Alberta Court of Appeal grapples with distribution of proceeds from strata’s termination
27 October 2017
By Kevin Zakreski
Kay Kay Corporation v Condominium Corporation No 072 4807, 2017 ABCA 335, was an appeal of a decision of chambers judge “to reduce the apportionment of the sale proceeds to 14 units out of a total of 188 condominium units.” Those “sale proceeds” resulted from a termination of the condominium under Alberta’s Condominium Property Act. The court of appeal allowed the appeal, concluding that a scheme of distribution based on the proposition that a condemned unit is worth more than a unit that hadn’t been condemned couldn’t be supported in this case, “no matter how much common sense might suggest that proposition to be true.”
The case considered section 62 (3) of the Alberta act, which provides that “subject to any declaration of the Court made under section 61, any funds of the corporation that are left after the payment of the corporation’s debts and liabilities shall be distributed to the owners of the units in the plan in shares proportional to the unit factors of the owners’ respective units.” As a concurring justice noted this provision effectively creates “a presumption that any funds of the corporation left after payment of the corporation’s debts or liabilities are to be distributed to the owners of the units in shares proportionate to the unit factors of the owner’s respective units.”
Termination of a condominium is relatively rare in Canada. When it does occur, the cost of needed repairs or upgrades tends to be what pushes owners to consider it as a viable option. This was emphatically the case here, as 14 units in this condominium had been condemned by Alberta Health due to their state of disrepair. These 14 units were at the heart of this case. The chambers judge had determined that their condemned state should be accounted for in the distribution of the sale proceeds. It would effectively rebut the presumption of distribution according to unit factors. The chambers judge decided that their owners’ shares should be reduced by 20 percent:
I think that the Court can take judicial notice of the fact that a condemned unit would be worth less when sold than a non-condemned unit. And we’re dealing essentially with distribution of sale proceeds. Common sense also, I think, supports the conclusion that a condemned unit would have a lesser market value than a non-condemned unit, so I think it’s fair in the circumstances of this case that some reduction be made in the allocation of proceeds to those condemned units.
The PwC report [which the court had directed be prepared], for illustrative purposes only, uses a 25-percent reduction. I don’t really have any specific evidence, so I’m reluctant to go as high as 25 percent. But I am going to order a reduction of 20 percent in terms of the—of the distribution for those condemned units, and that’s to be obviously distributed to the rest of the owners.
The court of appeal disagreed with this approach. It located an error in the chambers judge’s application of the doctrine of judicial notice:
In our view, the Court could not take judicial notice of the fact that a condemned unit would be worth less than a non-condemned unit given the factual matrix of this case.
[A]s the case authority makes clear, in order for the doctrine of judicial notice to be applied, the court can only take judicial notice of facts that are either so notorious or generally acceptable as not to be the subject of debate amongst reasonable persons, or alternatively capable of immediate and accurate demonstration by resort to readily accessible sources of indisputable accuracy: Find at para 48.
The chambers judge’s decision to impose a reduction of 20 percent (or indeed any reduction) of the distribution per unit for those units subject to the AHS [Alberta Health Service] notice falls into neither category. He therefore erred by invoking the doctrine of judicial notice and making this reduction.
It was significant, the court added, that “the purchaser was acquiring the complex for renovation and upgrade”—that is, its plans were to demolish the building and replace it with a higher-value structure.