The 75% rule can shatter your apartment living dream: your home can be sold from under you. It's not working well now but reform is under way.Thinking about downsizing to an apartment? Already living in an apartment?
It doesn’t matter in which state or territory you are living or looking, a question that should interest you is how the 75% Rule introduced in NSW is working? Queensland and Victoria have come close to adopting a 75% Rule, and may yet do so.
The 75% rule
The 75% Rule says that if 75 per cent of owners in a strata scheme agree to sell or redevelop the scheme, they can do so. Dissenting owners will have to sell or redevelop, too.
The good news as far as CPSA is concerned is that the 75% Rule is not working.
After nearly eight years of operation, only 21 schemes have notified the Registrar General of having reached the required 75-per-cent owner approval. Only one of those has managed to get NSW Land and Environment Court approval.
One!
In eight years!
The irony is that where owners ignore the legislation with the 75% Rule and agree unanimously, the completion rate is much better. The Registrar-General reports an average 74 strata scheme renewals per year.
It shows that strata renewal will happen if everyone sits down and negotiates for a good outcome for all concerned.
But rather than concluding the 75% Rule has always been a bad idea, the current NSW Government is proposing changes to give it a better chance of succeeding.
The for and against of the 75% rule
The argument in favour of having the 75-per-cent rule continues to be that you don’t want a single ‘hold-out’ to mess things up for the rest of the owners, who want to cash out.
The argument-against the 75% rule is that many owners actually live in these strata apartments as owner-occupiers. Rather than hold-outs, they are people who may not want to lose their home. The sale of their home may not leave them with enough cash to be able to buy back in the same area. They may have mortgages, reverse mortgages or other arrangements which mean that being forced to sell would make life very difficult for them.
There are now more than 85,000 strata schemes in New South Wales and close to a million strata lots. In a recent second reading speech proposing law changes, the NSW Government said: “More and more New South Wales households are choosing to call strata title properties their home, and we expect this trend to continue”.
Strata is traditionally a big part of the rental market and the domain of the property developer and the property investor. The 75-per-cent rule was championed by them specifically with a view to maximising their profits.
With the trend now being towards owners-as-occupiers, you would think that a smart government would not be keen to make the 75-per-cent rule work.
Jump-starting the 75% rule
The NSW Government may have its reasons for ignoring the trend towards strata occupation by owners in pushing the 75% Rule.
The NSW Government has a declared policy to “improve the planning system to incentivise residential housing developers that include at least 15 per cent affordable housing in their plans” and rewarding them with “access to a 30 per cent floor space ratio boost, and a height bonus of 30 per cent above local environment plans”.
In and of itself, this seems a laudable policy.
Existing in-fill affordable housing provisions apply to the policy, meaning that new strata developments under the policy would need to be within 800 metres from a public transport hub (read: railway station).
Again, this seems a sensible policy.
However, building these new mammoth strata residential developments will require redevelopment. Greenfield sites are scarce within 800 metres from a railway station.
Prime redevelopment target sites under the NSW Government’s policy would be older, medium-rise strata schemes. Obviously, making the 75% Rule work well is not going to do all the heavy lifting when developers scramble to acquire these redevelopment sites. But every bit helps.
The main problem
The main problem making the 75% Rule ineffective seems to be: developers fighting amongst themselves for the juiciest re-development sites. Developers who own a strata lot can become that one ‘hold-out’ spoiling it for everyone else. And there are instances where a 75 per cent majority has been achieved, and developers find ways to thwart the majority decision.
Changes to legislation will attempt to address that. For owner-occupiers in NSW strata schemes, CPSA hopes and trusts developer greed and loophole-ingenuity will make those attempts unsuccessful.
Meanwhile, if you are an owner-occupier in NSW strata scheme or looking to become one, particularly in a older, medium-rise scheme within 800 metres from a railway station, it might be time to do some thinking.
Other states and territories will be keeping tabs on whether NSW is able to jump-start the 75% Rule. That means people outside NSW who have downsized or want to downsize to an apartment should keep an eye out as well.
Also read:
Uncle Steve Knew: Response to the NSW Government’s Strata and Community Title Law Reform Discussion Paper
Thinking about downsizing to an apartment? Already living in an apartment?
It doesn’t matter in which state or territory you are living or looking, a question that should interest you is how the 75% Rule introduced in NSW is working? Queensland and Victoria have come close to adopting a 75% Rule, and may yet do so.
The 75% rule
The 75% Rule says that if 75 per cent of owners in a strata scheme agree to sell or redevelop the scheme, they can do so. Dissenting owners will have to sell or redevelop, too.
The good news as far as CPSA is concerned is that the 75% Rule is not working.
After nearly eight years of operation, only 21 schemes have notified the Registrar General of having reached the required 75-per-cent owner approval. Only one of those has managed to get NSW Land and Environment Court approval.
One!
In eight years!
The irony is that where owners ignore the legislation with the 75% Rule and agree unanimously, the completion rate is much better. The Registrar-General reports an average 74 strata scheme renewals per year.
It shows that strata renewal will happen if everyone sits down and negotiates for a good outcome for all concerned.
But rather than concluding the 75% Rule has always been a bad idea, the current NSW Government is proposing changes to give it a better chance of succeeding.
The for and against of the 75% rule
The argument in favour of having the 75-per-cent rule continues to be that you don’t want a single ‘hold-out’ to mess things up for the rest of the owners, who want to cash out.
The argument-against the 75% rule is that many owners actually live in these strata apartments as owner-occupiers. Rather than hold-outs, they are people who may not want to lose their home. The sale of their home may not leave them with enough cash to be able to buy back in the same area. They may have mortgages, reverse mortgages or other arrangements which mean that being forced to sell would make life very difficult for them.
There are now more than 85,000 strata schemes in New South Wales and close to a million strata lots. In a recent second reading speech proposing law changes, the NSW Government said: “More and more New South Wales households are choosing to call strata title properties their home, and we expect this trend to continue”.
Strata is traditionally a big part of the rental market and the domain of the property developer and the property investor. The 75-per-cent rule was championed by them specifically with a view to maximising their profits.
With the trend now being towards owners-as-occupiers, you would think that a smart government would not be keen to make the 75-per-cent rule work.
Jump-starting the 75% rule
The NSW Government may have its reasons for ignoring the trend towards strata occupation by owners in pushing the 75% Rule.
The NSW Government has a declared policy to “improve the planning system to incentivise residential housing developers that include at least 15 per cent affordable housing in their plans” and rewarding them with “access to a 30 per cent floor space ratio boost, and a height bonus of 30 per cent above local environment plans”.
In and of itself, this seems a laudable policy.
Existing in-fill affordable housing provisions apply to the policy, meaning that new strata developments under the policy would need to be within 800 metres from a public transport hub (read: railway station).
Again, this seems a sensible policy.
However, building these new mammoth strata residential developments will require redevelopment. Greenfield sites are scarce within 800 metres from a railway station.
Prime redevelopment target sites under the NSW Government’s policy would be older, medium-rise strata schemes. Obviously, making the 75% Rule work well is not going to do all the heavy lifting when developers scramble to acquire these redevelopment sites. But every bit helps.
The main problem
The main problem making the 75% Rule ineffective seems to be: developers fighting amongst themselves for the juiciest re-development sites. Developers who own a strata lot can become that one ‘hold-out’ spoiling it for everyone else. And there are instances where a 75 per cent majority has been achieved, and developers find ways to thwart the majority decision.
Changes to legislation will attempt to address that. For owner-occupiers in NSW strata schemes, CPSA hopes and trusts developer greed and loophole-ingenuity will make those attempts unsuccessful.
Meanwhile, if you are an owner-occupier in NSW strata scheme or looking to become one, particularly in a older, medium-rise scheme within 800 metres from a railway station, it might be time to do some thinking.
Other states and territories will be keeping tabs on whether NSW is able to jump-start the 75% Rule. That means people outside NSW who have downsized or want to downsize to an apartment should keep an eye out as well.
Also read:
Uncle Steve Knew: Response to the NSW Government’s Strata and Community Title Law Reform Discussion Paper
