Wednesday, September 30, 2020

GREEN light for collective sale

Green light for collective sale

GREEN light for collective sale – owners to cash in on new strata laws

Wide-ranging reforms to strata laws were introduced by the NSW Government on November 30. The new strata laws have been modernised to fit the reality of living in a strata apartment or townhouse today.

One of these modernised new strata laws allows for a process of a collective sale or renewal of a strata scheme.

The Minister responsible for Fair Trading, Victor Dominello, said; “The proposed reforms are reflective of present needs and future demands.”

Collective sale – What has changed?

One of the key new strata laws makes it easier to take a sledgehammer to older apartment blocks.

The changes could present a great opportunity for owners to negotiate a collective sale or redevelopment of a strata scheme previously required a 100% consensus from owners. This threshold has now changed to 75% which could give the ‘greenlight’ for owners to cash in on new strata laws in New South Wales

Reason for change

With over 75,000 strata schemes in NSW, some over 100 years old, many are in need of major renovation or redevelopment. Freeing strata owners from unproductive, spiraling maintenance costs in a building that has had its day could be financially beneficial.

Many owner’s corporations are likely to find it difficult to raise the necessary funds to undertake major repairs and renovations to the strata building. This change means astute lot owners and developers can now look to seize redevelopment or collective sale opportunities.

This major shake-up of strata title rules is expected to encourage more intense development of inner suburbs and growth corridors leading into Sydney that will reinvigorate housing supply and lead to a stronger construction industry.

Is your building ripe for a collective sale or redevelopment?

To cash in on these new strata laws, owners will need to be aware that not every building is going to be ripe for redevelopment. A well-maintained building, in an area that hasn’t been rezoned, is not likely to be profitable for renewal.

For an old and run down strata scheme located in an expensive suburb an owner may profit by rebuilding that strata scheme into a larger, high rise apartment block. When land is zoned to enable high-density development, owners could reap windfall profits without actually building any new housing, simply by consolidating and selling to a developer.

Owners corporations need to consider:

  1. Right Position – is the unit block is in a high-value location?
  2. Right Zoning – does it have potential for higher density redevelopment?
  3. Right Buyer – is it an attractive buy for a potential investor or owner-occupier?
  4. Right Mood – you require 75% of owners to agree, is this possible?

What is the process for a collective sale or renewal of a strata scheme.

Essentially, for owners to benefit from these new laws, they will need to appreciate the complexities of how this legislation will work and how long the process could take. Safeguards in the legislation, including applying to the court to ensure the proposed development is just and equitable, dealing with councils and individual owner attitude, has the potential for a long, drawn out process. It’s possible this could take years to play out, especially with unhappy owners.

This means, owners seeking to cash in on the new strata laws need to factor in the feasibility of redevelopment against the backdrop of possible housing market fluctuations that can occur during long, drawn-out planning processes.

Steps for collective sale and renewal;

  1. Vote to opt into the process – majority must opt in for the process can start
  2. Initiate the collective sale/renewal process – present a proposal to the owners corporation
  3. Form a strata renewal committee – this may include valuers, lawyers and tax experts
  4. Develop a strata renewal plan – a detailed plan including amounts to be paid to each owner
  5. Consider the plan – Owners have a minimum of 60 days to review and the plan must be supported by at least 75% of owners within 3 months
  6. Approving the plan – The final step is the approval of the plan by the Land and Environment Court

Further information is available on the Fair Trading Website

In line with government policies for more housing, the updated Strata laws help to keep pace with our changing society. For Sydney’s large supply of older apartment buildings in need of on-going, major repairs, these new strata laws make it easier to renew strata buildings, by knocking them down to rebuild.

Demolishing these older, low and medium-rise apartments means more efficient use of the infrastructure and services available in inner-city locations.

With the projected increase in our population, these new strata laws aim to address issues of urban renewal and consolidation. This is in recognition that the current level of housing stock is inherently insufficient. This means the new legislation better reflects the way we will live in the future.

In line with government policies to provide more housing, demolishing older, low-rise and medium-rise apartments means more efficient use of the infrastructure and services that are in well-serviced, inner city locations.

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