One of the perennial challenges in redeveloping aging and under-utilised strata development sites in NSW has been the requirement to secure unanimous agreement of the lot owners.  That threshold requirement has proven to be exceedingly difficult to meet, except in rare cases and otherwise limited to smaller strata schemes.  There is, typically, always one or more lot owner unwilling to sell, for whatever reason.  The introduction of the Strata Schemes Development Act 2015 (NSW) (Strata Development Act), which commenced on 30 November 2016, is poised to radically change this impediment to strata renewal. The main change introduced by the Strata Development Act, of which there are many, is the option for a strata scheme to proceed to a collective sale or redevelopment option with a 75% majority of lot owners.

 

Strata Renewal

The Strata Renewal changes are an exciting new frontier for owners and developers who wish to breathe life into some of NSW’s older buildings, and a smart solution to the affordable housing dilemma. The changes are based on existing legislative schemes already in place in overseas jurisdictions, particularly in Singapore.

There are now two mechanisms for Strata Renewal in NSW:

  • “Collective Sale”, comprising the sale of an entire strata scheme to a common purchaser. This typically occurs when the purchaser is a developer who offers to buy all the lots and common property in an existing strata scheme; or
  • “Redevelopment”, comprising a redevelopment of the entire strata scheme – so that it is terminated and replaced with a new one. This typically occurs when a developer offers to redevelop the scheme at their own expense, or in partnership with the lot owners. In some instances, lot owners may be entitled to buy lots in the new strata scheme.

During both Collective Sale and Redevelopment options, the legislative and procedural requirements set out in the Strata Development Act 2015 and associated regulations are required to be carefully followed. These include the following key steps (amongst many others):

  • “Opting In” to Part 10 of the Strata Development Act.
  • Submission of a Strata Renewal Proposal by any person to the Owners Corporation, which is considered by the Strata Committee within 30 days. The Strata Committee can agree to continue with the proposal or decide not to proceed.
  • Establishment of a Strata Renewal Committee, who prepares a more extensive Strata Renewal Plan based on the Strata Renewal Proposal.
  • Distributing the prepared Strata Renewal Plan to lot owners. The lot owners may then return a signed Support Notice in the approved form (including signatures of mortgagees and covenant chargees) stating that they approve of the Strata Renewal Plan, before it lapses. At least 75% of lots, other than utility lots, must support the Strata Renewal Plan prior to proceeding.
  • If the level of support is obtained, filing an application in the Land and Environment Court in its Class 3 jurisdiction for Strata Renewal proceedings.
  • Obtaining a Court Order to give effect to the Strata Renewal Plan and terminate the existing strata scheme, if all proper procedures have been followed in the Strata Development Act during the Strata Renewal process and the outcome is just and equitable in all the circumstances.
  • Termination of the strata scheme and sale of the lots in accordance with the terms of the Court Order.

Developers should be wary of a number of potential pitfalls and ‘traps’ that could potentially delay or frustrate the process:

  • During the Strata Renewal process, any owner may object to the Strata Renewal Plan. Dissenting owners are not required to financially contribute towards the Strata Renewal process and they have the option to oppose any application filed in the Land and Environment Court for Strata Renewal by the Owners Corporation. The Owners Corporation is required to fund their “reasonable legal costs” relating to Strata Renewal Court proceedings.
  • Developers and owners will need to follow the provisions of the Strata Development Act quite strictly and ensure that statutory timeframes are met at all stages, otherwise there is a risk that a Strata Renewal Plan may lapse.
  • There is a provision in the Strata Development Act which limits the number of Strata Renewal Proposals (including Plans) that can be put to the Owners Corporation. If a Strata Renewal Proposal or Plan lapses, another one cannot be made, that is substantially similar, for another 12 months.

Comment

As the Strata Development Act is relatively new, to date, we are not aware of any present application for Strata Renewal before the Land and Environment Court. However, we expect to see this practice area flourishing in the next six months.

The Team at Project Lawyers are highly experienced in the area of strata law and applications to the Land and Environment Court.  We are also running a number of strata renewal matters, acting on behalf of developers, which are currently in the preliminary stages. If you have any queries in relation to Strata Renewal, please do not hesitate to contact us.