Real Estate

Can a receiver sell condo units owned by third parties as part of a larger sale of the development?

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  • Aug 19th, 2020 7:06 am
Mar 2, 2017
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Can a receiver sell condo units owned by third parties as part of a larger sale of the development?

Case here:

Sports Villas Resort, Inc. (Re), 2020 NLSC 109 ... sc109.html

Short answer: No

The Debtors defaulted on certain secured obligations to Business Development Bank of Canada (“BDC”). On application by BDC, a receiver was appointed by the Court on March 20, 2019. The receiver sought an order for, among other things, approving the proposed sale of the subject property. The issue to be decided was whether the receiver could include in the proposed sale certain condominium units owned by third parties.

The receiver’s objective in conducting the sales process was to find a bidder who would operate the golf resort in the subject property. This approach was deemed most likely to maximize the recovery to creditors and provide a future return to other stakeholders such as suppliers, employees, third party creditors, and other interested parties.

The receiver argued that the property referred to in the receivership order encompassed the third-party interests in the subject property. In order to understand the position of the receiver and the positions of the intervenors who opposed the sale of their interests in the subject property, it is necessary to consider the legal nature of a condominium development.

The term “condominium” refers to a system of ownership and administration of property with three main features. A portion of the property is divided into individually owned units, the balance of the property is owned in common by all the individual owners and a vehicle for managing the property, known as the condominium corporation, is established. The success of a condominium depends on an equitable balance being struck between the independence of the individual owners and the interdependence of them all in a co-operative community.

There are two ways that the property of a condominium can be sold. The first is by a unit holder to a purchaser. A unit holder can do this in the ordinary course by way of a direct sale of the unit owned by them. The second method is by a sale of the entirety of the condominium property instigated pursuant to s. 61 of the Condominium Act, provided that the consents contemplated by the Act are obtained.

The receiver argued that it represented ownership of more than 80% of the common elements of the subject property. Consequently, it could force the sale of the property pursuant to s. 61 notwithstanding the objections of the unit owners. The dissenting unit owners argued that although the Debtor owned more than 80% of the common elements, it was only one of the six owners. Therefore, it represented just 17% of the owners of the common elements and so could not force a sale without the consent of a substantial number of the other unit owners.

The Court held that although the receiver’s interest represented ownership of more than 80% of the common elements, it did not represent 80% of the owners of those common elements. Section 61(1) refers to matters being determined by the consent of a percentage of the owners of the common elements. The Court confirmed the requirement of consent where significant issues affecting property rights or fundamental expenditures affecting the property itself are contemplated. By contrast, the issues that are determined by a vote of the membership go to the governance of the condominium corporation and not to the property interests of owners.

The receivership order did not, in fact, capture the units owned by third parties so the receiver could not effect the sale of the entire property without complying with s. 61(1)(a) of the Condominium Act. The receiver had not obtained the necessary consents from 80% of the owners of condominium units. Therefore, the third party units should not have been bundled with the property of the Debtor for the purposes of the sale.

The Court denied the application for approval of the sale to the Purchaser on this basis.
Realtor, Investor, CPA