What Happens When a Developer Wants to Buy Your Condo Building?
It’s worth knowing your rights when a developer comes knocking on your strata’s door.
September 6, 2018
Do you live in a low-rise, ageing condo in an up-and-coming area? Have you noticed a surprising number of glass towers springing up around you? Does your apartment have any kind of view, access to a Skytrain station or some other enticing feature?
If you answered yes to any of the above questions, you may have already discovered the obvious—your humble home is a prime spot for development. And that, my friend, can cause some soul-searching for anyone who wants to avoid the madness that is Vancouver’s real estate scene.
Understanding the process can go a long way to alleviate anxiety and help you reach the best possible outcome.
What’s actually involved?
Since July 2016, it’s been a whole lot easier for strata corporations to cash in with developers through what is known as a voluntary wind up. In the past, strata corporations needed 100% of owners to get on board with any sale. This was extremely difficult to achieve and resulted in very few liquidations. That all changed with the introduction of Bill 40, which amends part 16 of the Strata Property Act to lower the voting threshold required to authorize the sale of a building to 80% of eligible owners.
Today, any strata corporation that reaches an agreement with 80% of eligible owners can apply to the BC Supreme Court for an order confirming the liquidation and sale of the property. If approved, the court appoints a liquidator, the sale goes through and all condo owners receive a payout once the process is complete.Easy, right?
The BC Supreme Court approved the first sale under the new guidelines last year, but you can expect many more to come. Tony Gioventu, Executive Director of the Condominium Home Owners Association, estimates there are over 100 strata properties across the province either looking at winding up or in the process right now. So what should you do if a developer comes knocking?
Approach offers with caution
Not all offers are created equal, and CHOA recommends strata councils fairly market any property before putting a sale to vote. “An owner [against the sale] can argue that the strata didn’t market the property properly or fairly,” Gioventu says.
For example, if a developer approaches with an offer, but only on the condition that the building doesn’t go to market, Gioventu smells a rat. “That tells me they are under bid and under-priced,” he says. “The strata will have trouble in the court application, as they haven’t looked at getting best price.”
Bring in the experts
Like when you sell anything, there are costs involved in the commercial sale of a strata-owned building. Gioventu recommends strata corporations hire a lawyer experienced in wind ups early on. “It will help them stay out of trouble,” he says.
Generally, the strata council will engage a commercial broker to market the property. The broker comes back after 60 days with a host of options and from the top three, the council will usually take one or two to a meeting to decide whether or not to sell.
If the majority of owners aren’t interested in selling, the process ends. If owners are interested, though, Gioventu suggests the council should seek legal advice and ask their broker to counter offer on price, terms and conditions. Once a reasonable offer has been proposed, that’s when it’s time for the legally binding 80% vote. “The reason we recommend two decisions is because the meeting for the 80% vote is legally and technically demanding, as well as costly,” explains Gioventu.
In fact, Gioventu says it’s easy for a strata council to spend $30,000 or more on the 80% vote meeting. Costs add up from legal costs, title searches, serving 30-day notices, the need to appoint a liquidator, court applications and more. “If the strata has 100 units, the legal costs out of court can be anywhere from $50,000 to $100,000,” he says.
However, Gioventu estimates the cost of a commercial sale is similar to individual sales when broken down on a per unit basis. And he cautions anyone from cutting corners. “You end up spending twice as much money,” he says.
What if you don’t want to sell?
Any owner can vote against the sale during the 80% vote meeting. If you happen to be in the 20% of people against the sale, you can apply through the court. In reality, though, Gioventu says if the sale has been conducted fairly and openly, there aren’t a lot of arguments that will change the decision of the majority.
How much money can you expect?
Without a crystal ball, it’s hard to know for sure. While market value is usually 15-30% higher than the current B.C. assessment, the future value of a property can be much higher. Townhouses and low-rise buildings that are zoned for higher density can see a “significant” jump in value, according to Gioventu.
However, he cautions owners from attempting to block a sale out of greed if a fair market process has been conducted. The sale of nearby properties is not always a good guide, as different buildings may be more attractive for their zoning, location, view or other reasons. What’s more, there are financial benefits for reaching a unanimous decision. If 100% of owners agree on the sale, it becomes a direct sale; there is no need for a court application and a liquidator.
“I use the bundle of sticks theory. A single stick is easily broken, but a bundle is much harder to break,” he says. “If all owners stick together, they have much better negotiation power and can get a better price.”