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Liquidation – selling an entire strata property – is a dramatic step for a strata corporation. The risks of failing are high, so it is essential to follow some basic steps. There are two factors that affect liquidation from the owners’ perspective: the value of the property and its condition.
Values differ for every project based on land use and location. A project sale that may yield only the current assessment value could be a prudent decision if each owner is facing a $100,000 special levy for repairs, whereas a development in great condition may not consider a sale unless owners can see a 200 to 300 per cent increase in value.
The Strata Property Act was amended last fall, lowering the voting requirement for liquidation from 100 per cent to 80 per cent of the schedule of voting rights. Even though the change is significant, obtaining the total number of votes is difficult and requires an application to the Supreme Court of BC to approve the decision as part of the legislative amendment.
Two Methods of Selling a Strata Property
Option 1: A buyer purchases all of the units directly from each owner. The new owner then may liquidate without a liquidator.
Option 2: A strata corporation votes to liquidate. The option gives the owners the collective ability to market their property for competitive bidding and obtain the best price; however, the strata has to vote by 80 per cent to sell, a liquidator must be appointed to ensure the transaction is completed and the developer is given a clear title. Costs for this process are generally three to five per cent of the total sale, including commissions.
To achieve that best price as well as the best terms, a logical process is helpful. It begins with a general meeting of the owners to direct the council to investigate selling the property. The strata owners by majority vote will instruct the council to start the process and to retain a lawyer who will act solely for the strata throughout the process, and an exclusive commercial broker to market the property. Commercial brokerage fees depending on the size/value of the property are generally one to three per cent.
Marketing the Property
Developers and land speculators will be invited to assess the property, and submit offers. The offers may take into consideration location, expanded development opportunity, transit and community access, neighbouring developments and amenities, plus the overall potential for the site. This phase usually takes three to six months.
When the strata finalizes a short list of three to five of the highest offers, the strata council and their lawyer will meet to consider and negotiate the terms and conditions. When the details are clear, a final offer is tentatively agreed upon, subject to the approval of the owners at a general meeting.
Once the final offer is approved in principle, the complicated work begins. Around six to 12 months later, the final negotiation of the purchase conditions and price are completed and the strata corporation’s lawyer will prepare the 80 per cent vote resolution that authorizes the liquidation, authorizes the court application to ratify the decision, and appoints a liquidator. The liquidator will be responsible for the receipt of the money from the buyer, the cancellation of each owner’s title into one parcel of land, and the payout to each owner.
The Critical Stages
The resolution the owners vote on and the sequencing of the events are the most critical parts of the transaction. You can easily expect a resolution that is 20 to 30 pages in length. One quirk of the liquidation process is owners who require their proceeds to make another purchase will have to wait until the job of the liquidator is complete before they can shop for a new home. To provide time for owners to move and relocate, the strata corporation may want to negotiate at least 90 to 120 days of occupancy after the completion of the liquidation as part of the contract.
If all goes well, it will take 12 to 18 months. Success depends on a number of information meetings, constant communication with owners to prepare them for the vote, and the emotional liquidation of their community. Before you vote, an information meeting to help the owners understand what other properties are available in the region is just as critical. CHOA provides an onsite information service for strata corporations that are considering liquidation. Contact firstname.lastname@example.org for more information.