Insights

In brief - Owners will be empowered to make a collective decision about an ageing building

The NSW parliament's approval of major strata reforms includes a significant change to the collective sale and renewal process. While only 75% support is required to end a strata scheme, safeguards have been put in place to protect the interests of dissenting owners.

New strata laws to come into effect in July 2016

On the 28 October 2015, the NSW parliament approved major reforms to the state's strata title laws. Both the Strata Schemes Management Bill and Strata Schemes Development Bill, which now have passed through both the Legislative Assembly and the Legislative Council, contain around 90 changes to the current laws. The new laws are expected to come into effect in July 2016.

Decision to end a strata scheme will require only 75% owner support

This article is the second of three articles addressing the amendments that have been made and the potential impact of those changes. This article addresses the new collective sale and renewal process, which is a significant change made in the Strata Scheme Development Bill 2015. The new provisions intend to empower strata owners to make a collective decision about the most important issue that will confront all strata buildings, what to do with the building as it ages. It is no longer required that a unanimous decision is reached before the owners can decide to end a strata scheme. Rather, only 75% of support from the owners is required.
 
In order to protect the interests of any dissenting owners, the process of ending or renewing a strata scheme has been designed with numerous safeguards to prevent intimidation, encourage cooperation and to guarantee that owners receive adequate compensation.

Terminating a strata scheme requires adherence to a specific process

The steps that must be taken in order to terminate a strata scheme are outlined below.
 

Step

 

Notes

1.   Submission of strata renewal proposal

Any person may give a written proposal for the collective sale or redevelopment of a strata scheme (a strata renewal proposal) to the owners' corporation of the scheme. 

Any person means any one whether or not the person is the owner of a lot or not. 

2.   Considering the strata renewal proposal

As soon as practicable (but no later than 30 days) after the strata renewal proposal is received by the owners' corporation, the strata committee must consider the proposal at a meeting. If the strata committee decides that the strata renewal proposal warrants further consideration by the owners' corporation, it must, as soon as practicable (but no later than 30 days) after making the decision, convene a general meeting of the owners' corporation to further consider the proposal.

 

The strata renewal proposal lapses when the strata committee decides a strata renewal proposal does not warrant further consideration by the owners' corporation, and a qualified request to consider the proposal at a general meeting of the owners' corporation has not been made within 44 days after the day the strata committee makes the decision, or the owners corporation' decides that the proposal does not warrant investigation by a strata renewal committee.

The renewal process does not apply automatically to existing schemes. Part 10 of the amending Act will only apply if the owners' corporation opts into the process by passing an ordinary resolution of 50%. 

3.   Forming a strata renewal committee

If the majority of the owners agree to pursue a proposal, a committee is elected to investigate, develop and further the proposal. A person who has a financial interest in more than 25% of the lots (excluding utility lots) in the strata scheme must not vote in a resolution to establish a strata renewal committee or be elected as a member, unless the person has disclosed the fact to the owners' corporation. The strata renewal committee must consist of a chairperson and a number of other members, but not more than eight. The committee may appoint professionals such as valuers, lawyers, and tax experts to assist them. 

If more than 50% of the owners agree to pursue the proposal, a strata renewal committee is formed.

 

Unless the strata renewal committee is dissolved earlier, the committee may exercise its function for one year after the day it is established, or if the owners' corporation, by special resolution made before the end of the period, extends the period.

4.   Developing a collective sale/renewal plan

In order for the lot owners to make an informed decision, the strata renewal committee must develop a plan that must include the following information:

(a)  A general overview of the strata renewal proposal to which the plan relates

(b)  A full and frank statement by the proposed purchaser or developer of their intended use of the strata parcel
(c)  If the plan is for a collective sale of the scheme:

(i)  The name of purchaser, or a proposal for marketing the parcel for sale by public auction or tender
(ii)  The sale price, or a minimum reserve price for the sale or details of the way in which a minimum reserve price for the sale is to be set
(iii)  The proposed completion day for the sale
(iv)  The proposed day on which the owners of the lots are to provide vacant possession of their lots
(v)  The details, prescribed by the regulations, about costs and expenses to be deducted from the sale price
(vi)  Any other terms and conditions of the proposed sale that the strata renewal committee considers are significant

(d)  If the plan is for a redevelopment of the scheme:

(i)  The name of the proposed developer
(ii)  Details of any planning approvals, or other authorisations under an Act or otherwise, required before the redevelopment can start
(iii)  An estimate of the period from the start to completion of the redevelopment
(iv)  Details of any periods during which the owners of lots will be required to provide vacant possession because of the redevelopment
(v)  Details of arrangements for financing the redevelopment
(vi)  Details of the terms of settlement and the amounts to be paid to each dissenting owner for the purchase of the owner's lot
(vii)  Details of the terms of settlement for each supporting owner, including the amount and timing of any payments to be made to the owner and, if the owner has a right to buy back into any future scheme, details of that right 

(e)  Any other information or documents about the proposed collective sale or redevelopment prescribed by the regulations. 

The strata renewal committee and the owners' corporation will hold meetings to discuss and further develop the plan. 

If a strata renewal plan is for a collective sale of a strata scheme, the plan must provide for the purchase of each owner's lot at no less than the compensation value for the lot. 

5. Consideration of plan by owners' corporation 

Owners will have a minimum of 60 days to consider the plan and seek independent advice. Owners in favour of the plan will sign a support notice, which will be given to the secretary of the owners' corporation. An owner who has given a support notice may withdraw their support notice by giving notice in the approved form to the returning officer for the plan. The plan lapses if the owners' corporation decides not to give the plan to the owners for their consideration, or if within three months, the required level of support (75%) for the plan has not been obtained.

After a minimum of 60 days to consider the plan, if the plan receives 75% of support before the plan lapses, then you can apply to give effect to the strata renewal plan.

6.  Applying for orders to give effect to strata renewal plans

Plans for renewal/development will be referred to the Land and Environment Court for final consideration. The court would consider whether the process has been performed fairly and would initially seek to resolve any disputes through conciliation or mediation.
 
The court can reject a renewal plan if it was not developed in "good faith" or did not follow due process. The court will also consider the amount to be received by each owner. For a collective sale or for dissenting owners in a renewal, the amount must be no less than the compensation value of the lot, which is based on the principles used to determine "Just Terms Compensation". The terms of settlement provided by the plan must be just and equitable.
 
A lot owner would expect to receive at least the market value of his or her unit plus an amount for disturbance, solatium and any special value. Market value will be assessed by taking into account the actual condition of the unit, including any refurbishment or upgrades the owner may have made. 

The owners' corporation must by general resolution (50%) apply to the Land and Environment Court to give effect to the plan.

 

Disturbance covers the costs associated with being required to move. Court will also consider the costs of stamp duty up to the value of the owner's unit and removalist fees, as well as legal valuation costs associated with acquisition. 

Special value can be used to cover any financial value, in addition to market value, that the owner may have had through his or her use of the property.








Read the third article in this series: New laws on managing and living in strata.
 
Read the first article in this series: NSW parliament passes new laws on developing and building in strata.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​