Posted on September 6, 2016 by 1

The new strata termination laws start 30 November

The Department of Fair Trading has announced that the new strata laws, the Strata Schemes Development Act 2015 (Act) and the Strata Schemes Management Act 2015, will commence on 30 November 2016.  While the new building defect bond scheme will not start until 1 July 2017, most of the changes, including the ability to terminate a scheme with the support of 75% of lot owners, will start on 30 November this year.  In this post we examine the two types of renewal proposal which the Act allows.

The new termination provisions are found in Part 10 of the Act (sections 153 to 190).   The Act refers to a strata renewal proposal and under section 156(1) there are two sub categories: collective sale and redevelopment.

Collective Sale

Defined in section 154 of the Act as the sale of the whole strata scheme, a collective sale is the simplest type of strata renewal proposal. This involves a proposal to buy out each and every strata lot owner for a predetermined price.  The Act requires that owners are paid at least the compensation value, defined under section 154 of the Act as the compensation payable under section 55 of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act); or such other figure as the Regulations may determine.

At the time of writing the Regulations for the Act have not been produced, so for the present the compensation value will be set by the Just Terms Act.  This will entail an addition of the market value of the property; any special value to the owner; loss attributable to severance; any loss attributable to disturbance; and an amount for solatium.

There is a large body of law on the compensation value under section 55, and all this will now be applicable to strata renewal proposals.  Each individual owner, whether in favour or against the proposal, must receive no less than the compensation value of their strata lot: section 170(3) of the Act.

From one perspective, a collective sale can be viewed as discussion about setting a price for the sale of the whole strata, a reserve value.  If the proposal is accepted, and made into an order of the Court (see later posts for how this happens), the individual lot owners receive their payment according to the proposal and have nothing more to do with the strata scheme.

Redevelopment

This is somewhat more complicated.  Section 154 defines a redevelopment as a redevelopment of the whole strata scheme in a way that alters the scheme to the extent that its termination and replacement by a further strata plan is necessary.

The distinction between a supporter of a renewal plan and an opponent becomes more significant with a redevelopment. To proceed with a collective sale, all lot owners, whether supporter or opponent (or, to use the Act’s terminology, a dissenting owner), receive the compensation value.  In a redevelopment, only the dissenting owners are assured the compensation value.  See section 170 (4) of the Act.

Whereas all owners, supporting or dissenting, have nothing more to do with the proposal in a collective sale, in the case of a redevelopment the supporters continue to be engaged with the proposal until its completion.  It is as if the supporting owners have offered their strata lots as shares in the redevelopment proposal.  The supporters may seek a new, larger or better unit in the new strata scheme, or perhaps a financial outcome.  They may swap a two bedroom unit for the penthouse (or the penthouse for a two bedroom unit).

The complexities of a redevelopment are limited only by the different options that the proponent and the supporters are prepared to consider.

In any event, the supporting strata lot owner has become a joint property developer with the renewal proposal’s proponent.

Once 75% of the owners have agreed on a plan, this is not the end of the matter.  The strata owners must now apply to the Land & Environment Court for an order to give effect to a strata renewal plan: sections 178 and 179 of the Act.

In the case of a redevelopment, but not in the case of a collective sale, the strata must notify the Council of the application to the Court for an Order: section 179 (2)(d) of the Act.

The Act makes it clear that the Court, in granting an order, is not assuming the role of the Council for the development application for a strata redevelopment: see section 185(6) of the Act which states that the order does not permit development to be carried out in contravention of this Act or any other Act or law.

Once the strata files an application with the Court to make an order under s 179, any of the dissenters, and any of the persons who must be informed of the application under section 179 (2) (b) to (e) (mortgagees, covenant chargees, and significantly, the local Council for the area in which the strata scheme is located) can, within 21 days of the application, file an objection to the order.

For Councils, this may be similar to the situation under section 13 of the Trees (Disputes Between Neighbours) Act 2006 where Councils may appear in proceedings between private disputants.  Significantly, the Council is not informed about collective sale applications for an order, only redevelopments.  Why a Council would want to lodge an objection to the strata’s request for an order is unclear.  The Council will have to assess the development application in the normal manner at a later time if the Court grants the order.

Conclusion

In our next post, we will look more closely at the procedure of taking the strata renewal proposal to the strata, and the complex process of consideration and assessment by the strata owners before the Court assesses it.