The strata renewal reforms
Reforms to the strata renewal regime were introduced in November 2016 by the introduction of Part 10 of the Strata Schemes Development Act 2015 (NSW) (SSDA) which sought to make it easier for lot owners to collectively renew their aging strata schemes and redevelop land. While the previous regime required unanimous support from owners; the SSDA reduced the lot owner approval thresholds required to force a collective sale or redevelopment of the whole strata scheme.
Steps in the strata renewal regime
The regime in the SSDA is procedurally intricate and to see it out to a successful conclusion can take up to two years to complete.
A brief summary of the major hurdles are as follows:
1. Preparing the Strata Renewal Proposal
Any person (not limited to lot owners) can prepare and present a Strata Renewal Proposal (Proposal) to the Owners Corporation provided that it complies with regulation 30 of the Strata Schemes Development Regulations 2016 (SSDR).
If possible, a qualified request should be given to the secretary or strata manager of at least 25% of unit entitlements calling for a meeting to consider the Proposal.
This process will take approximately 30 days.
2. Considering the Proposal and establishing a Strata Renewal Committee (SRC)
Under section 158 of the SSDA, a general meeting must be convened to determine by ordinary resolution (at least 50%) whether the Proposal should be further investigated by a SRC. If an ordinary resolution is passed, the SRC will be created to initially prepare the strata renewal plan (Plan) and facilitate the rest of the process.
3. Approval by at least 75% of unit entitlements and distribution of the Plan (the first 75% vote – by UEs)
Once prepared, the SRC will convene a general meeting to consider the Plan.
At that meeting, a special resolution must be passed to distribute the Plan to all owners for consideration. The special resolution requires at least 75% support by unit entitlements, meaning that any owner holding more than 25% can block the Plan from progressing.
Within 14 days of the special resolution passing, the Plan must be distributed to the owners.
4. Approval by at least 75% of lot owners (the second 75% vote – by lot owners)
At least 60 days after the owners receive the Plan, a supportive owner must notify the returning officer of their support. If 75% of the lot owners (by number of lots, excluding utility lots) support the Plan, then within 14 days of receiving notice of that support, the secretary will notify the owners that the requisite level of support has been reached.
An application to the Land and Environment Court for an order to give effect to the Plan can be made if the owners resolve by general resolution to make that application.
5. Court hearing
A directions hearing will be held at least 5 weeks after the application is filed and proceedings will be listed for hearing at least 9 weeks from the first directions hearing.
If collective sale or redevelopment is approved, the strata scheme will be terminated and the sale/redevelopment will take place in accordance with the court orders. This can take between 3 months to a year to finalise.
If the court gives effect to the Plan, then the lots of any dissenting owners must be acquired for market value by the owners corporation and the basis for determining value must follow the terms set out in section 55 of the Land Acquisition (Just Terms Compensation) Act 1991.
The whole court process can take between 3 months to a year to finalise.
Key considerations for developers in NSW
While there are two 75% thresholds to be overcome, a peculiarity of the SSDA, sees that each of these thresholds is to be determined on different metrics. It is easy to mistake the two 75% thresholds and before moving forward with a redevelopment or collective sale, developers must be certain that they have the support of at least:
- 75% of the unit entitlements (excluding utility lots); and
- 75% of the owners by lot numbers.
On face value the difference between the two thresholds may seem insignificant, however, the number of unit entitlements are not often divided equally between the lots and each must be considered carefully before proceeding.
It follows that an unintended consequence of the reforms has seen wily developers engaging agents to approach owners in the hope to acquire a greater than 25% stake in the unit entitlements in the schemes, giving them the ability to block a special resolution without their support or involvement in the new scheme. This remains a legitimate tactic for developers in their search for capital investments NSW wide.
A Case Study
Until recently the terms of Part 10 had not been tested in court. Following the SSDA’s enactment in 2016, there were a number of applications made to the Land and Environment Court to force dissenting owners to sell to the owners corporation, however, each of those cases settled out of court. To date, only one Plan has been approved by the Land and Environment Court. While the matter of Application by the Owners – Strata Plan No 61299 [2019] NSWLEC 111 provides a good summary of the procedural elements required to obtain an order for strata renewal, there were no active objector owners opposed to the Plan and we therefore await a more substantive assessment of the SSDA in the courts. Watch this space.