The “Common Law Condominium:” A Historical Anomaly with Present-Day Implications to Strata Wind-Ups

In British Columbia, condominium ownership is principally governed by a statutory regime found in the Strata Property Act (“SPA”). However historically, structures were developed to create land ownership and management rights outside of that legislative scheme.

Cypress Gardens (a 177-unit residential complex located in the City of North Vancouver) is an example of what has been colloquially described as a “common-law condominium.” This fairly unique ownership structure was created by filing individual titles for undivided fractional interests in the entire property, with the owners being bound to comply with various covenants, roles, and management structures formalized in a User Agreement registered on title to the property.

The ownership structure for Cypress Gardens has since been prohibited by specific provisions of the Land Title Act RSBC 1996, but Cypress Gardens is exempt from that prohibition.

In CGT Management Corp. v. Mackenzie-Moore, 2022 BCSC 2195 the Supreme Court of British Columbia considered an application, pursuant to the Partition of Property Act (the “PPA”), for an order approving the sale of the entirety of the Cypress Gardens to a developer (the “Sale”).

Facts

On January 5, 2022 the management company (CGT) of Cypress Gardens entered into a purchase and sale agreement to sell the entirety of the Cypress Gardens (the “Sale”).  Initially, 122 of the 167 co-owners voted in favour of approving the Sale at an extraordinary general meeting. The “yes” votes represented 73% of those present and 68.9% of the total ownership. However, by the time of the application, 99 of the co-owners (or approximately 56%) formally applied for approval of the Sale.

At the hearing, the owners of the remaining fractional interests opposed that order.

Relevant Statutory Scheme

In considering the application, the court first considered which legislation applied to the Cypress Gardens. Its unique structure meant that Cypress Gardens was not expressly subject to the provisions of the SPA, which incorporates a procedure for the sale of the entirety of a stratified condominium building where 80% of the owners approve. However, in CGT Management Corp, the court confirmed that the PPA provided an appropriate mechanism to achieve the en bloc sale of the property.

Section 6 of the PPA provides that where 50% or more of the owners of a property request a sale, the court must -unless it sees good reason to the contrary- order the sale. Here, although the number of owners seeking approval of the Sale was significantly less than had originally voted in favour of it (73%) or would have been required under the SPA (80%), the court found that they represented more than 50% of the owners and the PPA created a presumption in favour of approval. Accordingly, the burden of establishing “good reason” not to approve the Sale transferred to the owners opposing the Sale.

“Good Reason” To Not Approve The Sale

After undertaking a detailed analysis of the legal and factual relationships between the owners, the court found that there was good reason not to approve the Sale and dismissed the application. In making that finding, the court placed particular emphasis on the fact that:

1. In exchange for their exclusive right of use, occupancy, and sale of their fractional interest, the owners had collectively agreed (in a covenant registered on title to the property) that they would not apply to sell each others’ interests under the PPA;
2. The physical condition of Cypress Gardens, although concerning, did not warrant ordering the sale of the property;
3. The owners that live at Cypress Gardens (and rely upon its unique amenities and location for family, health, or other personal reasons) would face significant hardships if they were forced to sell; and
4. Even if the condition of the buildings was more dire, and the balance of hardships favoured a forced sale, the process leading to the Sale had not occurred in a transparent manner and was not provident.

Takeaways

Although Cypress Gardens represents a somewhat unique ownership structure, the competing interests of owners is something that regularly arises in the context of condominium or joint ownership arrangements. This is increasingly so in today’s market where owners face substantial rises in maintenance costs (as buildings reach the end of their practical life) and density ratios/land prices continue to increase. The wind-up procedures provided for in the SPA do provide a greater level of certainty than can be found in other more unique ownership structures but even in those circumstances, it is important to understand the potential risks of strata, fractional, or joint ownership arrangements.

Move Forward With Confidence in Court

Watson Goepel’s Litigation and Dispute Resolution team has extensive experience at all levels of court in British Columbia, the Federal Court, administrative tribunals, and professional regulatory and review boards. We assist individuals and organizations facing challenges related to real property disputes, bankruptcy, insolvency, or restructuring issues and act for clients in matters involving commercial, construction, employment, insurance, wills and estates, and transportation law.

Contact Watson Goepel’s experienced Partner Jeremy West today to receive strategic and practical legal guidance for your legal proceeding.