NSW stra­ta reform: a dif­fer­ent kind of deposition

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. 

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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:

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.