Massons

Majority Rules: Terminating NSW Strata Schemes without Unanimous Consent

Written by Leila Packett and Leisha de Aboitiz on October 25, 2016

Strata owners in NSW will no longer be held to ransom by minority interests under changes to the collective sale and renewal process in the Strata Schemes Development Act.

The new Strata Schemes Development Act 2015 (NSW) (SSD Act) and the Strata Schemes Management Act 2015 (NSW) (SSM Act) will come into effect on 30 November 2016.

One of the most significant (and long awaited) changes is the collective sale and renewal process in the SSD Act. The draft Regulations are expected to be finalised and released shortly.

1.     What is collective sale and renewal?

It is a new regime in Part 10 of the SSD Act which allows strata lot owners to decide (on a 75% majority basis) whether to end or wind up a strata scheme so that the site can be sold or renewed. It applies to all strata schemes (eg commercial, residential, industrial) except those which are subject to a development contract or the Retirement Villages Act 1999 (NSW).

2.     Why is this change significant?

Under the existing legislation, a scheme can only be terminated with unanimous lot owner consent or by way of a court order – this has given the minority significant power. Historically, a single lot owner could frustrate termination, sale or renewal, despite majority agreement. It is hoped that this change will be a boost to urban renewal and will present better commercial outcomes for many lot owners (eg where rising maintenance costs are no longer viable, or where the entire scheme can be collectively sold at above market value to a developer). By way of comparative example, the introduction of collective sales by majority consent to Singapore in 1999 led to an explosion of sales and windfall gains for owners.

3.     Will there be protections for the “vulnerable” or dissenting owners?

Yes. The new scheme involves a multi-stage (and rigorous) process requiring significant lot owner involvement, 75% majority approval, and final consideration and approval by the Land and Environment Court. There is also additional protection for dissenting owners to ensure that they”

·         are not required to fund the strata renewal process

·         will be assured “fair compensation”, and

·         will have access to free advice through a Strata Renewal Advice and Advocacy Program (run by Fair Trading).

4.     How will the new regime work?

The regime is neither simple nor straightforward. This is due to the various checks and balances that have been introduced to protect the rights and interests of dissenting lot owners.  At a high level, it involves pre-approval of an initial concept by the owners’ corporation, establishment of a strata renewal committee, preparation of a strata renewal plan, 75% majority approval, and finally a court order to confirm that the statutory regime has been properly complied with.

A high level summary of the steps involved is set out in the table below.

 

 

I.              PLANNING

Stage 1 –

Proposal submitted

Any person may give a written proposal for a collective sale or redevelopment to the owner’s corporation. The strata committee must consider the proposal within 30 days and determine whether it warrants further consideration. If the answer is:

Yes[1] The proposal proceeds to a general meeting of the owners’ corporation.

Proceed to Stage 2

No[2] The proposal will lapse after 44 days.

Process ends

Stage 2 – Committee Established

A strata renewal committee is elected to operate independently of the owners’ corporation. It is governed by guidelines and thresholds set by the owners’ corporation and the SSD Act with respect to budget, third party involvement, meeting procedures etc.

Stage 3 – Plan prepared

A strata renewal plan is prepared by the committee in accordance with the SSD Act, which sets out mandatory content for the plan and minimum compensation requirements for dissenting owners.[3]

Stage 4 –

Plan distributed, amended or abandoned

The completed plan is presented to a general meeting of the owners’ corporation.  The owners’ corporation can:

Pass a special resolution[4] to distribute the plan to all owners for consideration.

Proceed to Stage 5

Return the plan for amendment by the committee.

Go back to
stages 3 & 4

Decide not to distribute the plan or amend it.

The plan lapses
and the process ends

II.            VOTING

Stage 5 –

Plan considered by all owners

An owner in support of the plan must return a support notice that has been properly executed.[5]  The ‘required level of support’ to proceed is 75% of the total number of owners (exc. utility lots).  If this level is:

Reached è The owners’ corporation must then notify lot owners and the Registrar General[6]

Proceed to Stage 6

Not reached èThe plan lapses 3 months after distribution.

Process ends

III.           APPLICATION TO COURT

Stage 6 – Application to the Court

The owners’ corporation must decide whether to apply to the Land and Environment Court for an order giving effect to the plan.  They can:

Pass a general resolution to apply for an order è Notice given to all tenants & application made in accordance with SSD Act.

Proceed to Stage 7

Decide not to apply for order.

The plan lapses.

 

Process Ends. 

Stage 7- Consideration by Court

The Court must hear and consider the application having regard to s181 of the SSD Act, and must make a decision in accordance with s182 of the SSD Act. Certain persons may object to the application (eg a dissenting owner, mortgagee etc), and there are certain protections for dissenting owners regarding costs incurred in relation to the proceedings.

The Court can:

Make orders giving effect to the collective sale or redevelopment plan.

Proceed to Stage 8

Dismiss the application.

Process Ends

IV.           TERMINATION OF SCHEME

Stage 8 – Termination Order

The effect of an order is set out in the SSD Act, guiding timing of termination, lot owner obligations etc. Rights and remedies for the termination of leases may arise.

A Court order will attach to the land and be binding on all owners in the scheme, irrespective of whether they supported the collective sale or redevelopment.

 

5.     What kind of influence will individuals have over the outcome?

This will depend on the type of interest/s held in the scheme:

·         Tenants and utility lot owners do not have votes at any stage of the process.

·         If a lot is subject to joint ownership, all co-owners need to sign a support notice.

·         Owners of multiple lots in the scheme will be able to give more ‘support notices’.

·         Owners of individual lots with greater unit entitlement will have more influence over decisions requiring a special or ordinary resolution.

6.     What happens if owners cannot be contacted?

This could make the process more difficult.  If owners are overseas, impossible to reach or do not understand the information they are receiving about the process they might not be in a position to provide support notices. In addition, the failure of multiple owners to attend meetings or vote by proxy at pivotal stages of the process might cause the plan to lapse.

7.     How long will owners have to consider whether to support a collective sale or redevelopment plan?

Owners will have a maximum of three months to consider whether to provide a ‘support notice’ for a distributed plan before it lapses.  Once an owner has received a copy of the plan there is a mandatory ‘cooling off period’ of 60 days before a support notice can be provided.  This leaves a very short window for returning signed notices : between one month and 14 days.

8.     Can support notices be withdrawn?

Yes, but only until the required level of support has been obtained.  Owners also have the right to be advised how many support notices have been given during this time.

9.     Can the sale or redevelopment be approved without going to court?

No.  Only the Land and Environment Court has the power to hear applications for collective sale and redevelopment plans under Part 10.  However, the primary function of the Court is to ensure that all steps and notice requirements from the legislation have been complied with, the plan has been prepared in good faith and all owners are compensated fairly as per the SSD Act. Accordingly it is imperative that the renewal process is completed strictly as per the Act.

[1] Or a ‘qualified request’ is received – A request from one or more owners in a scheme with unit entitlement which total more than 25% of the aggregate unit entitlements for the scheme.

[2] And a ‘qualified request’ is not received – see footnote 1.

[3] In accordance with s55 of the Land Acquisition (Just Terms Compensation) Act 1991.

[4] Not more than 25% of the value of votes cast are against the resolution, having regard to the specific requirements in s5 of the SSM Act.

[5] By all registered owners, mortgagees and covenant chargees with respect to the lot.

[6] A recording will be made on the folio of the common property, and subsequent owners and mortgagees will be bound by a support notice.

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