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When 22 shareholders were mostly in favour of selling this low-rise, aging building in the Kerrisdale neighbourhood of Vancouver, it turned out some of the apartments – the ones on the main floor – had been valued in the original agreement at far less than the assessed value. (Kerrisdale Apartments Ltd./Globe and Mail Update)
When 22 shareholders were mostly in favour of selling this low-rise, aging building in the Kerrisdale neighbourhood of Vancouver, it turned out some of the apartments – the ones on the main floor – had been valued in the original agreement at far less than the assessed value. (Kerrisdale Apartments Ltd./Globe and Mail Update)

New hitch for group condo sales causing anguish among residents Add to ...

It is already hard enough to get 22, or 50, or 179 people to agree to sell their condos en masse to a developer – the real estate trend that is currently dominating conversation in many strata buildings in the Lower Mainland.

But, it turns out, there is a new wrinkle people are discovering that makes negotiations even more fraught.

The current wave of group condo sales has been prompted by a change in legislation this year that allows the sale of an entire condo building to go ahead even if only 80 per cent of the owners agree.

Read more: How condo flippers are making a killing in Toronto's hot housing market

The new wrinkle is causing anguish among the residents in many buildings and prompting lawyers to intervene to help them get past what seems like a deal-breaking problem.

The previously unknown glitch is this: All strata buildings that came into being before 2000 have provisions in their purchase agreements that set out how the money from a sale is to be divided if the building is ever sold or demolished – but they aren’t based on the value determined by the provincial agency, BC Assessment.

Instead, each of those older apartments has its value determined in quite a different way.

For buildings constructed from 1974 and earlier, the value is set by a “schedule of unit entitlement” that looks only at relative area and not, for example, the difference between a 20th-floor suite and a first-floor one.

For buildings from 1974 to June, 2000, the values are set by a “schedule of interest upon destruction,” which is the value the developer estimated for each unit when the plan was filed.

Those values sometimes vary wildly from the official assessed value, says Tony Gioventu, the executive director of the Condominium Home Owners Association of BC. The result is that some owners may get as much as $100,000 less for their apartments when sold in a mass deal than if the division of the spoils were based on the BC Assessment numbers. Most strata residents considering a mass sale are living in such older buildings.

This new twist has some developers trying to negotiate private deals with individual owners, Mr. Gioventu said. Some owners may be entitled to much more than the assessed value, he said.

Mr. Gioventu says speculators are hunting down the unsuspecting occupants of those types of units so they can buy them for the future payback. The speculators find their targets by searching public land-titles records, looking for buildings near transit stations that are the most likely to be redeveloped and studying the schedules of values assigned.

“It’s unearthed another slimy side to the industry,” Mr. Gioventu said.

Most residents of collectively owned buildings don’t know about the value difference until they start negotiating a group sale with a developer.

It can get ugly when people realize what the variation in their payouts will be.

One Vancouver resident who knows all about that is Lisa Dawson, an administration-operations consultant who found out the hard way what happens to human civility in those situations.

She had lived for 17 years in an apartment building in Kerrisdale owned as a co-operative – the system of ownership that apartment dwellers used to have before condo-style ownership was created through legislation.

Although the form of ownership is slightly different from a strata, the human dynamics weren’t.

The 22 shareholders were mostly in favour of selling the low-rise, aging building. But it turned out some of the apartments – the ones on the main floor – had been valued in the original agreement at far less than the assessed value.

“When it came up as a potential sale, no one knew what the shares meant,” Ms. Dawson said. “It came as a surprise. When you buy into a place, you don’t think about this.”

Frantic bargaining ensued among owners to get an agreement on the distribution by the deadline for responding to the purchase offer.

“You can’t have a sale before you agree to the distribution proceeds,” she said. “In the end, it got bitter and difficult. It got done but was, at times, an all-out war. There were enough votes to sell and a bizarre agreement on distribution.”

Ms. Dawson gave up $40,000 of her potential profits, while others contributed to an “equalization fund” as well as a signing bonus for the five owners of the lower-valued apartments.

But one lawyer who specialized in the new wave of condo sell-outs says that he advises owners right away not to bother trying that approach.

“If you try to change from one method [of distribution] to another, it’s a zero-sum game. You’re asking people to be made better off by making others worse off,” says Darren Donnelly of the firm Clark Wilson.

A change to the distribution agreement in a strata constitution requires 100-per-cent agreement. Inevitably, people split almost equally between those whose share would go up and those whose share would go down.

He saw one group of condo owners whose vote turned out exactly like that, divided 50/50 on whether to change the distribution method, with the result that the sale of the building died.

“It hasn’t gone ahead because everybody hated each other by the end,” Mr. Donnelly said.

When he is called in to advise a group of condo owners, he tells them not to waste their energy on trying to change the share agreement.

And, he says, when a developer does make an offer, he tries to minimize the psychological warfare by handing each owner a slip of paper that says how much their unit will get, rather than listing all the units and amounts publicly.

“If you do that, then they’re against the whole thing. If you can get people to just focus on what they’re getting personally, it’s better,” he said.

The disputes over who is getting what share tend to be more intense in one type of strata deal.

That’s when the property has been rezoned, or could be, and people are looking at getting double or more the current value of their apartment.

It’s less intense for buildings where owners, whose land hasn’t been rezoned, are just trying to get out to avoid years of poor maintenance and the possibility that they will be hit with huge assessments to catch up. In those cases, developers are not willing to pay huge amounts of money and there is less to fight over.

Mr. Donnelly said his firm has dealt with two stratas recently, one in North Vancouver and one in Coquitlam, in that state where owners agreed to the older distribution scheme.

However, Mr. Gioventu says, some developers are getting around the strata vote by making individual deals with each owner. That’s only possible in smaller buildings.

And, he said, some owners try to increase their share in the eventual sale by going to BC Assessment, the provincial agency that determines property values for tax purposes and reporting expensive new improvements they have done.

Five strata buildings have been sold to developers since the change in B.C. law on voting, he said, and another 71 are in the pipeline.

More than a million people in the Vancouver metropolitan area live in condo buildings.

And there are 1,000 buildings in the region within eight blocks of a rapid-transit station – preferred development sites – ensuring that many strata councils will be wrestling with these complications for years to come.

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