Gain­ing con­trol — what you can do under the new NSW stra­ta renew­al legislation

Although Part 10 of the Stra­ta Schemes Devel­op­ment Act 2015 com­menced on 30 Novem­ber 2016 (Part 10), the intri­ca­cies of the tech­ni­cal work­ings of Part 10 have still not been ful­ly test­ed or con­sid­ered by the Courts.

This is tes­ta­ment to the fact that Part 10 requires a lengthy, con­vo­lut­ed and high­ly tech­ni­cal process to be imple­ment­ed by an own­ers cor­po­ra­tion to ensure the Land and Envi­ron­ment Court of NSW has the pow­er to make orders giv­ing effect to a 'col­lec­tive sale' or 'rede­vel­op­ment' of its stra­ta scheme.

Only a hand­ful of mat­ters have actu­al­ly reached the Courts and a final hear­ing is yet to take place, with only a few report­ed inter­locu­to­ry deci­sions on Part 10 being pub­lished to date.

How can you make Part 10 work for you?

If you are an own­er of a lot or mul­ti­ple lots in a stra­ta scheme or are intend­ing on buy­ing up mul­ti­ple lots in a stra­ta scheme, even if you do not hold over 75% of the lots and unit enti­tle­ments in the stra­ta scheme, you can still form a 'bloc' in the scheme to gain some con­trol over how a vote will be cast on motions relat­ing to any poten­tial col­lec­tive sale of the whole stra­ta scheme.

The mag­ic '25%'

If you or a group of own­ers hold more than 25% of unit enti­tle­ments in a stra­ta scheme, you or the group of own­ers will have the ulti­mate con­trol over any attempt of a dif­fer­ent buy­er to pur­chase the whole stra­ta scheme.

With­out the sup­port and vote of the 'own­ers' bloc', the spe­cial res­o­lu­tion required to approve the dis­tri­b­u­tion of a stra­ta renew­al plan to the lot own­ers for con­sid­er­a­tion will not be achieved, effec­tive­ly block­ing the purchase.

Hav­ing this lev­el of con­trol means that you have the pow­er to either sup­port or block a pur­chase of all lots in the scheme. It may be in yours or the group's best inter­ests to sup­port a vote and this can be decid­ed as a group pri­or to the gen­er­al meet­ing at which the vote will be cast, but if it is not in your best inter­ests at the point in the process when a 'spe­cial res­o­lu­tion' is required, you will be in a posi­tion to block this resolution.

The mag­ic '75%'

There has been much talk about the thresh­old of 75% sup­port need­ed for Part 10 orders to be suc­cess­ful­ly applied for under Part 10.

Putting aside the mul­ti­ple steps required to be able to bring such appli­ca­tion in the first place, the '75% thresh­old' test has caught a few peo­ple out and it is impor­tant to note that there are two thresh­olds to achieve dur­ing the process.

The first is a spe­cial res­o­lu­tion (ie own­ers hold­ing not more than 25% of unit enti­tle­ments vot­ing against a res­o­lu­tion at a gen­er­al meet­ing of an own­ers cor­po­ra­tion) being passed and sec­ond­ly, Sup­port Notices in the pre­scribed form being received from own­ers of more than 75% of the lots in the stra­ta scheme.

These two thresh­olds can vary sub­stan­tial­ly depend­ing on the con­fig­u­ra­tion of lots and unit entitlements.

Upshot

Part 10 pro­vides the mech­a­nism for achiev­ing results and for those will­ing to see it out, the out­comes could cer­tain­ly be prof­itable. Whilst I have no doubt that there will be a deci­sion in the future which will pro­vide some guid­ance to those fol­low­ing behind, this may still be some time away.

In the mean­time, under a tai­lored agree­ment with like-mind­ed peo­ple you can achieve a uni­fied goal in your stra­ta scheme. You can take steps now to pro­tect your interests.

For further information please contact:

Helen Kowal, Partner
Phone: +61 2 9777 8321
Email: hek@swaab.com.au

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.