New jurisdiction for the Land and Environment Court.
The new Strata Schemes Development Act 2015 (the “Act”) has been passed by Parliament and is expected to come into effect after July 2016.
These laws present a profound transformation in strata law. Presently, strata schemes can only be terminated by way of agreement of all lot owners, however the new laws will allow the re-development or sale of strata schemes without the unanimous agreement of owners.
Part 10 of the Act sets out the new regime. Our reading of the Act shows it is complex with a number of steps to be followed, with each step allowing the process to be halted or changed depending on the outcome of that step, and the fact that every application for a forced sale or re-development of a strata scheme will require an order from the Land & Environment Court means that the involvement of strata specialists early on in negotiations is paramount.
The steps in the process can be summarised as follows:
Step 1 – Opt In (Existing freehold schemes must opt in to the scheme by way of ordinary resolution at a general meeting of the owners’ corporation).
Step 2 – Submit a Strata Renewal Proposal (Anyone, including developer who is not a present lot owner, may give a strata renewal proposal to an owners’ corporation).
Step 3 – Strata Committee to Consider (Within 30 days of receipt of the strata renewal proposal, the strata executive committee must consider the proposal at a committee meeting).
Step 4 – General Meeting to Consider (If at the committee meeting it is determined that the strata renewal proposal warrants further consideration then a general meeting of the owners’ corporation must be convened. This meeting should take place within 30 days of the committee meeting).
Step 5 – Establish a Strata Renewal Committee (If at the general meeting it is decided that the strata renewal proposal warrants further investigation then a strata renewal committee (SRC) must be elected by the owners)
Step 6 – Prepare a Strata Renewal Plan (This must be prepared by the committee elected at Step 5. The committee may engage third parties to assist in the preparation of the strata renewal plan (SRP).
The SRP will be for either the collective sale of the strata scheme or for its re-development.
The different plans can be described as follows:
A collective sale is the sale of all lots within the scheme. A collective sale plan must include details such as the name of the purchaser or details of the proposed sale of the overall site by auction or tender. The plan must provide for the purchase of each owner’s lot for no less than the compensation value for the lot. Additionally the amount paid for the sale of the lost and common property must be apportioned amongst the owners of the lots in accordance with their unit entitlements. The L&E Court will have the discretion to vary the unit entitlements where the existing allocation is unreasonable.
A re-development plan is a more complex beast, as this plan must allow for the sale of dissenting owners lots, along with (for example) a different tailored or potentially more complex arrangement applying to the lots of supporting owners (such as ownership of a lot in the new strata scheme). This plan must include details such as the name of the proposed developer, financing arrangements, any planning approvals, requirements for vacant possession and details of the terms of settlement for each owner who supports the scheme. The plan must provide for each dissenting owner’s lot to be purchased for (at least) the “compensation value” for the lot.
The requirement for the payment of “compensation value” as a minimum amount is a significant safeguard. It is more than just market value, as it also includes such amounts as extra payments equivalent to those in a compulsorily acquired sale of land. These payments must compensate the owner for the special value that the property might have, the out of pocket expenses incurred as a result of a forced sale, such as relocation and expenses associated with the acquisition of a new property, and some compensation for the disadvantage of losing a principal place of residence (a difficult component to value, not unlike “non-economic loss damages” in a personal injury case).
As you can see, involvement of experts at this step is critical to the success of the plan.
Step 7 – General Meeting to Consider the SRP (Once the SRP is deemed ready for consideration, a general meeting must be convened to consider the SRP. It may be decided that the SRP requires more work, in which case it must be sent back to the SRC. Alternatively, if it is decided that the SRP is to proceed, then a special resolution must be made to formally present the SRP to the owners for their consideration. This special resolution requires at least 75% to vote in favour.
Step 8 – SRP Formally Given to Owners (The owners in support of the SRP may then give the SRC’s appointed officer a “support notice”. This notice must be signed by both the owner and each registered mortgagee or covenant charge of the owners’ lot. It must be given no earlier than 60 days and no later than three months after receipt of the SRP.
This timing is of the essence, as the SRP will lapse if at least 75% of the owners do not provide support notices within the timeframe provided. This means that small schemes with only a couple of lots will require unanimous agreement before they can be terminated under these provisions.
Car parking and storage areas are not included in the 75% calculation.
Step 9 – SRP recorded on title (LPI must be notified if 75% support for a SRP is achieved within the 3 month period. The fact that a SRP is in existence will then be noted on the title of the common property.
From this point on, once recorded, the support notice will bind future owners of the lots.
Step 10 – General Meeting to Discuss Court Application (A GM of the owners’ corporation must then take place. This meeting will decide whether to apply to the L&E court for an order to give effect to the SRP).
Step 11 – Application to L&E Court (Dissenting owners and their registered mortgagees and covenant charges must be notified of the application and may lodge an objection with the Court. If the SRP provides for a re-development rather than a collective sale then the local council can also file an objection.
Unless otherwise ordered by the court, the costs of a dissenting owner are payable by the owners corporation (similar to a s88K where the costs of the burdened lot owner are payable by the beneficiary of the easement). The owners’ corporation cannot then levy a contribution towards these legal costs upon the dissenting owner/s.
Step 12 – Mediation in the Court (The court may order mediation to ascertain whether agreement can be reached between the parties).
Step 13 – Court Orders Made (The court may make an order giving effect to the SRP if it is satisfied as to the following:
- Whether the SRP has been prepared in good faith
- Whether the necessary processes have been followed
If the plan is for a collective sale:
- The proposed distribution of the proceeds of sale apportioned to each lot is not less than the “compensation value” of the lot; and
- The terms of the settlement under the plan are just and equitable in the circumstances.
If the plan is for a re-development:
- The amount to be paid to a dissenting owner is (at least) the larger of
- The compensation value of the owners lot;
- An amount equal to the value to the dissenting owner if that owner had been a supporting owner;
- The terms of the settlement order under the plan (as those terms apply to any dissenting owner) are just and equitable in the circumstances.
Step 14 – Sale in Accordance with the Court Order (If the Court makes an order giving effect to a “collective sale” SRP, all owners must sell their lots.
If the court makes an order pursuant to a “re-development” SRP, the dissenting owners must sell their lots.
The court may also order that compensation is paid to a tenant whose lease is terminated as a consequence of the SRP being given effect.
Every single SRP must go to the L&E Court by way of an application seeking orders authorising the implementation of the SRP. This is the case even if the dissenting owners are passive or all owners are in agreement. The court must be satisfied that all necessary procedural steps in the process have been carried out properly. This will require careful management from the initial stages by the developers, the owners’ corporation and their advisers to ensure that all requirements are met.
We strongly suggest that you speak to us first for advice and assistance every step of the way for your strata developments needs.