The 7 steps of the lucrative NSW Strata Collective Sales Process
Wander into Miami, Surfers Paradise, and utter the words ‘Nobby’s Outlook’. It’s likely one or two of the locals will know exactly what you’re referring to.
It was an otherwise fairly normal looking apartment block of 46 apartments that caused an awful lot of trouble – for years. Decades.
The bill for repairs and renovations became so expensive that many of the owners simply wanted to sell to a developer for $40 million. But a single apartment owner said ‘Nah’.
So it wasn’t sold – and what followed was years of legal wrangling, massive lawyer bills, and buckets of heartache.
New strata collective sales rules in NSW prevent similarly painful, long and drawn-out situations from happening, and in the process free up prime real estate occupied by older, smaller buildings mainly in disrepair.
The new NSW legislation, Strata Schemes Development Act 2015, allows for owners to agree to strata collective sales or redevelopment of their strata scheme.
Unlike the Nobby’s Outlook case, where over 98% of the residents agreed to be bought out, the NSW laws allow for a ‘collective sale’ if just 75% support the deal.
- Vote to opt into the process – The first step is for the owners corporation to opt into the process. This applies to strata schemes registered before 30 November 2016. If most owners (more than 50%) do not support opting in, the process stops.
- The proposal – A developer may have already walked into the saloon and made a proposal. The strata committee must consider the proposal to sell or redevelop a scheme. The strata committee has up to 50 days to consider forwarding the proposal to the owners corporation. But even if the committee is undecided, a general meeting can still be called if 25% of the owners want a meeting anyway.
- The vote – Only if the majority – more than 50% – of the owners vote to pursue the proposal, a strata renewal committee is formed. A strata renewal committee is elected to investigate and develop the plan or proposal. The committee can appoint valuers, lawyers, tax experts and other professionals to help.
- The strata renewal plan – The strata renewal committee has 3 months to draw up what is known as a strata renewal plan. The plan must include a general overview, a full and frank plan by the proposed purchaser or developer, timing on the vacating of units and the amount each owner will receive.
- Considering the strata renewal plan – Owners must have at least 60 days to consider the plan and seek independent advice. Another general meeting is convened so that the owners can decide whether to vote for the plan to move forward. Owners in favour must give the independent returning officer a signed support notice. The plan lapses within 3 months if the owners of at least 75% of the lots do not support it.
- The rubber stamp – If the required level of support is obtained, at least 75% of owners, the owners corporation can apply to the Land and Environment Court to make an order to give effect to the plan. It is the role of the Land and Environment Court to deem the plan ‘just and equitable’. For instance, each owner must get at least market value for their lot. And the entire process must have been developed properly and in good faith – or else the court will turn it down.
- The action – The sales process begins.
So what was the process before?
Before the Act came into force, a strata scheme could only be terminated through an application to the Registrar General of Land Titles, or through the Supreme Court. But in the case of the Registrar General, 100% of all lot owners had to unanimously agree.
So has there been any collective sale action so far?
Has there ever. In 2017, it all started happening. At a site in north-west Sydney, apartment owners banded together under the 75% rule to sell three separate blocks for a whopping $65 million.
Each of those existing blocks housed only 15 apartments, but the $65 million plans – about three times the existing value of the site – were for 200 apartments with commercial suites in a huge 21-storey tower.
And then the ‘super strata sales’ stepped into a really high gear.
To the north of Sydney, in Castle Hill, 42 townhouses were part of a collective sale that was expected to reap over $50 million. Another site in Ashbury attracted a similar price.
They were among the almost 18% of all disclosed sales in 2016-2017, and all approved under the NSW collective sale legislation.
That represents a six-fold increase in collective site sales over the past five years, according to research done by commercial property consultant Knight Frank.
Any more collective sale action?
Another set of unit owners followed suit in the strata gold rush, with a site in Cronulla selling for $54 million – about double the estimated value of the individual units.
A hotel was next. The 119-room Seasons Harbour Plaza hotel in Sussex Street was owned by more than 90 people, with over 75% of them agreeing to sell up for an incredible $70 million.
But the biggest was yet to come. In popular Macquarie Park, over 75% of the owners got together to put their property on the market – with the $85 million price-tag the biggest and most expensive collective sale ever seen in NSW.
It gave each owner about $1.3 million for their two-bedroom units – double the median unit price for the area in 2017.
“There will be more and more of these things happening,” Dylan McEvoy, involved in the Cronulla sale, told Domain. Indeed, it is believed there are thousands of potential sites across NSW that could potentially be collectively sold in the coming years.
Real Estate Institute of NSW president John Cunningham said: “We have a lot of old buildings that are falling down, have concrete cancer issues and are past the end of their economic life and it would be far more expensive to renovate them than to knock them down and start again.
“There have even been suicides of people hit by levies – they can’t afford to repair the blocks. It’s better to demolish them, and the new strata laws with the 75% rule makes that more possible, rather than one person being able to put a whole redevelopment in jeopardy,” he added.
Need some assistance or advice on Strata Collective Sales?
The Strata Collective Sales Advocacy Service offers free legal information, advice and assistance to owners and occupiers of strata units and townhouses in NSW.
NSW Fair Trading – Strata Collective Sales and Renewal – detailed information about the stages of the process and the conditions that apply