New Strata Renewal Process Soon To Take Effect Under Part 10 Strata Schemes Development Act 2015

Part 10 of the Strata Schemes Development Act 2015 (Act) prescribes a process for strata renewal. Part 10 commenced on 30 November 2016.

The Part 10 process enables the owners in a strata scheme to seek a Court order for one of 2 options:

  1. the “collective sale” of all apartments in that strata scheme for an overall price to be apportioned between the owners based on their unit entitlements; or
  2. the “redevelopment” of the strata scheme which may involve the sale of each lot in the strata scheme to a developer for a specified amount without regard to any calculation based on unit entitlement.

The steps to achieving a collective sale or redevelopment under Part 10 of the Act are set out below.

Step 1: Opt-in

Existing freehold strata schemes must ‘opt-in’ to the scheme by ordinary resolution at a general meeting of the owners corporation (this step can happen in conjunction with step 3). A simple majority of lot owners (on a 1 lot 1 vote basis) is required.

Step 2: Submit a strata renewal proposal

Any person (including a developer who is not presently the owner of a lot) may give a written proposal for the collective sale or redevelopment of a strata scheme (section 156) (strata renewal proposal) to an owners corporation.

Step 3: Strata (executive) committee to consider proposal

Within 30 days, after the owners corporation receives a strata renewal proposal, the strata committee of the owners corporation must consider it at a committee meeting (section 157). A majority vote of strata committee lot owners is required to determine if the strata renewal proposal warrants further consideration.

Step 4: General meeting to consider the proposal

If the strata committee decides further consideration is warranted by the owners corporation, it must convene a general meeting of the owners corporation (section 158) within 30 days. If the strata committee decides against further consideration, the strata renewal proposal will lapse.

Step 5: Establish a strata renewal committee

If the owners corporation in general meeting decides that the strata renewal proposal warrants further investigation, the meeting must :

  1. establish a strata renewal committee;
  2. elect the members of the strata renewal committee; and
  3. appoint a returning officer (who must be an independent third party that is not a lot owner, not related to a lot owner, not the strata managing agent and not anyone with a pecuniary interest in the strata renewal proposal).

Notification of the establishment of the strata renewal committee must be given to each lot owner.

Step 6:  Prepare a strata renewal plan

The strata renewal committee must prepare a strata renewal plan, which develops and refines the strata renewal proposal, in accordance with the Strata Schemes Development Regulations 2016 (Regulations). In practice, the strata renewal plan will likely be prepared by the developer on behalf of the strata renewal committee.

The Office of Registrar General has prepared a ‘Guide to the Preparation of a Strata Renewal Plan’ which effectively summarizes the requirements for a strata renewal plan under the Regulations. The committee may engage third parties to help it prepare the strata renewal plan.

A strata renewal plan will either be for the ‘collective sale’ or for the ‘redevelopment’ of the strata scheme. Section 170 prescribes matters to be included in these plans.

A ‘collective sale’ plan involves the sale of all lots within the scheme whether by private treaty, auction or tender The plan must provide for the purchase of each owner’s lot for (at least) the ‘compensation value’ for the lot.  Additionally, the amount paid for the sale of the lots and common property must be apportioned among the owners of the lots proportionate to their unit entitlements.  The Land and Environment Court will have the discretion to vary the unit entitlements where the existing allocation is unreasonable.

‘redevelopment’ plan means that dissenting owners’ lots must be sold, with more tailored arrangements than potentially applying for supporting owners (for example, ownership of a lot in the new strata scheme to be created if that is relevant or the sale of the supporting owners lots). 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 ‘compensation value’ is prescribed by s55 of the Land Acquisition (Just Terms Compensation) Act 1991 or otherwise as prescribed by the Regulations. The requirement for the payment of ‘compensation value’ (as a minimum) is a significant safeguard. It includes extra payments equivalent to those received through compulsory land acquisition. These payments compensate for the property’s special value to the owner, out-of-pocket expenses resulting from the forced sale (and the need to acquire a new property) and compensation where applicable for the non-financial disadvantage of losing a principal place of residence.

In terms of valuation, the Court in reviewing the strata renewal proposal will evaluate the overall land on a ‘highest and best use’ basis and the relative amount to be paid to each lot owner.

Step 7: General meeting to consider the strata renewal plan

Once the strata renewal plan has been prepared, the strata renewal committee must convene a general meeting of the owners corporation, with at least 14 days’ notice, to consider the plan. The meeting may amend the strata renewal plan or decide to return the plan to the strata renewal committee.  If the meeting wants the plan to proceed it may ,by ‘special resolution’, approve the plan being given to the owners for their consideration. A ‘special resolution’ is one where at least 75 per cent of the value of the votes cast are in favour and the voting values are determined by unit entitlement.

Step 8: Strata renewal plan formally given to owners

Once the special resolution is passed, the strata renewal plan must be provided to each lot owner within 14 days along with:

  1. a strata renewal information sheet in the approved form,
  2. the approved form of a ‘support notice’; and
  3. details of the returning officer’s address for service of a support notice.

The owners must have a minimum of 60 days to consider the strata renewal plan.

An owner may give its support to the strata renewal plan by giving to the returning officer the support notice, signed by both the owner and each registered mortgagee or covenant chargee of the owner’s lot.  A support notice cannot be provided sooner than 60 days or later than 3 months after the owner is given the strata renewal plan. The plan will lapse where required support is not received within this time frame (section 177).

If at least 75% of lot owners (based on one-lot-one-vote) have given a support notice, then the strata renewal plan will proceed to the next step.

Car parking/storage lots are excluded from this 75% calculation.

Owners may withdraw their support notice before the secretary of the owners corporation has given notice to the owners and the Registrar-General that required support has been received (see step 9).

Step 9: Strata renewal plan recorded on title

If at least 75% of lot owners (based on one-lot-one-vote) have given a support notice  then the secretary of the owners corporation is notified who, in turn within 14 days must notify:

  1. each lot owner; and
  2. the Registrar General.

The fact that a strata renewal plan is in existence will then be noted by the Registrar General on the title of the common property.

From this point, the support notice given by an owner will bind future owners (i.e. if the ownership of the lots change during subsequent stages of the collective sale or redevelopment process).

Step 10: General meeting to discuss Court application

A further general meeting of the owners corporation must then take place. This meeting will decide whether to apply to the Land and Environment Court for an order to give effect to the strata renewal plan. Without the approval of the Court, the strata renewal plan remains ineffective.

The following steps apply to owners corporations who choose to apply to the Land and Environment Court

Step 11: Application made to the Court

Dissenting owners, their registered mortgagees or covenant chargees must be notified of the application and may file an objection with the Court. If the strata renewal plan is for a redevelopment of a strata scheme (i.e. not just for a ‘collective sale’) the local council may file an objection as well.

Unless the court otherwise orders, the reasonable costs incurred by a dissenting owner in making an objection to the Court are payable by the owners corporation. The owners corporation cannot levy a contribution for these costs on a dissenting owner.

Step 12: Mediation in the Court

The Court may arrange for a mediation or conciliation to attempt to resolve a dispute by agreement.

Step 13: Court order made

The Court must make an order giving effect to the strata renewal plan if it is satisfied on key matters, including whether the plan has been prepared in good faith and followed the required processes.

If the plan is for a collective sale, the Court will require that the proposed distribution of the proceeds of sale apportioned to each lot is not less than the ‘compensation value’ of the lot. The Court will also require that the terms of the settlement under the plan are just and equitable in all the circumstances.

If the plan is for a redevelopment the Court will require the amount to be paid to a dissenting owner is (at least) the larger of the compensation value of the owner’s lot or an amount equal to the value to the dissenting owner if that owner had been a supporting owner. Similarly, the terms of the settlement under the plan must be just and equitable in all the circumstances.

The Court must be  provided with a report by an independent valuer which details the market value of the whole site on a ‘highest and best use’ basis and the relative amount to be paid to each lot owner.

Step 14: Sale in accordance with the Court order

If the Court makes an order giving effect to a ‘collective sale’ strata renewal plan, the owners of each lot in the strata scheme must sell their lot or vest properties in a trustee for the purposes of sale.

If the Court makes an order giving effect to a ‘redevelopment’ strata renewal plan, the dissenting owners of lots in the strata scheme must sell their lots.

Tenants whose leases terminate as a consequence may be ordered compensation at the cost of the purchaser/developer.

Each matter must go to the Land and Environment Court for an order authorising implementation – even if the dissenting owners are passive. The Court will want to be satisfied that procedural steps in the process have been carried out properly with appropriate compensation.

Effect of Orders

Section 184 outlines the effect of the court’s order to give effect to a strata renewal plan for the collective sale of a strata scheme, including that the owner of each lot in the scheme must sell the owner’s lot in accordance with the order. This includes when the strata scheme is terminated (section 184(3)) and the consequences of termination (section 184(4)). The related obligations of the Registrar-General are found at section 184(5).

Alternatively, section 185 outlines the effect of the court’s order to give effect to a strata renewal plan for a redevelopment of a strata scheme, including that each dissenting owner of a lot in the scheme must sell the owner’s lot in accordance with the order.

Section 186 provides that the court may make ancillary orders relating to a strata renewal plan. Ancillary orders are made to ensure the effectiveness of the order giving effect to a strata renewal plan. This section outlines what these orders involve, who can apply for an ancillary order and when they can come into effect.

We note that on completion of a collective sale or redevelopment, the purchaser will take on the liabilities of the owners corporation.

Timeline of Strata Renewal Process

Aside from meeting notice and general notification periods, other time frames will be capable of being effectively controlled by the purchaser/developer/supporting lot owners. As a rough estimate an uncontested proposal from start to court approval might be expected to take anywhere between 8 to 18 months, but at the present time, court and mediation (if necessary) time frames can only be estimated.

Some time frames cannot be controlled, including ‘supporting notice’ (Step 8) which can’t be delivered to the owners corporation sooner than 60 days or later than 3 months as well as the time frame for obtaining the approval of the Land and Environment Court (presently unknown).

Alternative Strata Renewal Procedures

The above process under Part 10 is an alternative to the simpler circumstances under which a strata scheme may be terminated by the Registrar General under Part 9 Division 4 of the Act where one party owns all the lots or each lot owner desires the termination of the strata scheme. Application to the Court under Part 9 Division 3 may also apply but is a discretionary process with a less certain result.

Further Information

If you would like further information about how to conduct your strata renewal, please contact Mike Ellis or Qin Bi on +61 2 9261 5900.

(Article updated September 2017)