While the law regarding condominiums is, arguably, still very much in its infancy (and developing more and more every day), it is undeniable that the earliest condominium properties are beginning to age. Some properties show their age more than others (read: this is a nice way of saying that some properties tend to be less well-maintained over time). In some instances, the costs of completing necessary capital repairs and replacements are more than the individual owners can manage through payment of monthly fees and special levies.

Where the corporation has not set aside sufficient reserve funds to address such costs (and these are increasing every day through inflation and supply chain issues), or where substantial damage occurs through an unforeseeable event, winding down and terminating the condominium can become an attractive alternative. In desirable locations, the value of the land may have also increased over time such that owners and Boards are increasingly looking at what their options are in this regard.

In Alberta, a condominium corporation can be terminated in two ways. The first option is by passing a special resolution of the owners. A special resolution is a formal vote requiring support from at least 75% of all persons entitled to exercise the power of voting who represent at least 75% of the total unit factors for all the units.

Alternatively, an application to terminate the condominium status of a building or parcel can be made to the Court by the corporation, an owner, a registered mortgagee of a unit, or a vendor under an agreement for sale of a unit. On an application, the Court must be satisfied that, having regard to the rights and interests of the owners as a whole, it is just and equitable that the condominium status be terminated.

Either process will require special general meetings with complex and detailed notice packages being issued to all unit owners,  mortgagees and any others having registered interests in the parcel. Obtaining a sufficient number of consents from owners (and their spouses), as well as consents (or no objections) from parties holding registered interests in units (i.e. mortgagees and others), is a significant factor in this process.

Once a condominium is terminated whether by special resolution or by Court Order, the corporation must file a notice of the termination with the Land Titles Office in a prescribed form. On the filing of the notice, the condo corporation ceases to exist and the existing condominium plan(s) and all the unit titles are cancelled. The effect of the termination is to create a single parcel of land which is then registered in the name of all the former unit owners as tenants in common.

If more than one lot was cancelled when the condominium plan creating the corporation was originally registered, then a new descriptive (survey) plan will be required. In such cases, the corporation will be obligated to engage a land surveyor to prepare a new subdivision plan. In this case, municipal approval will very likely be required. If only one lot was cancelled, or the cancelled lots were shown on a plan registered prior to July 1, 1950, then the old legal description can be used to create the new title.

As a starting point, holding a meeting and a formal vote is advisable just to determine if there will be any obstacles that could derail the entire process such that it’s worth expending time and resources pursuing. Due to the number of issues that may arise and which must be addressed in a termination, engaging a lawyer early on is strongly recommended. If a condo corporation is required to make a court application, a lawyer will be a necessity.

While termination is so far rare, it will almost certainly become more common as condominium properties begin to show their age, and the owners may not always agree on how to proceed. In these cases, the board is best advised to consult with the owners in advance of making any plans as this may help to avoid disputes.

Even where all the owners agree on termination as opposed to repairing, restoring or reconstructing the property, disputes are possible over the proposed sale of the property, particularly with respect to distribution of the proceeds, assuming there are any after payment of the corporation’s debts and liabilities. The Act and Regulation provide that the proceeds of sale are to be applied first in order of priority to payment of debts and liabilities of the corporation, and second to the unit owners, to be distributed in proportion to the unit factors for the units. Notably, this does not take into account the actual condition of the units, so arguments are likely where some units have been better maintained than others.

In a recent decision by the Alberta Court of Appeal (Kay Kay Corporation v Condominium Corporation No 072 4807, 2017 ABCA 335) the Court overturned the chambers judge’s decision and reinstated the above-described statutory scheme for distribution of proceeds of a sale of the terminated condominium property.  Despite the fact that over a dozen units had previously been condemned by Alberta Health Services due to extreme states of interior disrepair, the purchaser’s plans were to demolish the entire building in any event, and no appraisals had been entered into evidence justifying a reduction in the distribution of proceeds to these units. The Court of Appeal held that the chambers judge was not entitled to take judicial notice that a condemned unit was worth less than a non-condemned unit. The result was protracted and expensive litigation resulting in an eventual scheme of proceeds distribution that mirrored what was already set out in the legislation.

Other potential obstacles in a sale include how it should be structured. Unit owners are free to enter into purchase agreements for their respective units, however the condo corporation does not own the units nor does it own the common property. Potential purchasers will also likely insist upon appropriate property inspections requiring coordination of access to the individual units. Tenancies are yet another matter that must be dealt with under a proposed sale, whether the sale occurs before or following a termination.

The choice between paying increasingly higher costs of common infrastructure repairs/replacements and termination of the condominium corporation is somewhat like being stuck between a rock and a hard place. Neither option is very palatable, and some owners will inevitably voice concerns about the unfairness of any decision ultimately made. But despite all of the issues, where the owners agree that the costs to continue maintaining and repairing the property are simply too high, whether due to unexpected problems or a lack of proper planning by previous Boards, termination and sale may be the best option.

This underscores the need for condominium corporations to pay attention to growing and maintaining healthy reserve funds that will be sufficient for their future needs. Boards need to follow the reserve fund studies and the recommendations for funding made by the qualified study provider as best they can. With interest rates being what they are, corporations should also consider investing some of the reserve funds not required right away into guaranteed investments to earn additional interest. Hopefully, if the Board and the owners are both actively engaged in maintaining the property as a whole over time, a hard choice such as this can be avoided altogether.

If you have questions about this blog post or others, please contact Erin Berney.