Posted on October 20, 2016 by

Strata Termination Goes to Court

In our previous posts we have looked at the two major types of strata renewal plan; and followed the complex process of the owners’ decision to terminate a scheme.  In this post we consider the final part of the process: the application to the Land & Environment Court for an Order to give effect to the strata renewal plan.

(note: many of the terms and concepts in this post are first referenced in the two earlier strata termination posts.  You can read the first one on the types of  strata renewal plans here; and the second on the procedures to gain strata approval here)

What the application requires

Section 178 of the Strata Schemes Development Act 2015 (Act) allows the strata to pass a normal resolution to seek the Court Order which will allow the renewal plan to be implemented.   Section 178(3) also reminds the strata that it may not pass such a resolution unless it is satisfied that all of the formalities of section 170 of the the Act have been satisfied. These are the mandatory requirements for a plan, such as the costs, approvals, finance, settlement for each dissenting owner and other necessary preconditions.  If these had not been provided as required during the assessment process, the application cannot be approved now.

Section 179 then sets out what must be included in the application.  At the time of writing the Court has produced no new pleadings for this jurisdiction.  However section 179 sets out what needs to be in the pleading with some detail.

Significantly, the application must include details of any relationship which a purchaser or developer of a strata might have with any of the owners.  We saw previously that any person on the strata renewal committee with a conflict needed to declare that conflict.  The conflict did not necessarily prevent them from acting.  The declaration needs to be made before the strata itself determines whether the individual can still serve.

Unsurprisingly, the information also needs to include valuation data, not only for the entire scheme, but particularly for the compensation amounts to be paid to dissenting owners where this is relevant.

Who can be party to the application?

Perhaps most importantly section 179 (2) tells us who must receive notice of the application.  This includes:

• each owner within the strata;
• each registered mortgagee or covenant chargee of a dissenting owner’s lot (note: not the mortgagee of a supporter);
• in the case of a collective sale: the identity of the purchaser (if known);
• in the case of a redevelopment: the proposed developer (if known), and the local council;
• any other person the Court directs.

Section 180 then tells us who can object to the application.  Basically, it is any dissenting owner, and the people listed above who must be informed of the application.  Any such objection must be made within 21 days of the application being served on the person.  The section goes on to tell us that someone objecting need not be a party to an application: section 180 (3).

My concern with this section is that a dissenting owner is not automatically given a right to be a party.  They can be “an objector” and then presumably they will need to seek leave to join.

The fact that there is no automatic right of appearance will be of concern to dissenting owners.  While they may argue that the application is not just and equitable (see later), and they may be concerned with the adequacy of compensation, they have no automatic right of appearance.  They may object, but whether objection gets them a seat at the table when the Court is deciding is a question for the Court, not the Act.

The Act contains no guidance on what factors will lead an “objector” to be made into a party to the application.

Costs for a dissenting owner 

On the question of costs, the dissenting owner has a great deal of comfort in section 188 of the Act: “Unless the Court otherwise orders; the reasonable costs of proceedings for an application for an order to give effect to a strata renewal plan that are incurred by a dissenting owner are payable by the owners corporation“.

Further, section 188 (1)(b) makes clear: “the owners corporation cannot levy a contribution for any part of the costs on a dissenting owner.”

Banks as objectors

For that matter, a mortgagee or the local Council can be an objector.  I can understand why a bank might object: if the bank has advanced $500,000.00 for a unit; and the renewal proposal seeks to pay only $450,000.00, the bank will no doubt be upset at having a $50,000.00 unsecured loan.  I assume that the borrower/lot owner will be even more perturbed.

The role of Council at the Court

Less clear is what role the Council has.  I have mentioned this in my first post following the announcement of the strata laws’ commencement.  The Court will not be determining the development application for any redevelopment as part of this application: see section 185 (6): The order does not permit development to be carried out in contravention of this Act or any other Act or law.

If the Council will have to determine the development application in the normal course, why would the Council wish to become involved at this stage?   In what circumstances should a Council consider using the power to be an “objector” as given by the Act?

These are questions which will doubtless be resolved when the Court commences consideration of applications for orders under Part 10 of the Act.

The factors the Court considers

Section 182 (1) casts the Court’s obligations in a positive manner:

The Court must make an order giving effect to the strata renewal plan if satisfied of the following matters:

The section then enumerates a number of process driven matters: was the relationship between the purchaser/developer and any owner fully disclosed; were the procedures leading up to decision to seek an order all done correctly; were all the necessary Notices served in accord with the Act; are the owners receiving the appropriate compensation (this will vary depending on whether it it a collective sale or a redevelopment.  Only the dissenters receive the compensation amount under the Just Terms Act in a redevelopment.  Everyone must receive the compensation amount in a collective sale).

Just and equitable in all the circumstances

However, among the factors is the one that will give rise to the most litigation because it is the most subjective and the legislation gives little guidance.  Whether a collective sale or a redevelopment, the terms of the settlement must be “just and equitable in all the circumstances“.

In a collective sale, the terms must be just and equitable for all lot owners: section 182(1)(d).  However, when dealing with a redevelopment, there is no need for the settlement to be “just and equitable” for the lot owners who support the proposal: section 182(1)(f).

To re cap: The collective sale is the option where a developer purchases the whole site. Each owner gets the price as agreed (which must meet or exceed the compensation amount as defined under the Act).  The lot owner then plays no future role in the new scheme.

In a redevelopment, the supportive lot owner has become the de facto partner of the developer.  In this instance the Act does not ask the Court to confirm whether the settlement is just and equitable for them.  Consistent with legislation which allows the lot owner to use their lot as a “share” in the redevelopment proposal, the Court is not asked to rule on whether the proposal is just or equitable for the person supporting the re development.

The Minister Victor Dominello helpfully indicated where the Court might intervene in an article for the Sydney Morning Herald on September 12, 2016.  He told reporter Jimmy Thompson:

…that if someone with a $500,000.00 apartment was forced to sell it for $600,000.00 but it would cost $700,000.00 to relocate to a similar property in the same suburb, the LEC might decree that this was not fair or equitable.

Conclusion

The legislation does not define just and equitable. The term is used in a variety of cases, and in a variety of legislation. For example, see the several different uses in the Commonwealth Bankruptcy Act 1966.  It appears to be a catch all term, inviting the Court to exercise its discretion to impose a fair decision in a variety of circumstances.

We are about to find out what it means when the first cases come to the Land & Environment Court in the strata termination field, probably early next year.

Should you require advice about the new strata laws, please contact Lindsay Taylor Lawyers on 02 8235 9700.