Australia: Strata redevelopment in NSW - potential in the strata reforms

Last Updated: 21 October 2015
Article by Nikki Robinson

Most Read Contributor in Australia, August 2016

Yesterday Victor Dominello, the NSW Minister for Fair Trading, introduced the Strata Schemes Development Bill 2015 and Strata Schemes Management Bill 2015 into Parliament.

This legislation has been long anticipated since the reform process began with the Strata Title Law Reform Position Paper released by the government in November 2013.

The overriding objectives of the reforms are to improve strata living, minimise regulatory burdens and improve democratic processes within strata schemes. In addition, the reforms provide greater potential for urban repair through the redevelopment of aged strata schemes, by streamlining the process required to collapse an existing strata scheme.

Of the 90 proposed changes to the state's legislation, the most prominent are:

  • the collective sale and redevelopment provisions whereby 75% of the owners can agree to collapse a strata scheme and sell the site;
  • relaxing regulations around owners carrying out minor renovations;
  • provisions that combat the practice of proxy voting;
  • the requirement for mandatory defect inspection reports;
  • more flexibility around the way annual general meetings are held; and
  • imposing disclosure obligations and increasing the accountability of building managers and strata managing agents.

75% of owners can collapsed a strata

Currently, the termination of a strata scheme requires the unanimous support from all owners in a strata scheme. Under the proposed reforms, 75% of owners can agree to jointly end or 'collapse' a strata scheme.

This reform will introduce checks and balances in this process, such as:

  • compensating lot owners with at least the market value of their lot plus moving costs, as detailed in the Land Acquisition (Just Terms Compensation) Act 1991 (NSW);
  • referring renewal plans to the Land and Environment Court for final consideration and possible rejection if:
    • the renewal plan has not followed the proper processes or not been developed in 'good faith'; or
    • the amount to be paid to a dissenting owner is less than the compensation value of the lot; or
    • the terms of settlement are not just and equitable; and
  • establishing a free advice service particularly for elderly and vulnerable owner-occupiers of strata units in addition to a free advocacy program to assist vulnerable owners.
    Similar models already operate in New Zealand, most states of North America, and the United Kingdom.

Owner renovations

The reforms will make it easier for owners to carry out minor renovations within an owner's lot - such as renovating a kitchen, replacing wiring or replacing hardwood floors. Previously, a special resolution may have been required to carry out such works. Under the reforms, such minor renovations will require an ordinary resolution (50% of the vote).

Renovations that affect the structure or external appearance of the building will still require a special resolution (75% of the vote).

Minor or cosmetic changes to an owner's lot such as laying carpet, installing built-in wardrobes or changing internal blinds and curtains will not require approval from the owners corporation.

Proxy Voting

The reforms seek to curb proxy farming (the practice in which a member gathers up the rights to vote on behalf of other members who are less active in a strata scheme) by limiting the number of proxies a member can hold to:

  • one proxy vote only for schemes with less than 20 lots; and
  • 5% for schemes with more than 20 lots.

Building defects

It is proposed to introduce mandatory defect inspection reports and a building bond for the construction of high rise strata buildings. These would enhance consumer protection if a new building has defective work and help prolong the life of the building.

A process for the early identification and rectification of defects would be implemented, requiring developers to engage an independent building inspector to carry out a defect inspection report, at their cost, between 12 and 18 months after completion of the building. The proposed changes would encourage developers and builders to fix defects quickly.

Annual general meetings

The proposed laws will allow owners corporations the flexibility to determine when their annual general meetings are held and with what mode of modern communication. For example, voting can be by post or electronic means and meeting attendances can occur through social media, video and teleconference.

Accountability

The reforms aim to make building managers and strata managing agents more accountable to the owners corporations which they service. New disclosure requirements seek to ensure that managers and agents disclose any conflicts of interest in their duties. Strata managing agent agreements will be limited to a one year term in the first year of a strata scheme's operation and a three year term in following years. One month rollovers will be allowed in the three year agreements but owners corporations will be able to terminate at any time.

Urban renewal

The reforms will be important for and should assist developers who are interested in redeveloping strata apartment buildings. It is hoped that the reforms will encourage urban renewal and boost the housing supply in much sought after suburbs which have suffered from a lack of potential development sites because sites are tied up in aged strata schemes.

Clayton Utz continues to monitor the progress of strata reform and can assist you in resolving strata disputes, streamlining the operations at your strata scheme and ensuring your preparedness for the changes to come.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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