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20 October 2015 NSW strata reform: a different kind of deposition

By Liam Mulligan, Solicitor

In Brief
 

'Strata housing' is a term that originated from the field of geology, where different 'strata' were the layers of sedimentary rock or soil that had been deposed over thousands of years. A more important type of deposition, however, may be the one you face if you infringe upon the 'Strata Schemes Development Bill 2015' and 'Strata Schemes Management Bill 2015' ('Management Bill'). Recently introduced by the Minister for Fair Trading, these bills represent another step towards the reform of a government legislation that is complex, voluminous and over 40 years old. In this article, Swaab solicitor Liam Mulligan discusses these reforms, and their potential impacts on your firm.


The Environment

There are over 72,000 registered strata and community title schemes in NSW. What's more, this number is growing, with almost half of the state's population forecast to live in strata or community titled land within 20 years.

The Bills

These two bills are steps in a drawn out process of reform regarding strata accommodation, following the Strata Title Law Reform Position Paper released by the government in November 2013. The Management Bill seeks to improve the functioning and administration of strata schemes by relaxing restrictions on owners carrying out minor renovations, limiting proxy voting, regulating strata agency contracts (including requiring strata agents to disclose conflicts of interest) and deformalizing the process of holding Annual General Meetings (e.g. allowing voting over social media or by teleconference).
 

Most significantly, the Development Bill seeks to facilitate the renewal of strata schemes by allowing for the termination of a scheme where 75% of the owners consent to the sale. The legislation currently requires the unanimous consent of all property owners for termination of a strata scheme.

Collective sale and renewal provisions

The Development Bill seeks to strike a balance between fostering economic growth and urban renewal by replacing aged strata schemes, and protecting the rights of owners opposed to the proposal. Part 10, which deals with the strata renewal process, aims to provide a fair and transparent method for collective sale or redevelopment of strata schemes, and for resolving related disputes where the owners cannot agree.
 
Under the new Development Bill, there will be two classes of termination:
 

  1. collective sale, where all units in a scheme are sold, and
  2. redevelopment, where the owners themselves redevelop the scheme. 

Any person will be able to approach the executive committee of a scheme with a written 'strata renewal proposal'. It will then be up to the committee to consider the proposal and (if it decides that it warrants further consideration) to put the proposal to a general meeting of the owners corporation. A 'strata renewal committee' is then established to prepare a 'strata renewal plan' for consideration by the owners.
 
The plan must set out details such as the proposed purchaser, purchase price, completion date, or if the proposal is for a redevelopment – any periods where owners will be required to vacate their properties (full details can be found in Division 5, Part 10 of the Development Bill).
 
If the required level of support (75%) is obtained from the owners corporation, the plan must still be approved by the Land and Environment Court (LEC). The court is to approve the plan only if it is satisfied regarding the matters set out in cl. 182 (1) (a) – (f). These factors provide further protections for owners opposed to the renewal plan, and an opportunity to raise any concerns. Importantly, the LEC is required to satisfy that:

  1. any relationship between the purchaser/developer and any lot owner(s) has been declared and did not prevent the plan from being prepared in good faith (cl. 182 (a))
  2. the procedure in the Act has been correctly followed (cl. 182 (b))
  3. dissenting owners are to be appropriately compensated (cl. 182 (c)), and
  4. the plan is just and equitable to all owners (cl. 182 (c), (d) and (e)).


Compensation

Compensation for dissenting owners is a key concept in the Bill. The compensation value of each lot is to be calculated in accordance with s 55 of the Land Acquisition (Just Terms Compensation) Act 1991, giving dissenters the same protections that they would have if the government were compulsorily acquiring their property.
 
In a compulsory sale, the purchase price paid to each owner must be not less than the compensation value of the lot. This guarantees dissenters a just and fair price. In a redevelopment case, any dissenting owners are to be paid the greater of the compensation value or the amount that they would get if they had supported the redevelopment.

Conclusion

The Development Bill seeks to foster urban renewal, whilst balancing the rights of dissenting owners against the power of the majority. The disclosure requirements and need for LEC approval go some way to finding that balance. Such schemes have been successful at fostering urban renewal in other jurisdictions (most notably Singapore), but have been criticised for insufficiently protecting dissenters against the will of the majority. Whether the right balance is struck in the proposed Development Bill remains to be seen.

ADDENDUM: The Bills both received the concurrence of the Legislative Council on 28 October 2015. The Minister for Innovation and Better Regulation, Victor Dominello, has indicated that they will come into effect in July 2016.

For further information, please contact:

Mary Digiglio, Managing Partner  |  Phone: +61 2 9233 5544  |  Email: med@swaab.com.au

If you would like to republish this article, it is generally approved, but prior to doing so please contact the Marketing team at marketing@swaab.com.au

This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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