Posted on September 20, 2016 by
Strata Termination: how the owners decide
The ultimate decision on whether a strata renewal proposal is approved is up to the Land & Environment Court. Before the matter goes to the Court, the strata owners themselves must consider whether they wish to apply to the Court for an order. In this post we consider how the strata owners themselves consider the proposal.
A proposal is made
Any person can make a written proposal to the owners corporation of a strata scheme setting out a renewal proposal: section 156 (1) Strata Schemes Development Act 2015 (Act). It is irrelevant whether they are a lot owner or not.
The Regulations will set out what must be in a proposal: section 156(2). Within 30 days of receipt of the proposal, the strata committee of the owners corporation must consider it.
The Strata Committee
If the committee believes the proposal warrants further consideration, it must convene a general meeting of owners to consider the proposal within 30 days of the committee meeting: section 158(1). Even without the executive recommendation, an owner or owners who hold at least 25% of the unit entitlement of the strata scheme can require that a meeting of the lot owners be held to consider the proposal: section 157(2).
The strata renewal committee
If the owners do not support the proposal it lapses (section 159). If, however, a simple majority think the proposal has merit, it is further investigated: section 160. This investigation is conducted by the strata renewal committee. Anyone eligible to serve as a member of the strata executive can serve as a member of the strata renewal committee. In fact a member of the executive can also be a member of the strata renewal committee. There can be no more than 8 members including the chair of this committee. The owners then select the committee.
There are two other caveats on membership of the strata renewal committee: an owner controlling 25% or more of the lots, other than utility lots, cannot vote for a renewal plan, or be a member of the strata renewal committee unless the fact of their ownership is disclosed: section 160 (2).
Further, if the candidate for the renewal committee has any conflict (for instance, if she was a director of the company making the proposal) that conflict has to be declared. A conflict by itself does not rule a person out. Section 165 allows the owners in a general meeting to decide whether the conflict should rule the person out; or prevent them from voting or acting on the committee at all; or limit them in voting on only certain issues.
Under Part 10, Division 3 and 4, there are a number of provisions relating to notice of meetings, notification to lot owners, minutes of meetings, resolutions and other machinery matters.
The strata renewal committee’s job is to assess the proposal and work out if it will be of benefit to owners. It has a year to do this, subject to any extension passed by special resolution of the owners corporation: section 166.
To undertake this work, the strata renewal committee will have a budget voted by the strata owners, and it can engage its own experts to review the information provided in the strata proposal: section 164. For example both types of renewal proposal require a consideration of the compensation value of the strata lots. Before recommending a proposal to the owners, the strata renewal committee will want to have advice that the amount being paid to owners will meet or exceed the compensation value, and it will want that advice independently of the proponent.
Ultimately the strata renewal committee will present a proposal to the strata members. Under section 172, the strata owners can resolve to amend or vary the proposal. There are strict provisions for how this is done, and its timing. There are also strict guidelines on what must be in the proposal and the level of detail required for the proposal: see section 172. Even if the strata approves the proposal, these machinery provisions will be reviewed by the Court, if the proposal gets that far (see later). See section 179 for the information that must accompany the application to the Court. Much of this information concerns the steps taken in assessing the proposal, and includes declarations that people who had a conflict were not involved in decision making, or at least had made their interests known. In assessing the proposal and putting it to the vote, the strata should already have undertaken these inquiries, but the Court will have a second chance to ensure that the procedures were all followed.
The strata renewal proposal goes forward
When the form of the proposal has been finalised to the satisfaction of the owners, it goes before them at a meeting for endorsement. To go to the next stage, there must be a special resolution to send the proposal to the owners for consideration passed at an owners meeting. A special resolution is one where the owners present at a properly convened meeting pass the resolution, and the value of the votes cast against the resolution is not more than 25% of the value of the votes cast in terms of unit entitlements: section 5 Strata Schemes Management Act 2015 (Management Act).
This may seem like a complex way of saying that it is a vote of 75% of the owners. But this is not precisely correct. Not all members will turn up, and to be passed as a special resolution, no more than a quarter of the value of the votes cast by people who actually turn up on the night can vote against it. Note too that the Management Act has new, more creative ways for lot owners to attend meetings, as well as limitations on authorities for owners to carry the proxy votes of other owners.
If the motion is passed as a special resolution, that is not the end of the matter. The proposal now goes out to all the owners for their consideration.
Notice of Support
The decision as to whether the strata owners will back the proposal is not taken on a single night at a “winner takes all” vote. Having voted to send the proposal out, the owners now have time to consider the proposal at their leisure: section 174. If a lot owner thinks the proposal has merit, they can lodge with the returning officer of the strata plan a support notice signed by each owner of the lot; and any mortgagee or covenant chargee.
Timing is crucial here, and the strict limits are unusual. Firstly, the owner must give the support notice to the returning officer at least 60 days after receiving a copy of the strata renewal plan, but before the plan lapses: section 174. So the owner is required to take 2 months to think about it, and lodge the notice after 60 days.
When does the plan lapse? There are a number of relevant dates depending on what occurs (e.g. whether the owners corporation has decided not to apply to the Court for an order; or whether the Court decides not to give an order). In the case we are considering, section 177 (1)(b) says the plan lapses if the required level of support is not gained within 3 months of the date on which the owners decide to send the proposal out to the lot owners.
This means that the notices must come back 2 months (60 days) after the renewal plan is sent out, but before 3 months has elapsed. That is a short window of opportunity: essentially the last 4 weeks of a three month period.
Required level of support
The Act does not say that the proposal needs 75% support. It states that it needs the required level of support. This is a defined term under section 154 and means the support of the owners of at least 75% of the lots, not including any utility lots. The unit entitlement is not the relevant question.
If, as an owner, you do not send in a notice, you are defined under the Act as a dissenting owner. Dissent is not being an active opponent. It means not lodging a support notice. If there are two owners on title, and one does not sign, there is no valid support notice. If you were out of the country and didn’t know about the vote, you are a dissenting owner.
The 75% therefore relates to the number of units pure and simple. Unit entitlement is irrelevant. To manufacture an extreme example to demonstrate: assume you had a twelve unit scheme with a total unit entitlement of 1,200. Assume units 10, 11 and 12 all had a unit entitlement of 200 each. If units 10, 11 and 12 put in no notice; and units 1 to 9 all do; you have 75% of the lots. Notwithstanding that half the unit entitlement has said nothing, and are technically dissenting owners, the magic number of 75% has been achieved for the required level of support. (This begs the question of how the special resolution was passed in the first place, but as stated, I am using the illustration to demonstrate the differences in voting for the different aspects of assessment of the proposal).
Upon reaching the required level of support the owners corporation must inform all lot owners and the Registrar General: section 176(2). On receiving the notice, the Registrar General must place an appropriate recording on the folio for the strata plan. This becomes an important issue in conveyancing: while the strata is considering making an application for an order, potential purchasers are on notice that there may be a forced sale in the near future. Understandably, purchasers may be reluctant to buy if the unit of their choice is about to be sold at another price.
Application for order
Still, we have not reached the point of termination. Having achieved the required level of support, the strata needs to do one thing more: apply to the Court for an order giving effect to the strata renewal plan.
Another general meeting of the strata owners is convened and this time the owners may, by resolution (not a special resolution), decide to apply to the Court for orders.
Presumably if the owners of 75% of the lots have given their support, there should be majority support for the motion to apply for the order. However, as the example above indicates, this is not guaranteed.
In the next post we will consider how the Court considers the application; and the factors relevant to the Court.