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Selling a strata scheme to a developer when there are dissenting lots owners

New strata laws came into effect on 30 November 2016 that amongst other things, established a process for the collective sale and renewal of a strata scheme.

Almost three years later, the Land & Environment Court finally heard its first application under the 2016 strata scheme sale provisions.

The case of Application by the Owners – Strata Plan No 61299 involved the Seasons Harbour Plaza which is a 159 mixed use strata lot development situated at 252 Sussex Street, Sydney.

The owners corporation had sought approval for the collective sale of the strata scheme from the lot owners. It had prepared a strata renewal plan and submitted it to all lot owners at a general meeting. The strata renewal plan contained all the matters set out in section 170 of the Strata Schemes Development Act 2015 (NSW)(Act).

While more than 75% of the lot owners (by unit entitlement) had consented to the collective sale to a developer and the strata renewal plan, unanimous consent of the lot owners is required or an order from the Court provided more than 75% of the lot owners have consented, to approve the sale.

In approving the strata renewal plan and therefore the sale of the strata scheme, the Court had regard for the matters set out in section 182 of the Act. Particular emphasis was placed on the owners corporation having obtained the “required level of support” from the lot owners in the scheme, all notices required to be served on the lot owners under the Act had been served, the proposed distribution of the proceeds of sale apportioned to each lot was not less than the compensation value of the lot and the terms of settlement under the plan were just and equitable in all the circumstances. The compensation value is the amount that a lot owner would be entitled to under the Land Acquisition (Just Terms Compensation) Act 1991.

The Court exercised its statutory powers under section 182(2) of the Act to vary the strata renewal plan. It did so primarily because the retail lots would have been disadvantaged by the strata renewal plan as they had a smaller unit entitlement but arguably a greater commercial value. The Court reallocated the unit entitlement for all lots to ensure that the proceeds of sale recovered by each lot owner was not less than the compensation value of each lot.

The case is important as it emphasises the importance of owners corporations complying with the process and procedure required under the Act before it seeks an order from the Court, and in particular ensuring that each lot owner, even though a large number of investor owners were based overseas, were notified of the plan.

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