Question: When a strata “winds-up” and sells the property to a developer, which party generally absorbs the cost of the community amenity contribution assessed due to rezoning, the strata owners or the developer? We are currently undergoing this process and have been told by our realtors to expect 100% of our current assessment plus only 20-30% of the increased value created by rezoning due to the CAC.
Answer: That’s a good question and one that I’m sure lots of condo owners are pondering as they listen to pitches from developers, realtors and lawyers about the pros and cons of selling.
If the developer has any brains at all, it is the owners who pay. That’s because if the developer pays the owner the full price of the new, rezoned value of the land, the city’s attitude is “That’s your problem” when it comes to assessing how much in CACs should be “contributed.” Some buyers on Cambie Street did pay very high prices for some of the early lots that were redeveloped and then had a rude shock when they went to the city and were told that it was their problem if they overpaid for land.
In the later sales along Cambie, buyers smartened up and only paid, as you say, 20 or 30 per cent of the increased value, knowing that the city has a pretty standard rule that it will take 75 per cent of the land lift for community amenities.
Of course, the hard thing to figure out in all of this is what the land lift actually is (and therefore, what 20 to 30 per cent of that is). To tell you the truth, I’m not quite sure how that is worked out. Certainly, there have been disagreements between the city’s real-estate department (who calculates these things) and developers about that number.
Understanding the CAC Calculation Process
The complexity of CAC calculations stems from Vancouver’s unique approach to capturing land value increases for public benefit. When a property is rezoned to allow higher density development, the city essentially creates new value out of thin air – the same piece of land suddenly becomes worth significantly more simply because you can build more on it. This “land lift” is what the city targets for its 75% take.
The process typically works like this: The city’s real estate department conducts two appraisals – one at the current zoning and one at the proposed new zoning. The difference between these values is the land lift. From this amount, the city expects to receive roughly three-quarters as community amenity contributions, leaving developers and property owners to split the remaining quarter.
Why Developers Structure Deals This Way
Smart developers have learned from expensive mistakes made by their predecessors. In the early days of Vancouver’s rezoning boom, some developers were so eager to secure prime development sites that they paid full market value based on anticipated rezoning. When these developers then approached the city for development permits, they discovered that the city calculated CACs based on the purchase price, not the underlying land value.
This created a vicious cycle: the higher the developer paid for the land, the higher the city’s CAC assessment became. Some developers found themselves facing CAC bills that exceeded their entire projected profit margins, making projects financially unviable.
The 20-30% Rule of Thumb
The 20-30% figure your realtors mentioned has become standard industry practice because it represents a sustainable split of the land lift after the city takes its 75% share. Here’s how it typically breaks down:
- 75% to the city as CACs (parks, community centers, affordable housing, etc.)
- 15-20% to the developer (profit and development risk compensation)
- 5-10% cushion for unexpected costs or assessment disputes
This formula has evolved through trial and error over hundreds of transactions throughout Vancouver’s development boom. Strata owners who insist on capturing more of the land lift often find their buildings sitting unsold, as developers simply walk away from deals that don’t provide adequate returns.
Factors That Can Affect Your Share
Several variables can influence how much strata owners ultimately receive:
Market conditions play a crucial role. In hot markets with limited available land, developers may be willing to pay slightly more to secure sites. Conversely, during market downturns, the 20-30% share may decrease as developers become more risk-averse.
Building condition and age also matter. Older buildings requiring demolition may see reduced owner payouts, as developers factor in additional costs for asbestos removal, structural challenges, or heritage considerations.
Zoning complexity can impact the calculation. Properties requiring multiple rezoning applications or those subject to special planning policies may see different CAC calculations than straightforward density increases.
Red Flags to Watch For
Be cautious of developers or realtors who promise significantly higher percentages of land lift. While it’s possible in exceptional circumstances, promises of 40-50% owner retention of land lift often indicate either inexperienced developers who haven’t properly calculated their costs, or sophisticated players who plan to renegotiate terms once they have strata owners committed.
Similarly, be wary of deals structured with large upfront payments followed by smaller “completion payments” tied to successful rezoning. These structures can leave strata owners with minimal recourse if CAC assessments come in higher than expected.
The CAC system, while complex, has become a predictable part of Vancouver’s development landscape. Understanding these dynamics helps strata owners make informed decisions about timing their sales and evaluating competing offers from developers.
