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Strata Rejuvenation in NSW just got easier: renovate or detonate your Strata Building, Will owners cash in?

Published on November 21, 2016

Headline Message

On 30 November 2016, reforms to strata legislation in NSW commence.  One of the key pillars of this reform package are provisions which make it easier for strata owners to broker a collective sale or redevelopment of a strata scheme when there is not a 100% consensus amongst the owners.

Essentially, where 75% of owners are on board with a collective sale or redevelopment, then subject to the process set out in the legislation being complied with and approval being granted by the Land and Environment Court, a deal for such a strata renewal proposal can be struck.

Strata Renewal Projects

The property market in Sydney remains buoyant and Sydney housing prices are among the highest in the country.  For strata schemes which face high maintenance costs or those schemes which are in an area of Sydney where a strata renewal project may reap a windfall for owners, the new legislation which provides the framework for easing the implementation of strata renewal will be welcomed.

There are two models of strata renewal projects that may be considered:

1. Collective sale: where a whole strata scheme is sold to a developer.
2. Redevelopment: where a whole strata scheme is altered to the extent that its replacement by a further strata scheme is necessary.

The strata legislative reform commencing on 30 November 2016, which includes the Strata Schemes Development Act 2015 and accompanying Strata Schemes Development Regulation 2016 sets out a process for the collective sale or redevelopment of a strata scheme where although there is dissent among owners, at least 75% of owners support the strata renewal.

Opt In

The new strata renewal legislative provisions apply to an existing strata scheme where the owners corporation passes a resolution to that effect.  And there is no turning back, with any such resolution being unable to be revoked once passed.

8 Step Process For Collective Sale or Redevelopment

The model which takes lot owners and developers from proposal stage to implementation is set out in the Strata Schemes Development Act 2015 and accompanying Strata Schemes Development Regulation 2016 and care should be taken by participants to follow required steps carefully to avoid the wasted time and resources which will result if the Land and Environment Court does not approve a proposed strata renewal project.

Very broadly, the model can be broken down into an 8 Step Process as follows:

• Step 1 – Written Proposal For Collective Sale or Redevelopment.
• Step 2 – Consideration by Strata Committee (must be no later than 30 days from receipt of the proposal)
• Step 3 – Consideration by Owners at a General Meeting, either on referral from Strata Committee (must be 30 days after the Strata Committee considers the proposal merits further consideration) or as convened by lot owners with ¼ of the aggregate unit entitlements (must be within 44 days of any decision by the Strata Committee to shelve the proposal).
• Step 4 – Investigation by a Strata Renewal Committee elected by the owners corporation.
• Step 5 – Formulation of a Strata Renewal Plan by the Strata Renewal Committee, which has 1 year to perform this function.
• Step 6 – Consideration by the Owners Corporation to give the Strata Renewal Plan to the owners, this must pass by a special resolution, i.e. it will need 75% support (the plan must be given to owners within 14 days of a special resolution being passed).
• Step 7 – Decision by individual owners on whether to support the Strata Renewal Plan. 75% of owners must support the Strata Renewal Plan and owners have at least 60 days from receipt to consider the plan.  If the required level of support isn’t obtained within 3 months after the day the Owners Corporation resolved to give the plan to the owners, the plan will lapse.
• Step 8 – Application to the Land and Environment Court to approve the Strata Renewal Plan after a resolution is passed by the Owners Corporation to make that application.

Some Key Points To Note

• The legislation mandates essential elements that must be contained in a proposal and care must be given to ensuring that all of those elements are contained in a written proposal.
• Details of the financial interest the developer has in any lots in the scheme must be disclosed.
• Any conflicts of interest of a member of a strata renewal committee must be disclosed as soon as practicable after becoming aware of the conflict, to a meeting of the strata committee and then referred to the owners corporation for a decision on how to proceed.
• The strata renewal committee has 1 year to exercise its functions. That period may be extended by the owners corporation by special resolution before the 1 year expires.
• The compensation paid to owners as set out in a Strata Renewal Plan must be calculated with reference to market value plus additional financial amounts such as legal costs and relocation costs, and possibly solatium (the non-financial disadvantage suffered by the lot owner which as at 18 October 2016 was a maximum of $75,000 and is informed by factors such as length of time the owner has resided on the property and inconvenience likely to be suffered) (“compensation value”).
• Where a Strata Renewal Plan is opposed the Land and Environment Court may order the parties to attempt conciliation or mediation.
• The Land and Environment Court must make an order if satisfied of the following:
  • The relationship between the owners and the purchaser or developer hasn’t prevented the plan being prepared in good faith.
  • The steps taken in preparing the plan and obtaining the required support were carried out in accordance with the legislation.
  • Notices have been served.
  • For a collective sale, the proposed distribution of proceeds of sale is not less than the compensation value of the lot and the terms of the settlement are just and equitable.
  • For redevelopment, the amount paid to dissenting owners is not less than greater of:
    • Compensation value of owner’s lot; or
    • Total consideration which would accrue to the dissenting owner under the plan in relation to the redevelopment and the owner’s lot if that owner had given a support notice for the plan.
  • Terms of settlement of redevelopment applying to a dissenting owner are just and equitable.
• The Land and Environment Court in making an order to effect a strata renewal plan may make directions about the following:
  • Termination of the scheme. Day on which the scheme is to be terminated and day on which vacant possession of lots and common property in the scheme is to be given.
  • Winding up of the owners corporation of the scheme.
  • Discharge of the liabilities of the owners corporation.
  • Persons liable to contribute amounts required for the discharge of the liabilites of the owners corporation and the proportionate liability of the persons.
  • Distribution of the assets of the owners corporation and the proportionate entitlement of each person under the distribution.

In Summary

From 30 November 2016, it will become easier for lot owners and developers to strike an enforceable deal on the renewal of a strata scheme where there isn’t unanimous approval amongst the owners.

There must, however, be at least 75% support amongst the owners for the renewal proposal and it is important that all relevant interests and potential conflicts are disclosed and procedures as set out in the legislation are followed for the Land and Environment Court to sanction a strata renewal, whether by collective sale or redevelopment, and make appropriate orders.

We can assist with providing advice to owners corporations and developers charting a course through this new world in the rejuvenation of strata schemes.

Disclaimer: This article contains general advice only and does not constitute legal advice.  Readers’ own particular facts and circumstances may change the general advice in this article and it is recommended that readers obtain legal advice in relation to their own individual facts and circumstances.