21 Nov 2013

Unlocking urban renewal: Strata reforms to open up development potential

by Gary Best, Eugene Tan

NSW is planning some of the biggest changes to the regulations affecting the redevelopment of strata schemes in the last 50 years, which should see more strata redevelopment.

On 14 November 2013, NSW Fair Trading released its position paper on strata title law reform outlining some 70 items which the new strata laws, which are yet to be drafted, will address. One highlight which developers will watch with keen interest are plans to make it easier to renew or "collapse" strata schemes for redevelopment.

Likely to be received as good news for developers, the paper proposes a streamlined mechanism for winding up and redeveloping strata schemes.

The need for reform to collapsing strata schemes

In NSW there have been over 72,000 strata schemes registered since the inception of strata plans in 1961. In over 50 years of operation, approximately 800 schemes have been wound up by unanimous resolution of the owners and only five schemes have been terminated by order of the Supreme Court. In other words, barely over 1% of strata schemes have been completely redeveloped, reflecting the difficulty associated with terminating strata schemes.

Accessing land which is locked up by aged strata schemes has long been an impediment for development, with existing strata laws requiring 100% support from owners in order to terminate a strata scheme by application to the Registrar General – a difficult hurdle to overcome with any single owner being capable of frustrating a scheme's redevelopment.

The alternative process of seeking an order of the Supreme Court to collapse a scheme is often seen as being prohibitively expensive and uncertainty regarding timeframes can make this option impracticable.

The Law Reform Position Paper proposes to establish a streamlined process for collapsing a strata scheme for redevelopment with the key changes being:

  • to lower the threshold support for renewal to 75% of owners (versus the current 100% requirement); and
  • to terminate strata schemes by application of the owners corporation to the Strata Commissioner who will be a member of the Land and Environment Court.

The model process

The model sale and renewal process itself envisages six steps:

1. initial opt-in to the process;

2. creating a proposal;

3. establishing a strata renewal committee;

4. preparing a renewal plan;

5. review of the plan by owners; and

6. review by the Strata Commissioner.

The process in action

1. Opt in

To start the process of renewal, the model proposes that there must be a majority support of owners in favour of renewal. If more than half of the owners do not support renewal of the strata scheme then the process does not proceed.

A vote on whether or not the owners opt in to a renewal process can be held at any time.

2. Proposal

A proposal to renew the strata scheme must be considered by the executive committee who must determine whether there is merit in the proposal. If the executive committee forms a view that there is merit in the proposal then a general meeting must be called.

3. Establishment of Strata Renewal Committee

If the proposal gains the support of the owners corporation at a general meeting then a Strata Renewal Committee must be established and a budget must be allocated to that committee.

The purpose of the Strata Renewal Committee is to investigate and advance the proposal with stakeholders both inside and outside of the strata scheme. This may involve appointing agents, lawyers, valuers and other professional advisers with the findings of the committee being reported back to the owners corporation.

4. Preparation of Plan

The Strata Renewal Committee will then produce a Plan which will need to address certain issues which are to be prescribed in the amended legislation.

It is anticipated that the Plan will need to include information such as the expected proceeds which each owner would expect to receive from the collective sale of the strata block and other key information required to enable owners to make an informed decision about the renewal Plan.

5. Review of Plan by owners

The Plan must be issued to all lot owners and mortgagees who will be given at least 60days to consider the Plan and obtain their own advice. The determination of the owners corporation on whether or not the Plan is supported would then be made within 12 months of the Plan being issued.

6. Approval by the Strata Commissioner

If the proposal receives at least 75% support from the lot owners then an application to proceed with the proposal and terminate the strata scheme may be made by the owners to the Strata Commissioner within the Land and Environmental Court.

The Strata Commissioner will review the proposal to ensure procedural compliance and fairness. If there are any disputing parties in respect of the proposal then the Strata Commissioner will endeavour to resolve those matters through conciliation or mediation. Failure of the parties to reach an agreement through conciliation or mediation will see the matter being heard before the Land and Environment Court.

The Law Reform Positions Paper suggests that the scope of the court's review will be limited to hearing whether the appropriate process has been followed and whether all parties are being treated fairly.

While the details of the amendments to legislation remain to be seen, it is likely that the proposed changes will be welcome news to developers providing greater ability to pursue urban renewal projects in some of the State's most prestigious suburbs (in which a large number of aged strata schemes exist).

These changes, together with amendments to planning legislation currently before the New South Wales Parliament, constitute some of the biggest changes to the regulations affecting the redevelopment of strata schemes in the last 50 years. For more information about how Clayton Utz can assist you to maximise your opportunities in the changing legislative environment, contact Gary Best or Eugene Tan.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.