Setting up strata lots and common property is one thing. It involves a fairly complicated process, document drafting and lots of red tape to get through.
But what about the process when some owners want to redevelop the strata complex, or sell the entire scheme?
That process is called “strata renewal”, and in this article, we’re going to set out the steps you need to consider to make it happen.
Does your Scheme Pre-Date 30 November 2016? If So…
The laws relating to strata renewal that apply now only came into effect after 30 November 2016.
So if your strata scheme was created on or after 1 December 2016, then you can skip this step.
But if your scheme already existed at the time, it needs to “opt in” to the process to ensure the new laws apply.
This part is fairly simple.
First, you need to call a general meeting under your standard processes.
Next, you will need a resolution to be passed by 50% or more of the owners that “Part 10 of the Strata Scheme Development Act 2015 applies to the [insert your scheme name here]”.
If you don’t get a majority in support of the resolution, then you can’t proceed.
Your strata lawyers or management consultants can help you call the meeting, prepare and administer the appropriate resolution and vote.
Kicking the Strata Renewal Process Off – Preparing/Receiving a Proposal
Once your scheme has opted in, it’s time to commence the renewal process itself.
Anyone, including an existing owner, can propose a “strata renewal proposal” for the scheme.
The proposal needs to include certain mandatory information:
- The name and address of the person submitting the proposal;
- Any financial interest the person might have in the lots in the scheme;
- A general description of the proposal and its purpose;
- An explanation of how the proposal is going to be funded;
- A statement about whether or not there will be any compensation (payment) towards expenses incurred by the strata renewal committee or the owners corporation;
- When owners would be required to vacate; and
- Any opportunities that exist for owners to buy back into the scheme after the sale or redevelopment.
There is also a specific warning notice that must accompany a proposal.
Once a proposal is received, the strata committee has to give it initial consideration within 30 days after receipt. Importantly, this isn’t a final decision about whether or not it should be accepted but just a general look to see if it is worth proceeding further.
If the committee decides it’s worth everyone having a look, they must call a general meeting of the owners corporation within 30 days after making that decision. They will need to give at least 14 days’ notice of that meeting.
Sometimes, the committee might not think the proposal is worth moving on. However, even then, if an owner (or owners) with more than 25% ownership of the lots in total want to force the proposal to be considered at a general meeting, they can make that happen.
If a request like the one above has not been made, a strata renewal proposal will lapse 44 days after the strata committee decides not to move it forward.
Otherwise, the proposal then gets considered at a general meeting. If the majority of owners agree that the proposal is worth a deeper look, then we move on to the next step.
A Special Committee – the Strata Renewal Committee
So a proposal has been received, it has gone to a general meeting and the owners have decided that the proposal is worth consideration.
At this point, a special committee – the strata renewal committee – is elected to consider the proposal in more detail. The committee is a selection of up to 9 people and membership is determined by the owners at a general meeting. Typically this would be the same general meeting where the proposal is first considered.
Generally speaking, a person is eligible to be on the strata renewal committee if they are eligible to be on the body corporate committee (and they can be on both, if elected).
As you would expect, if a person has an interest in the outcome of the strata renewal proposal that might conflict with the proper performance of the committee, that has to be disclosed before that person’s membership on the committee is voted on. They are not automatically excluded because of a conflict, although for practical purposes you would want to be cautious before allowing a conflicted committee member to be selected.
The strata renewal committee has one dominant purpose – to prepare the “strata renewal plan”.
Putting Together The Strata Renewal Plan
A strata renewal plan is essentially a more detailed, fleshed out and considered presentation of the strata renewal proposal.
The purpose of the plan is to allow the lot owners to make a fully informed decision about whether or not they will go through the strata renewal process. It is a comprehensive and detailed document, designed to address practically every question that a lot owner might have in considering their position about a proposal strata renewal. That said, it will not provide owners with independent advice about their specific circumstances.
As you might expect, preparing a strata renewal plan can involve fairly technical considerations that might be outside the expertise that the renewal committee has. To help, the owners corporation can vote to provide the committee with a budget to prepare the plan, which can be used to seek technical legal, financial, valuation and strata law assistance so that the plan is adequately considered and appropriately comprehensive.
The strata renewal plan has to deal with each of these topics in detail:
- An overview of the proposal – whether the proposal is for sale or redevelopment, and a general summary of the substance of the proposal
- A statement by the proposed purchaser or development about their intended use of the strata parcel. This might include plans or diagrams if appropriate.
- A complete list of all estates and interests, caveats or priority notices that affect any lot or the common property in the scheme. This includes both registered and unregistered interests.
- A complete list of all current unit entitlements.
- If the proposal is for sale, then details about the sale process must be stated. This should include the name of the purchaser (or the marketing/sale proposal if the purchaser is unknown), the sale price or minimum reserve, the proposed day for completion, the proposed vacation day for the owners, and the details of costs and expenses that might be deducted from the sale price.
- If the plan is for redevelopment, then details of that process must be set out. This should include the name of the developer, details of planning approvals required, estimated time for completion, details of any periods where owners might need to vacate their lots, finance details, details of the terms proposed for any owners who do not agree to the redevelopment, details of proposed compensation or buy-back rights for consenting owners, and details of the proposed completion day/settlement process.
- An independent valuation of the entire strata parcel and its site, and the compensation value of each lot (using the “on just terms” method of calculating compensation).
- The plan must ensure that any purchase price or compensation paid to the owners is not less than the compensation amounts determined by the valuer.
The above sets out the bare minimum for a plan. The plan can also contain any other information, plans, statements, advices that the strata renewal committee determines might be relevant for the owners to make an informed decision.
Once the plan is completed, it gets submitted to the owners.
Working Through the Plan
To consider the plan, owners will receive:
- an information sheet;
- a “support notice”; and
- the plan.
The information sheet is a standard, government-written form setting out the owners’ basic rights and obligations concerning the strata renewal plan.
A “support notice” is the document an owner would sign and send back indicating they were generally in support of the strata renewal plan. It will also include information about a returning officer, who is an independent person appointed to collect the support notices and keep a tally of whether there are enough support notices to meet the threshold to proceed.
Having received those documents, the owners must be given at least 60 days to read the information, get advice, and indicate their support (if any) for the strata renewal.
If more than 75% of the owners complete and return a support notice, then the plan has met the threshold can proceed to a vote. The secretary will then send a notice to the owners that the necessary support level has been reached.
An owner can withdraw their support until the secretary sends that notice. After the notice is sent, support cannot be withdrawn.
Importantly, even if you are against the plan you could still be dragged along if enough of the other owners are in support – dissenting or opposing the plan does not mean that you will be exempt from its operation.
If the 75% threshold is not reached within 90 days, then the plan lapses.
Approving the Strata Renewal Plan
If enough support notices are received, the secretary (or a member of the strata renewal committee) will call a general meeting of the owners corporation.
The purpose of this meeting is for the owners to decide whether to apply to the Land and Environment Court for the necessary orders to put the plan into effect.
If the resolution is passed, the owners corporation will then apply to the Court for orders giving effect to the strata renewal plan.
That application needs to be served on all of the lot owners, registered mortgagees of any dissenting owner’s lot, the proposed purchaser of the scheme (if any), the local council and proposed developer (for a redevelopment proposal) and anyone else the Court says needs to be served.
Parties served have 21 days to file any objections with the Court.
Executing the Plan
Subject to any objections or considerations of its own, if the Court determines that the plan is compliant and valid, and that the proposal should go ahead, it will make the necessary orders allowing the strata renewal plan to proceed.
At that point, all of the various aspects put forward in the strata renewal plan can begin, and the redevelopment or sale is then underway.
Strata Renewal – A Complex Process
The strata renewal process allows an owners corporation to undertake significant wholesale changes to the constitution of a scheme through sale or redevelopment.
It is, however, a complex process requiring many meetings, appropriate resolutions, independent advice, and a significant investment of time and money.
Lot owners and owners corporations who have received, or intend to make, a strata renewal proposal should engage experienced strata lawyers to ensure that the process is done properly. Strata lawyers can assist with question or disputes, producing the plan itself and the final application to the Court.
If you are considering a strata renewal, reach out today and we can help you through the process step by step.
