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You can sell or redevelop a Strata Building in NSW even if some owners don’t agree

Posted 14 December 2015

Category: Strata, Strata Reform

Proposed new strata legislation will make it possible for developers to access older strata buildings even where some lot owners are opposed.

Currently, such opposition is usually fatal to such a project. The new legislation may change that, where 75 per cent approval of lot owners can be achieved. We’re already seeing developers pursuing this, purchasing lots and engaging in negotiations with lot owners in buildings identified as suitable for such projects.

Many strata buildings are more than 50 years old, the first strata laws having been introduced in 1961. In fact, some strata buildings are much older than that, being former company title buildings that have been converted to strata title. Currently, these properties can cause headaches for all concerned:

  • Developers may be interested in such sites. The area may need additional accommodation capacity, the building may need redevelopment and the owners of lots in the building may support a redevelopment. However, current laws can frustrate this if even one lot owner opposes redevelopment.
  • Owners can face a situation in which the building has become dilapidated and maintenance costs have become economic, but no meaningful action can be taken, where even one lot owner opposes it. Lot owners in this situation probably have no alternative but to sell, possibly for a poor price, and let someone else take over the problem.
  • Property investors can be attracted to such properties due to lower prices, only to discover that there are increased costs over time, e.g. higher levies and special levies.

The proposed changes go some way towards addressing this. There would be a broader range of options for developers and lot owners.

  • Developers may be able to redevelop an older strata building, even if there’s a minority that disagrees with the proposal.
  • Lot owners who’ve tired of dilapidation and increased levy costs, who wish to make arrangements with a developer or carry out a redevelopment themselves, may be able to do so, even if some owners in the building don’t agree. They could be much better off acting collectively and selling the building as a whole, rather than selling lots individually.
  • Property owners considering investing in older buildings may be able to do so with comfort that there are a broader range of options available in case the need for redevelopment becomes pressing. At the very least, the availability of such options would increase resale potential.

The difficulty with the proposed changes is that they are very complex and leave considerable uncertainty as to what exactly is required to get a redevelopment across the line. In particular:

  • Feasibility – the time and expense involved in getting a collective sale or redevelopment across the line will be substantial. Developers should confirm that sufficient support among lot owners can be achieved and maintained and investigate the sort of incentives and arrangements that are likely to be needed to achieve that. Broadly, 75 per cent approval is required, but that is tested at various milestones and with a process potentially involving a substantial period of time and with lots changing hands in the meantime, can be difficult to achieve. It might be practical to overcome a small number of lot owners who are opposed. That might not be the case where a sizeable minority are opposed.
  • Procedural requirements – the proposed legislation involves a series of procedures, which could potentially span a period of several years. The key steps involve presentation of a strata renewal proposal, creation of a strata renewal committee, formulation of a strata renewal plan, application to the court for orders giving effect to the strata renewal plan and action implement in the strata renewal plan. All of these will require a series of meetings and approvals. These will be bewildering to the average owners corporation and developers can expect the need to guide them through the process.
  • Court requirements – the proposed legislation involves judicial supervision, in that orders giving effect to the strata renewal plan are required and in that the court is not to make those orders unless satisfied about various matters, including that “the terms of settlement under the plan are just and equitable in all circumstances”. It is unclear what that means, although it does seem be a requirement above and beyond payment of compensation.

The proposed legislation does not elaborate, apart from setting out how compensation is to be calculated. There are of course no decided cases yet providing any guidance.

***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.

By David Bannerman and Mark Pollinger

14 December 2015

Author: David Bannerman and Mark Pollinger
Date: 14/12/2015
Source: Australian Property Investor

Publication: Australian Property Investor
Section: API Online

David Bannerman and Mark Pollinger

Published 14 December 2015