On 30 November 2016, the Stata Schemes Development Act was amended to introduce a new framework for the renewal of strata schemes in NSW.
The legislative reform introduced a number of steps that must be followed before a strata renewal plan for the ‘collective sale’ or ‘redevelopment’ of a strata scheme can be put into effect.
The legislation states that a person may give a written proposal for the ‘collective sale’ or ‘redevelopment of a strata scheme’ to the owners corporation of the scheme. The owners corporation is automatically created through a plan of subdivision and has authority to make rules relating to the use of common property and the lots.
The changes to the Stata Schemes Development Act allow a Court to approve the ‘collective sale’ or ‘redevelopment’ of a strata scheme even when some owners do not support the proposed plan. However, at least 75% of the owners must agree to the proposed strata scheme. There are several key stages which must be followed, which include the following:
- Vote to opt into the process – required for strata schemes registered prior to 30 November 2016. More than 50% of lot owners must vote in favour in order for the process to move forward.
- Form a strata renewal committee – If the majority of owners agree to pursue the proposal, a strata renewal committee is elected to investigate and develop the proposal. If authorised by the owners corporation, the committee can engage professionals to assist it including valuers, lawyers and tax experts.
- Develop a strata renewal plan – The committee prepares and develops a plan (a strata renewal plan) for either the collective sale or redevelopment of the scheme. The plan must set out certain information prescribed by the legislation to help lot owners make informed decisions. The plan must provide for the purchase of each owner’s lot in a collective sale, or a dissenting owner’s lot in a redevelopment, for an amount not less than the compensation value for the lot. The plan must include a report by an independent valuer that provides details of the market value of the whole building (at its highest and best use) and details of the compensation value for each lot.
- Consider the plan – Owners will have at least 60 days from the date they receive the plan to consider it and seek independent advice on the plan. The owners will also be given an Information Sheet and a Support Notice which is to be returned by those owners who are in favour of the plan. If the owner(s) of at least 75% of the lots (other than utility lots such as a carspace or storage lot) support the plan before the plan lapses, the required level of support is reached.
- Approval of the plan – If the required level of support is obtained, a general meeting of the owners corporation will be held to resolve whether an application should be made to the Land and Environment Court (the ‘Court’) for final consideration and approval of the strata renewal plan. If the owners corporation resolves not to apply to the Court, the plan lapses.
On 8 August 2019, the Land and Environment Court approved the first collective sale using the new strata renewal process since that legislation was introduced in 2016. This decision sets an important precedent for strata owners and the manner in which the Court is likely to interpret the strata renewal legislation as it is the first time that the Court has been asked to consider a strata renewal plan.
The decision in ‘Application by the Owners – Strata Plan No 61299 [2019] NSWLEC 111’ demonstrated the Courts power to approve the strata renewal plan for the collective sale of the strata scheme, where not all, but at least 75% of the lot owners, supported the plan.
The building, located in the Sydney CBD, comprised of 25 levels including 119 serviced apartments, a café and a gymnasium. The Applicant in the proceedings did not have unanimous support for the collective sale of the strata scheme however the Court approved the sale using the new strata renewal process as the collective sale was supported by at least 75% of lots, satisfying the required level of support provisions of the legislation.
While the application was not opposed by any of the lot owners who did not consent to the plan, the Court was still required to be satisfied that for the purposes of the strata renewal legislation, the proposed distribution of the proceeds of sale apportioned to each lot was not less that the compensation value of the lot and the terms of the settlement under the strata renewal plan were just and equitable in all the circumstances.
The owners of the lots were ordered to sell their lots in accordance with a Deed of Agreement entered into between the developer/purchaser and the strata renewal committee.
If you have any questions relating to the strata renewal process or any other property law matter, please contact the team here at Kydon Segal Lawyers and we will be happy to be of assistance!