What is a Freehold Strata?
A freehold strata is a fee simple estate in a strata lot development in which owners of the property own individual units while co-owning the property’s common property. The term “freehold” is often applied to a fee simple estate transfer of ownership because in British Columbia the required document to complete this transfer is known as the Freehold Transfer (Form A), while the registration of the mortgage interest is done by completing Form B (Mortgage), which will indicate the type of mortgage interest as fee simple estate.
As such, people will often refer to fee simple estate as freehold, which is really referencing the specific forms used to complete the legal transfer of fee simple estate ownership in British Columbia.
What is a Freehold Townhouse?
A freehold townhouse is also a fee simple estate in a strata lot development in which owners of the property own individual units while co-owning the property’s common property. The term “freehold townhouse” doesn’t refer to an estate interest in land but as with freehold strata it is used to describe the forms completed to indicate a fee simple transfer in British Columbia. A freehold townhouse can differ from a freehold strata in the building type and design.
Townhouses tend to be larger than a condo strata development and might include multiple levels with outdoor space, while most strata tend to be smaller than townhouses and often do not include a yard. However, the term strata can be applied to both condos and townhouses as the process in which both are created as the same.
What is Fee Simple Ownership?
In Canada, we do not have absolute ownership of land as the Crown is the only absolute owner of all lands. What does this mean? It means that all land owners in Canada do not own their land forever as all land reverts back to the absolute owner, which is the Crown. For example, if someone in Canada owned a piece of land and died without an heir or a will (intestate), their land would revert back to the Crown through a process called escheat.
Since there is no absolute ownership available in Canada the next best thing you can have is ownership in an estate, which will provide you with certain rights and usage of the land you’ve acquired.
A fee simple estate provides a land owner with certain rights and uses of the land for a period of time. The fee simple estate ownership type provides Canadians with the greatest bundle of rights when it comes to land ownership in Canada. This type of land rights may include the right to sell the land, rezone the land, place a mortgage on the property, rent out the land, etc.
What is Expropriation?
Since Canada doesn’t have absolute land ownership the government has certain tools it can exercise to take over land if it wishes. Expropriation is a term used to describe the act of the government taking over someone’s property without their consent. This can sometimes occur for legitimate needs such as the development of a major highway or infrastructure. However, the government (Crown) doesn’t require a reason to exercise this power.
If expropriation is utilized by the Crown it is common for the government to attempt to work with the individual land owners first to settle on a price, however, if this cannot be reached or the land owner wishes not to sell, the government may utilize it’s expropriation power while compensating the land owner at fair market value at a minimum.
Given the psychological effect utilizing this tool often could create, it’s one that the government avoids using.
Freehold Strata Ownership Types
Since a freehold strata is simply a type of fee simple estate, you can have two possible ownership type structures when you purchase a freehold strata property. The two types of fee simple estate that can you can have with a freehold strata property are joint tenancy or tenancy in common.
Joint Tenancy
A joint tenancy ownership structure allows for co-ownership of a building among two or more people. Each person will own an undivided interest in the fee simple estate strata. The main benefit of setting up your ownership in this manner is the right of survivorship that comes with joint tenancy ownership.
A right of survivorship means that if two people own a strata property together as joint tenancy, should one of them pass away, the other would automatically become the sole owner. The individual’s estate is automatically transferred to the remaining individual on a tax-free basis. This type of ownership is usually beneficial for couples or individuals who wish to automatically pass on their interest in the property to the remaining partner.
The downside of this is also the positive of it, which is, that if you are in a joint tenancy with someone on a strata property then you need to be aware that the ownership will automatically transfer over to them.
To set up freehold strata joint tenancy, four things have to be present.
- Unity of Interest
- Unity of Time
- Unity of Title
- Unit of Possession
After the purchase of the property, only three of the unities are required to be present at all times, which are unity of interest, possession, and title.
If you wish to cancel your joint tenancy freehold strata, you will need either a court order, consent from the other co-owners to cancel it together, or you will need to sell the property which would result in the tenancy being cancelled as you no longer own the property. You cannot cancel your joint tenancy by giving away your interest to someone else through a will.
Tenants in Common
If you would prefer to have your freehold strata share not automatically be transferred to someone else you’ve purchased the property with, in the event of you pass away, then a tenant in common setup is best for you.
A tenancy in common is also a form of fee simple ownership in which two or more people own a separate proportion of a property. This type of ownership doesn’t allow for the right of survivorship, which means when one of the owners passes away, the other owners do not automatically get their share of the property.
Instead, owners of a tenancy in common freehold strata property can choose to give their share of interest to someone else through a will or any other legal form of transfer that’s acceptable. As such, it’s important to know the parties you are buying the property with and your goals. If these discussions are not held it could result in you potentially owning a property with another person that you are not familiar with and you would not have any say in who any of your other owners choose to replace them as owner.
Unlike a joint tenancy, a tenancy in common only requires one unity to be present; possession. To cancel a tenancy in common, you will need either a court order, all owners agree to the sale of the property to someone else, or another owner chooses to buy your share of the property.
What to Know Before Buying a Freehold Strata Property
Strata development continue to take up an increasing share of new housing type being built. BC Housing reported 25,754 multi-unit (strata) homes as of the first half of 2022 compared to only 5,684 single-family homes in the same time frame. As such, additional due diligence is required when purchasing a strata property due to the nature of the ownership structure. Here are 11 things you should know before buying a freehold strata property.
1. Strata Council
A strata corporation is a legal entity. As such, owners of a strata development will need to elect members that will carry out the responsibility of the strata corporation in accordance with the Strata Property Act. This means when you purchase the strata property you may run to become a strata council member. If you choose to be part of the council due keep in mind that all members must act in good faith, and act in the best interest of the strata while exercising proper due diligence. If you choose not to act, then ensure you know who your strata council members are as these individuals will be responsible for the day-to-day affairs of your strata.
2. Review Strata Bylaw & Rules
Strata have the ability to create bylaws and rules, which are imposed on all owners or individuals residing on the property. Some of these rules might not fit with how you wish to use your property. For example, there might be a strata bylaw that prevents rentals or limits the number of rentals permitted with the strata. While it’s possible to amend strata by law, it will require a 3/4 resolution before a bylaw can be amended. As such, review the strata bylaw and ensure there isn’t anything in there currently that you would object to having to abide by.
Strata rules are not required and a strata may choose not to have any formal rules but all strata must have a bylaw.
3. Strata Plan
It’s important to review the strata plan before purchasing a strata development. The plan provides specific details about the unit you wish to purchase and the site plan. You want to review the plan to confirm it matches up with the legal title. Check for the strata plan number, unit number, drawings of units and entire development, boundary lines and roads and other similar items.
4. Schedule of Unit Entitlement
When a strata corporation is first created, the scheduling unit of entitlement table details each owner’s share of interest in the common property. This table is initially used to detail how much each unit owner will have to contribute to the strata fees along with the percentage of common property each unit owns. When purchasing a new development, this is an especially important document as it provides you with a rough idea of what you can expect the strata fee to be initially. If it’s an existing strata, ensure your unit number along with all other details matches up with your listing details.
5. Review Strata Council Minutes including its Annual, Extraordinary, or Special General Meeting
You should review at least two years’ worth of strata minutes and any special meetings that might have been held. Strata meetings can provide you with critical details about the property and your unit that the seller might not disclose or not even be aware of as they might not have attended the strata meeting. As such, take the time to review the minutes to get an idea of how the strata is being managed, what issues seem to be coming up, and any major repairs or special levy that might be occurring after you purchase the unit.
6. Depreciation Report
As of December 13, 2011, any strata with five or more strata lots must obtain a depreciation report before December 13, 2013. The report must be produced every three years, however, the strata can elect to waive or defer renewal with a 3/4 vote, which will have to be done annually. The depreciation report provides an estimate of the repair and replacement cost of major items such as the roof of the property. It’s an important document to review when you’re looking to purchase strata as it tells you how well the building is being maintained.
When reviewing the depreciation report you keep an eye out for any major repairs or items the strata hasn’t kept maintained. If you notice large repairs required, you might want to negotiate some cushion for yourself to be able to handle these expenses when the strata decide to tackle the repairs.
7. Financials and Contingency Reserves Fund
Depending on the size of the strata, the financial statement quality can vary greatly. However, all strata must carry a contingency reserve fund. Pay attention to the amount of contingency reserve fund available as this is the amount of money the strata has access to for unexpected repair or future repair. The more money the strata has the less likely it will have to raise money by either putting a special levy on the strata owners or having to increase the strata fee. The depreciation report will also provide you with some details regarding how well funded the strata’s reserve is.
The key here is you want a healthy amount relative to the size and complexity of the strata development.
8. Special Levy
A special levy is one of the ways a strata corporation can raise additional funds that might be required to cover unexpected or large expenses. The amount placed on each owner will likely factor in the total amount of the expense, the number of total strata lots in the development, and in proportion to the percent owned of the total development. If a strata doesn’t have a lot of money in its contingency reserve and you notice large repairs that might be coming soon, it’s likely the strata will have to apply a special levy to all unit owners in order to raise funds to complete the repair required. Special levies are usually one-time charges that are in addition to the regular strata fee paid by each owner.
9. Understand Who is Responsible for Repairs
In general, the strata is responsible for repairs required to the exterior of the building and common property. Individual unit owners are responsible for any repair within their specific units. It’s also important to know that if a problem starts from within your unit and ends up causing damage to the exterior or another unit, the initial owner of the unit where the problem started likely, will be responsible for all damage, including the one to their own unit.
10. Any Oustanding Unit Fee/ Special Levy Owed
You can obtain strata documents by requesting Form B or Form F. The realtor you are working with will request the documents. Upon reviewing these documents, you want to pay attention to any fees outstanding or special levies already assessed to the unit you are about to buy. For example, suppose the unit has a $1000 special levy owed but is not due until after you become the new owner. In that case, you want to ensure your realtor works that cost into the price or have the existing owner pay that levy upon closing to avoid taking care of an expense incurred before you became the unit owner.
11. Strata Fees
Finally, you want to review the strata fee. Use the strata minutes to see if the strata fees have increased or stayed steady over the last year. If you notice frequent increases, it might indicate the current strata fees might not be appropriate to fund all the strata costs and expenses. If you know, a lot of repairs are required but a low strata fee; again, this might indicate a possible increase in the strata fee. Ask your realtor to provide you with similar buildings on the market to compare their strata fee to the property you wish to purchase. Again, this will give you additional insight into whether the current strata fee you see is likely to stay flat or will it increase over the coming years.
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