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Strata building renewal, upgrade, redevelopment and sale processes

So, you have a brick and mortar strata building (or a part of it). The ordinary repair and maintenance issues should be simple enough. That aside, what happens if you need or want something more? Just like renovating a home, should the strata building be renewed, upgraded, redeveloped or “flipped”(hopefully at a profit)? We explore some of these issues below.

Strata renewal, upgrade and redevelopment works

The Owners Corporation always has the power to change its common property within the building. This can involve a transfer of part common property to the individual lot owner(s) by way of a special by-law or subdivision and transfer (and vice versa). We say vice versa because lot owners and the Owners Corporations would often “swap” their land or airspaces to reconfigure their use. The subdivision and transfer can also be done in favour of a third party developer, in whole or in part (we’ve seen some creative ways of how builders and developers can structure their proposalseg. the developer may retain a part of the redeveloped building as payment). If the changes to the building are significant, you will likely need a team of consultants, for example, accountants, valuers, surveyors, architects, builders, financers, real estate agents, town planners, certifiers etc (depending on the complexities of the proposal).

One of the critical elements is the consent of the lot owners. It would be much easier if everyone agrees in principal at the outset. The rest, we can do with the team as appropriate. From experience, the initial internal discussions amongst the lot owners are very important. We prefer to moderate the initial discussions, before the parties dig into their positions.
In the event that a lot owner does not agree despite best endeavours and for whatever reason the other lot owners nonetheless wishes to press ahead, we can also assist! In that scenario, it is possible to activate the Part 10 statutory process under the Strata Management Scheme Act 2015 (NSW). On reflection, we comment on the general steps and processes as follows:
1. Pre 2016 Schemes – For strata schemes that were registered before 30 November 2016, the Owners Corporation must first opt in the Part 10 statutory process (so, a vast number of the strata schemes). To opt in, the Owners Corporation must do so by way of a general resolution (ie. a onelotonevote format, which requires a majority vote to pass (morethan 50%). If the opt in activation fails, it may be arguable if the dissenting owners are acting unreasonably in their failure to grant the necessary consent (especially if the building is in need of repair, maintenance and/or renewal) – but this is contentious;
2. Renewal Proposal – The proposal will need to contain general and prescribed information (ie. under the Strata Schemes Management Regulation 2016 (NSW). Anyone can prepare and submit the Proposal to the Owners Corporation for its consideration but it must observe section 262 of the Act (regarding the service of notice provisions). Once this is submitted, the strata committee must consider the Proposal.
3. General meeting to consider the Proposal – What needs to happen next is that the Owners Corporation needs to consider the Proposal in a general meeting. The strata committee should arrange this (if it sees it as appropriate). Otherwise, an owner can make a qualified request for the general meeting in the ordinary course. If the Proposal is resolved (by way of a general resolution), the Renewal Committee will need to be formed to push ahead the Proposal. If the Proposal is not resolved, it will lapse. From experience, we recommend the motions for this general meeting to be drafted by us as they will need to be worded very carefully –they will set the structure and parameters of the renewal committee.
4. Renewal Committee The renewal committee will prepare the Strata Renewal Plan. The content of this Strata Renewal Plan is covered by the Office of Registrar General – which can be accessed here. The default appointment of the Renewal Committee is one (1) year. This can be extended by way of a special resolution of the Owners Corporation.
5. General meeting to consider the Plan – To pushforward, a special resolution is required in order to make a formal submission of the Plan to the lot owners for their consideration. Alternatively, the Owners Corporation can resolve by way of a general resolution to revert the Plan back to the Renewal Committee for amendments.
6. Support Notice Once the Plan is formally submitted to the Owners, they will have at least 60 days to consider it and seek independent advice (eg: legal and financial advice etc). From experience, the Renewal Committee can obtain general accounting, tax and legal advice to assist the lot owners in that regard). We of course can do the legal advice part.75% of the lots need to support the plan before it can proceed.
7. Registrar General NSW – Once the required level of support is obtained, notification is required to the Registrar General NSW, who will then make the appropriate recordings on the title.
8. General meeting to apply for Court Orders The Owners Corporation effectively will need to apply to the Land and Environment Court to approve the Strata Renewal Plan before it can be carried out(presuming there are still dissenting owners at this last stage). The Court Orders will be necessary to deal with the dissenting owners (eg. compulsory appointment of a registered trustee to act for the dissenting owners to comply, sign documents etc – the matter of Application by the Owners – Strata Plan No 61299 (No 2) [2019] NSWLEC 154 is the case in point). The decision to apply for the Court Order can be resolved by way of a general resolution. The catch is, if this motion for a general resolution fails, the entire process will collapse. So, the motions need to be drafted and planned carefully.
Strata collective sale
If renewal, upgrade and redevelopment works are not feasible, the building can be collectively sold. Most of these actions are done so by agreement also, ie, by unanimous consent. If an owner or owners do not agree to a collective sale proposal, they can also follow the same Part 10 statutory process. There are some differences in terms of the information required (eg: the Proposal, the Strata Renewal Plan, the sales price / compensation amount to each lot owner for the saleetc). However, the key processes are the same.
Hope this helps!

More Information

Please contact our Property/Strata law team at Matthews Folbigg Lawyers on 9635 7966 if you would like advice or assistance.

DISCLAIMER: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law. Liability limited by a scheme approved under Professional Standards Legislation.