Strata demolition after 75% approval: NSW strata reform windfall for developers

The redevelopment of Sydney's choicest strata apartment buildings has moved closer.

The NSW government has released draft legislation proposing that ageing blocks can be demolished, if just 75% of the apartment owners approve the sale to developers.

Based on one vote per unit, not on different unit entitlements, it is a big change on the 100% agreement currently required.

Older residents in prime, under capitalised older blocks will be increasingly discomforted that their building could be sold from under them – even with supposed safeguards on the fairness and transparency of the new process. The new process will apply only to existing strata schemes if the owners corporation agrees to opt in. If the majority of owners (50% or more) don’t support the decision, no further action can be taken.

However draft bills by the Minister responsible for Fair Trading, Victor Dominello aim to pave the way for reforms that reinvigorate increased housing supply and a stronger construction industry.

"By 2040, about half of Sydneysiders will be living in strata," he said.

"The proposed reforms are reflective of present needs and future demands."

The initial strata legislation was introduced in 1961.

The consultation started in 2011 advances the most controversial ability of strata owners to terminate the scheme – and sell or redevelop the building – if 75 per cent of the strata owners agree.

The draft Strata Schemes Management and Strata Schemes Development Bills are open for feedback until August, 12 2015. Final bills will be introduced to Parliament later this year.

Similar models already operate in New Zealand, most states of North America, and the United Kingdom.

Protections would be in place for elderly and vulnerable owner-occupiers of strata units. Fair Trading would establish a Strata Renewal Advice and Advocacy Program to provide free advice for residents.

This would include an assistance hotline and a free advocacy service for vulnerable residents.

The proposed reforms are designed to ensure that owners receive at least the market value of their lot plus an extra amount to cover costs like those associated with moving, as required by the Land Acquisition (Just Terms Compensation) Act 1991.

Any plans for renewal would be referred to the Land and Environment Court for final consideration. The Court would consider whether the process has been properly followed. It would initially seek to resolve disputes through conciliation or mediation.

The Court would be able to reject a renewal plan if:

• it has not followed proper processes or been developed in ‘good faith’ or
• the amount to be paid to a dissenting owner was less than the compensation value of the lot or
• the terms of settlement were not just and equitable.

There are several stages that strata schemes would need to follow as part of the collective sale and renewal process.

Vote to opt into the process

The new process will apply only to existing schemes if the owners corporation agrees to opt in. If the majority of owners (50% or more) don’t support the decision, no further action can be taken.

Initiate the collective sale/renewal process

A proposal to sell or redevelop a scheme must first be considered by the strata committee (currently known as the ‘executive committee’). A general meeting of all owners is then called to consider the proposal.

Form a strata renewal committee

If the majority of the owners (50% or more) agree to pursue a proposal, a committee is elected to investigate and develop the proposal. The committee can appoint professionals such as valuers, lawyers, and tax experts to assist them.

Develop a collective sale/renewal plan

The strata renewal committee develops a plan that must set out certain information to help lot owners make informed decisions. The strata renewal committee, and the owners corporation will hold meetings to discuss and further develop the plan. The plan will need to address certain areas such as the amount that each lot owner will receive under a collective sale as well as the costs and liabilities that will be faced by the owners corporation, the proposed settlement date and arrangements for moving out of the building. Guidance material will be made available on how to prepare a sale and renewal plan.

Consider the plan

Owners will have a minimum of 60 days to consider the plan and seek independent advice. Owners in favour of the plan will sign a support notice, which will be given to the secretary of the owners corporation. The plan lapses if it is not supported by 75% of owners within 12 months. The plan will list the compensation that is to be paid to each lot owner in dollar terms, as a formula (e.g. a percentage of the sale price) or in kind (e.g. a lot in the new building).

Approval of the plan

Plans for renewal would be referred to the Land & Environment Court for final consideration.