New Strata laws collective sale or redevelopment of strata schemes – Owners options

08/01/2018

From December 2016 there has been a change to the strata laws since the introduction of the Strata Schemes Development Act 2015 (SSD Act).   This Act refers to the obligations and processes that apply in relation to strata renewal process, by way of collective sale or redevelopment of the strata.

Prior to the SSD Act if you were the owner of a lot within a Strata Scheme you could not be forced to sell that lot.

The new SSD Act has introduced a scheme for collective sale or4 re3development of the strata property.  A lot owner can be forced to sell in the event that in excess of 75% of the owners of the appropriate lots vote in favour of a proposal for sale.

Prior to the introduction of the new Act, Developers often approached the owners of the strata building and often purchased all the lots within the building often to redevelop the site.  The purpose of the new legislation was to allow sales when there were some persons within the strata who would not sell.

The Developer usually offered various owners a sum in excess of the value of the unit on condition that the Developer could purchase if it acquired all the lots within the Strata Scheme. Sometimes a Developer purchased a lot outright.  There is nothing preventing such an approach under the new Act.  Developers continue to approach owners on this basis.

Some persons have more reasons not to sell than others.  The property may be their home and there are not many alternative homes in the area that are suitable, or the property may be an investment which if sold, would be subject to capital gains tax.  Following payment of the capital gains tax the owner would have significantly less funds to purchase an appropriate replacement investment.

Under the Strata Schemes Development Act an owner who does not wish to sell may be forced to sell and is a dissenting owner.  The purchaser is required to pay under the terms of the Act at least the ‘compensation value of the property’.

The compensation value is defined by reference to the Land Acquisition (Just Terms Compensation) Act 1991.  This Act provides that only the matters referred to in the Land Acquisition (Just Terms Compensation) Act are to be taken into consideration in determining the compensation value.  This include the “market value of the land” and other specified items.  The market value is the market value of “the lot” under the Land Acquisition (Just Terms Compensation) Act rather than the market value of a building and its site as a whole.  That the Act does not seem to consider is the market value of 100% of the lots together with the common property which could be and is often greater than the value of the total of the lots.

It is not apparent that the value to be paid to each lot owner is a proportion of the total value of the site and its improvements.  This is a complication that will need to be resolved.  This is one amongst many other opportunities for you to negotiate.

Market value of a property what a willing vendor would sell the property for to a willing purchaser.  In the process the dissenting owner who does not wish to sell is not willing vendor.  Accordingly, the market value is not an appropriate price for that person to be paid on the sale of the property.

We have seen a matter in which the compensation value of the total of the lots is less than $25,000,000 however the market value of the site including the buildings is in excess of $30,000,000.

We have acted for various owners and negotiated with the proposed Developer to pay a sum based on a percentage (based on unit entitlement) of the whole site.  This has occurred even though he proposed vendors have already signed a binding Put and Call Option which would oblige them to sell at a negotiated price well below the value based on a percentage (based on unit entitlement) of the total market value of the site.  We have negotiated a variation to the original Put and Call Option which allows for an additional payment to cover the shortfall.

In the negotiations we have made various submissions to the Developer or legal advisor of the Developer and pointed out various issues that may be raised when the matter comes before the Court for the final approval by the Land & Environment Court.

The “side deals” and other matters in our view create a problem for the Developer in that those matters in our view should be disclosed to the Court.  The Court is obliged to find that the deal is just and equitable in particular, for the dissenting owners.

Unfortunately a Court can only consider a matter having regard to the evidence before it.

There are many cases relating to what is just and equitable and many more views by clients, Solicitors and learned Authors as to what is just and equitable.  There are many other issues which we have considered, raised and utilised in negotiations on behalf of our clients.

Watson & Watson experienced Building, Constructions and Strata Lawyers have been involved in hundreds of matters having regard to the just and equitable principle which will be applicable to any Application for Approval.  Each case must be considered on the basis of factual matters that apply to the appropriate owner.

If you have any queries or concerns regarding a proposed collective sale or redevelopment of your strata complex and how it will affect you, please do not hesitate to contact Richard Watson, our experienced Strata Solicitor or his assistant Shereen Da Gloria to discuss your questions and concerns.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.