Changes to collective sale and redevelopment of strata schemes in effect from mid-2016

Significant changes to the Strata Scheme Management Bill 2015 and Strata Scheme Development Bill 2015 (SSDB) were passed by NSW Parliament last month. Part 10 of the SSDB will introduce a new regime for collective sale and redevelopment of strata schemes in mid-2016.

Previously, developers required unanimous consent of all lot owners to complete a collective sale or renewal of strata schemes. However, under Part 10 of the SSDB, developers who put forward a strata renewal plan will soon only require the support of at least 75% of lot owners within the strata scheme.

Here is an overview of the steps required under Part 10 to achieve a successful collective sale or redevelopment.

Step 1—Proposal

Any person (not just an owner of a lot) may give a written proposal for either a collective sale or redevelopment of a strata scheme to the strata committee.

A collective sale means a sale of the whole strata scheme. A redevelopment is defined as a redevelopment of the whole strata scheme, in a way that alters the scheme to the extent that a replacement strata plan is necessary.

Within 30 days of receiving a strata renewal proposal, the strata committee of the owners corporation must meet to consider whether the proposal warrants further consideration. If the committee decides further consideration is needed, the reasons for further consideration must be published in the strata committee's meeting minutes.

Step 2—Vote on establishing a strata renewal committee

Within 30 days of the strata committee deciding that a strata renewal proposal warrants further consideration, a general meeting of the owners corporation must be convened, where the owners will determine:

• whether to establish a strata renewal committee to further investigate and develop the strata renewal proposal, or
• that the strata renewal proposal does not warrant further investigation, or the owners corporation does not want to entertain a collective sale or redevelopment of the strata scheme.

An ordinary resolution (being 50% or more) is required to establish the strata renewal committee. If an ordinary resolution is not passed, the strata renewal proposal will lapse and will cease to have any force. Further, the same strata renewal proposal (or another proposal substantially similar) cannot be resubmitted to the strata committee for two months after the lapsing of the strata development proposal.

Step 3—Establishment of strata renewal committee

Upon passing an ordinary resolution to establish the strata renewal committee, a further meeting of the owners corporation will be held to elect the members of the strata renewal committee.

The strata renewal committee consists of a chairperson and up to eight other members eligible to be elected to the strata committee of the owners corporation. The strata renewal committee will come into existence on the day its members are first elected and will  be convened for one year from the date created or as extended by special resolution of the owners corporation.

Step 4—Development of strata renewal plan

Once established, the strata renewal committee is to develop the strata renewal plan the unit owners are to vote on. The plan fleshes out the strata renewal proposal, which was first put to the strata committee/owners corporation.

The strata renewal plan must contain the following information, depending on whether the strata renewal plan is for a collective sale or a redevelopment.

Step 5—Amendments to strata renewal plan

While formulating the strata renewal plan, the strata renewal committee must convene a general meeting of the owners corporation to consider the strata renewal, although there is no specific time frame stated. The owners corporation may amend the plan by ordinary resolution or return the plan to the strata renewal committee for amendment.

Step 6—Submitting strata renewal plan

To formally submit the strata plan to the owners for their consideration, a special resolution (75% or greater) of the owners corporation is required.

Step 7—Voting on strata renewal plan

At least 60 days after receiving a copy of the strata renewal plan but no later than 90 days, each lot owner in the strata scheme may cast a vote in favour of the strata plan (indicating their willingness to participate in the strata renewal plan) by providing a support notice to the returning officer. If a lot owner does not provide a support notice, they are effectively voting against the strata renewal plan.

A strata renewal plan will lapse 90 days after the strata renewal plan is received by lot owners, provided the required level of support is not achieved. If the strata renewal plan lapses, the same strata renewal proposal (or another proposal substantially similar) cannot be resubmitted to the strata committee for 12 months after the lapsing of the proposal.

Step 8—Achieving the required level of support

If 75% of lot owners vote in support of the strata renewal plan (being the required level of support) before the plan lapses, the secretary of the owners corporation must write to each lot owner and the Registrar-General advising of this fact, within 14 days of receiving written notice from the returning officer that the required level of support has been reached. 

Step 9—Application to the Land and Environment Court

To give effect to a strata renewal plan that has achieved the required level of support, an application must be made to the Land and Environment Court (Court) requesting the strata renewal plan be given effect.

An ordinary resolution of the owners corporation is first required before such an application can be made. Upon obtaining this resolution, an application will be made to the Court, which must include the following:

• A copy of the strata renewal plan.
• A copy of each support notice.
• The names of dissenting owners.
• A declaration given by the owners corporation identifying the steps taken in preparing the strata renewal plan and in achieving the required level of support.

• If a plan for a collective sale:

  • a declaration of the purchaser disclosing any relationship (personal or commercial) with any owner of any lot in the scheme, and
  • an independent report on the market value of the whole building and the compensation value of each lot.

• If a plan for a redevelopment:

  • a declaration given by the developer disclosing the nature of any relationship (personal or commercial) with any owner of any lot in the scheme
  • a document specifying the amount to be paid to each dissenting owner
  • an independent report on  the market value of the whole building and the compensation value of each dissenting owners lot, and
  • a document detailing enough financial information to show there is a secure source of funding for carrying out the redevelopment plan.

Step 10—Order giving effect to strata renewal plan

The Court will determine whether or not an order should be granted to give effect to the strata renewal plan. The Court will not give this order unless it is satisfied that:

• the processes under Part 10 of the SSDB have been followed
• the necessary steps have been taken to prepare the plan and obtain the required level of support
• proper service of notices under ss 179 and 181
•  whether the developer has acted in good faith
• for a redevelopment plan, the amount to be paid to unit owners is specified with particular attention on the amount to be paid to dissenting owners, or 
• for a collective sale plan, the proposed distribution of proceeds to each lot owner, and
• any other matters prescribed by the regulations.

Step 11—Registration of order with Registrar-General

If the Court grants an order giving effect to the strata renewal plan, the owners corporation must lodge the order with the Land and Property Information Registrar-General within seven days of the order being made. This order will have effect on the date that the Registrar-General records it on the common property folio and for each lot of the strata scheme.

Step 12—Implementation of the strata renewal plan

For a collective sale strata renewal plan, the owner of each lot must sell their lot in line with the plan or as dictated by the Court's order. The existing strata scheme will be terminated on the day when all the dealings effecting the transfer of all lots and common property in the scheme are registered.

For a redevelopment strata renewal plan, each dissenting owner must sell their lot in line with the strata renewal plan, or as dictated by the Court's order. The existing strata scheme will be terminated on the day set out in the order.

Lessons for developers

• The owners corporation must first "opt-in" to the new strata renewal process when deciding whether to establish a strata renewal committee.
• It is not enough to achieve 75% support from unit owners, an order of the Court must also be sought.
• The Court is empowered to look at the way the required level of support was achieved, and that the process under Part 10 of the SSDB was followed.
• Under a redevelopment strata renewal plan, dissenting owners are required to be bought out by the party proposing the redevelopment.
• Any strata renewal plan (collective sale or redevelopment) must purchase each owner's lot at lease for the lot's compensation value, being an amount equal to what the owner of the lot would be entitled to under s 55 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW).