Commercial stratas – where business space is sold rather than leased – have become popular in British Columbia because business owners see it as protection against rising rents while sharing in real estate appreciation.
But a Whistler lawsuit against Concord Pacific rings a wake-up for commercial strata owners in mixed-use developments: their business is worth only the real estate value of the space it occupies if the entire building is sold for demolition and re-development. A strata wind-up requires an 80 per cent vote of strata owners, which means that commercial owners can be out voted by residential owners in mixed-use buildings.
Some of Whistler’s most established restaurateurs have petitioned the B.C. Supreme Court to stop developer Concord Pacific from selling the Sundial Strata Hotel, a 35-year old, mixed-use residential and commercial strata complex that has 48 residential suites and four retail stratas. Concord bought the Sundial property, with partners, in 2016.
Concord had plans for a major renovation of the property to make it “more diverse, catering, in particular, to families and kids in front of the Whistler and Blackcomb gondolas.”
That renovation is now on hold as Concord seeks a buyer for the entire property.
The business owners say the sale could see their popular eateries being sold for pennies on the dollar.
The petition, if successful, could also set a precedent on how businesses in strata-owned buildings in British Columbia are valued, when a strata corporation is dissolved for a bulk sale – an issue many metro-Vancouver municipalities face.
Veronica Franco, a partner and chair of the Strata Property division at Clark Wilson LLP in Vancouver, explains it is only the real estate market value that matters in a strata wind up.
“While people might not like the offer price, as long as the realtor has done their job, the windup confirmation includes information on the actual market value (ie. what someone is prepared to pay), ” Franco stated in an e-mail to BIV.
Franco added that, in some recent mixed-use strata projects, the commercial owners set up with their own strata corporation separate from the residential units right from the start.
But that does not help commercial owners in older strata corporations.
“Under the current formula being used by Concord, the parking lot in the building is worth three times more than my property where I had been operating Black’s Pub for over 30 years,” said Lawrence Black, a key player in the ski-resort’s bar scene.
Other restaurateurs are also facing what they say are similar low valuation for their long-standing operations in Whistler village.
As in residential strata windups, selling the property as a real estate site does not take into account any upgrades or additions. In a commercial windup, the real estate price does not include the value of a business itself in the strata space.
Last August, Concord Pacific which owns more than 80-per-cent of the lots in the strata corporation, held a vote to retain a liquidator to identify a buyer for the property with a view to making an application to the court under the provisions of the Strata Property Act for a winding up order.
Concord has also indicated that it will bid on the sale of the entire building.
Kevin Zakreski, staff lawyer with the B.C. Law Institute, which helped design the framework for parts of the Strata Property Act, noted that the current strata dissolution laws were constructed with only residential buildings in mind.
For instance, the City of Richmond in a staff report on strata redevelopment addresses only residential properties and does not have any guidance on the value of a business in a wind-up sale. This is the case with the City of Vancouver and the District of North Vancouver and several other municipalities.
Whistler mayor Jack Crompton has raised the issue with the provincial government to see if it would implement a 100-percent vote requirement for the wind-up of strata corporations in mixed-use buildings.
Marielle Tounsi, spokesperson for B.C.’s Ministry of Municipal Affairs and Housing, said the government has no plans to change the legislation around dissolution of strata corporations.
“Under the Strata Property Act, strata corporations, whether commercial, residential or mixed use, are all treated the same. The act also requires a court order approving the dissolution. In doing so the court must consider the best interests of the owners, including any significant unfairness to any owners who voted against the dissolution,” she said.
Assuming that the entire building is sold for $80 million today, Black’s Pub would be allocated about $2.1 million while the parking garage in the building will be valued at $7.49 million.
“I have an offer for $14 million for my property but under this process I will be lucky to walk away with $2 million,” said Black.
The current BC Assessment value of Black’s Pub at No. 7, 4340 Sundial Crescent, is $2.92 million. Most of the residential units above are assessed in the $400,000 to $550,000 range.
David Church, the lawyer for the Whistler restauranteurs, confirmed his clients are seeking a permanent injunction against the bulk sale of the Sundial property without a unanimous vote by all strata holders.
In a published statement, Concord statement stated that the commercial strata owners opposing the sale “are asking prices for their units [that] are multiples of assessed value.”
The allegations made by the petitioners have not been proven in court.