In most Australian jurisdictions, all members of an owners corporation or body corporate must unanimously agree to sell their lots in order to enter into a collective sale agreement or to terminate their scheme.
NSW takes a different approach. In 2016, the NSW Government reformed the Strata Schemes Development Act 2015 (NSW) (SSDA), requiring that only 75 per cent of owners and an order from the Land and Environment Court (LEC) could facilitate a collective sale or redevelopment. Although controversial, the reforms sought to address the issue of ageing strata buildings and the escalating housing crisis by lowering the consent threshold.
The only other jurisdiction in Australia which currently allows a strata plan to be terminated by a majority is the Northern Territory which allows a termination if a 'required percentage', varying from 80 per cent to 95 per cent depending on the age of the building, is achieved.
However, despite NSW having the most favourable collective sale process in Australia, statistics show that developers favour the traditional approach of acquiring interests in lots within a strata scheme first then applying for a strata termination under Part 9, rather than utilising collective sale under Part 10 of the SSDA.
Of the 289 strata terminations recorded between 30 November 2016 (when the SSDA commenced) and 31 December 2020, only one was due to a court-ordered collective sale under Part 10 of the SSDA. This termination case remains the only court-ordered strata renewal collective sale as of the date of this article.
Effectiveness of NSW's collective sale process
The questions around NSW's collective sale process have been highlighted in a recent decision involving NSW's infamous Mascot Towers.
Mascot Towers was deemed unsafe and evacuated in 2019 because of structural defects. The owners corporation of the Mascot Towers building (Mascot Towers OC) recently sought an order from the Supreme Court of New South Wales under Part 9 of the SSDA to terminate the strata scheme so that a liquidator can be appointed to sell the building to a developer for a knock down, rebuild or repair for resale.
Although the Mascot Towers OC submitted that the collective sale process "is cumbersome, lengthy and expensive and there is no assurance that it would result in a better outcome", the court refused to terminate the strata scheme and held that a strata renewal process of collective sale under Part 10 of the SSDA was the more appropriate process as collective sale "provides all lot owners with certainty about a sale price and process, with a clear and known outcome for each of them".
The view expressed by the Mascot Towers OC appears to be shared by many other stakeholders in the industry, including developers, lawyers and strata lot owners.
As a result, the major challenge of the current strata renewal process is uncertainty about whether an order for renewal will be granted.
The most notable attempted collective sale is the 2019 failed sale of 1-3 Cottonwood Crescent and 2-4 Lachlan Avenue in Macquarie Park (Macquarie Park). In this case, 40 out of the 45 owners in two neighbouring buildings agreed to sell the buildings collectively. Out of the five dissenting owners, two were developers who had purchased units in both buildings under different company names (Dissenting Developers). The Dissenting Developers filed an objection to the collective sale with the LEC. In the end the developer chose to walk away from the collective sale rather than continue to either negotiate with the Dissenting Developers or proceed to a hearing where they would risk further legal costs without any assured outcome.
In 2021, the Department of Customer Service's five-year review of the SSDA admitted that for Macquarie Park, the dissenting developer was able to adopt a "blocking position drawing out legal proceedings" and not required to disclose that it had been an unsuccessful bidder in the tender process at any point.
Strata Legislation Amendment Act 2023
To help address the issues identified in the Macquarie Park scenario, the NSW Government passed the Strata Legislation Amendment Act 2023 (SLAA) late last year which made amendments to Division 10 of the SSDA. One of those amendments was requiring the LEC to consider whether the person objecting is acting in good faith or because of a conflict of interest.
Another amendment set out in the SLAA was to allow the LEC to approve a strata renewal despite there being a defect in the process provided that the defect or irregularity has not caused or is unlikely to cause substantial injustice. This amendment brings NSW in line with Singapore, whose jurisdiction provides for a similar collective sale approach and states that a proposed sale should not be invalidated because of a procedural non-compliance if "such non-compliance does not prejudice the interest of any person".
However, the SSLA has not attempted to provide developers or owners corporations with any further certainty regarding whether an order for renewal will ultimately be granted, leaving questions about the strata renewal process unresolved.
Where to from here?
Strata renewal will continue to remain an issue for all Australian governments as the housing crisis worsens.
In NSW, the NSW Government will need to consider whether further reforms are needed to the SSDA to provide developers with comfort that their desired strata renewal plan will be approved by the LEC.
For other jurisdictions, the question will arise as to whether legislation needs amendment to allow for schemes to be terminated by majority. Western Australia and Queensland already have consultation papers published but it does not appear to be on the agenda in other jurisdictions, including Victoria.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.