Australia: Strata law changes to promote redevelopment and collective sale opportunities in NSW – are you ready to seize the opportunity?

Last Updated: 5 October 2016
Article by Scott Findlay

Strategic planning is needed for any strata renewal proposal and strata renewal plan.

Since strata laws were first introduced in NSW some 50 years ago, more than 75,000 strata schemes have been registered in NSW, worth an estimated $350 billion in assets.

The NSW Government estimates that approximately 30% of residential strata schemes were registered more than 30 years ago and that there are many strata buildings (some over 100 years old) in need of major renovation or redevelopment.

With owners corporations likely to find it difficult to raise the necessary funds to undertake major repairs and renovations to the strata building, astute lot owners and developers will be looking to seize redevelopment or collective sale opportunities when strata laws changes take effect on 30 November 2016.

What changes

In December 2015, the NSW Government passed the Strata Schemes Development Act 2015 (NSW).

The Act introduces a process whereby 75% of lot owners in a freehold strata scheme can agree to end their strata scheme, so the site can be redeveloped or sold. However, before a strata scheme can end, a strata renewal plan needs to be prepared and referred to the Land and Environment Court for consideration.

Under the existing framework 100% of lot owners must agree to terminate or renew a strata scheme. Many stakeholders view this as the single reason why owners corporations of strata schemes have been unable to seize redevelopment and collective sale opportunities in NSW and why only 826 strata schemes have been terminated since strata legislation first began.

Snapshot of how the process will work

Proposal

To start the process, any person may give a strata renewal proposal to an owners corporation suggesting a redevelopment or collective sale opportunity.

Consideration by the Strata Committee

After the owners corporation receives a strata renewal proposal, the strata scheme committee must consider the proposal at a committee meeting.

If the strata committee (which used to be known as the executive committee but has been renamed under the Act) decides that the strata renewal proposal warrants further consideration, a general meeting of the owners corporation must be convened.

Establishment of renewal committee

If the strata renewal proposal gains at least 50% support at the general meeting of the owners corporation, then a strata renewal committee needs be established and tasked with preparing a strata renewal plan.

Consideration of the strata renewal plan

Before the strata renewal plan can be distributed to lot owners a second general meeting needs to be held that requires 75% support at a general meeting of the owners corporation.

Notice of support of the strata renewal plan

After the strata renewal plan has been distributed to all lot owners of the strata scheme, at least 75% of the owners of the lots (other than utility lot owners) must give a support notice, supporting the renewal plan.

The definition of "required level of support" means that if there are three lots or less in a strata scheme, all owners of the lots (other than utility owners) will be required to give a support notice, supporting the strata renewal plan in order to reach the required 75% threshold.

If the required level of support is achieved, the secretary of the owners corporation must inform all lot owners and the Registrar-General that the required level of support to the strata renewal plan has been achieved.

Applying for orders

The secretary of the owners corporation or a member of the strata committee must convene a meeting of the owners corporation for the purposes of deciding whether to apply to the Land and Environment Court to give effect to the strata renewal plan.

Subject to the owners corporation making the court application, the court may grant orders either accepting or rejecting the strata renewal plan.

Court hearing

The court will hear any objections by dissenting lot owners and may reject a strata renewal plan if:

  • the strata renewal plan has been prepared in bad faith;
  • the strata committee, strata renewal committee or owners corporation did not follow the correct processes; or
  • it is not just and equitable in all the circumstances.

Important considerations

To enable you to best capitalise on these new redevelopment and collective sale opportunities in NSW, it is critical that any strata renewal proposal and strata renewal plan is:

  • strategically planned to ensure efficient alignment of concurrent processes both statutory and within the owners corporation;
  • is governed by an appropriate project framework to manage contractors, costs, timing and work streams; and
  • is structural to provide stakeholders with the most tax efficient redevelopment model.

RELATED KNOWLEDGE

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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