypress Gardeners have done—to try to get a judge to order a sale. As if that weren’t enough, there’s another hurdle: the institutions that hold the mortgages may not go along with the deal.
Then the real question: what price is fair? For strata owners faced with complex assessments about the value of a property that faces big repairs yet is potentially worth tens of millions as a redevelopment, that’s tough math. Calculating a fair price is so difficult that the city’s developer association, the Urban Development, has started working with the condo association on ground rules.
In search of other jurisdictions where condo dismantling is further along, UBC professor Tsur Somerville and a group of colleagues looked to Singapore. “This is where we’re all headed,” says Somerville. They looked at the sales of 285 condo buildings after 1994 (when the government introduced regulations allowing developers looking for low-density properties to tear down and rebuild at higher densities). Their study found that the more units in a complex, the less likely the owners would agree (and the less likely a sale would happen). They found that another factor blocking sales was the difference between the smallest and largest units in a building: where units were similar in size (and, consequently, price), sales were more likely. Buildings that were owned mostly or entirely by investors reached sales agreements more easily. And sales became more likely when Singapore changed its law, reducing the owner consensus needed from 100 percent down to 80 or 90.
The Singapore results bode well for B.C. projects that are small and homogenous, less well for the many built in the last 20 years that embody social stratification, with first-time buyers in tiny units at the bottom of towers and penthouse-owning jet-setters on top. The latter buildings promise many fights, especially if unanimity remains a requirement.
For three days in January, Courtroom 43 in Vancouver’s Supreme Court was home to about 35 people related to Cypress Gardens. They listened as their lawyers and neighbours pled their case before Judge William Ehrcke.
Those in favour of selling—a group of investors, as well as a number of residents—argued that the project would require millions of dollars of repairs to keep going for even 10 more years. It made more sense, they argued, to sell at a good price now than to burden everyone with substantial maintenance fees. They sought the right to list the property, which they believed might be worth as much as $90 million, and to accept bids vetted by a committee. Ultimately, argued lawyer Julien Dawson, people who live in condos need to accept that they aren’t going to have complete control over what happens when it comes time to sell collectively. “You run an inherent risk.”
The other side, who said they couldn’t afford a lawyer, argued that if the judge ordered them to sell, they would be forced out of their homes by people who cared about nothing but money. They would never find another place in North Vancouver as cheap. Some of them wouldn’t even be able to get a mortgage. The project, they claimed, was still very livable and didn’t need the $10 million in repairs the other side claimed. “This is about a bunch of people who want to realize profits out of their investment,” Carlos Ruiz said during his two hours of testimony. “But if we are dispossessed, we cannot afford even a small apartment in the area where we reside.”
Both sides elicited outrage and disbelief from the back of the courtroom. When Cam McKechnie, a lawyer for the pro-sale side, suggested it wouldn’t be much of a hardship to live somewhere besides North Vancouver—“My lord, what’s the problem with living in Burnaby?”—he was met with bitter laughter. Ruiz’s allegation that Polygon was “behind all this” and would manipulate the owners into accepting the lowest price set off waves of facial contortions. During breaks, people gathered outside the courtroom, trading assessments and re-arguing major points, their accents a mix of Farsi, Spanish, French, British, Russian, Korean, and Canadian.
Back in court, viewing decades of family laundry aired for all to see, Judge Ehrcke—calm, tidy, with the mien of a banker—seemed concerned about the anti-sellers’ lack of legal representation and about setting a precedent that could be used to force owners in other projects to sell their homes. At times Judge Ehrcke seemed frankly baffled. “Why would anyone buy a home in those circumstances,” he asked, “when all it takes is one person who could force me out of my home? It would be crazy.”
Few condominium owners will have to deal with an imbroglio like that at Cypress Gardens, which is structured like a strata but, because of its age, isn’t quite one. Still, to many condo owners, it will seem equally crazy that a sufficient number of random people in their buildings—their neighbours—could force them out of their homes. Or force them to stay, and pay through the nose trying to maintain a building that’s crumbling around them. VM