Strata Schemes Development Bill 2014

Published 21 June 2014

Strata Schemes Development Bill 2014

CPSA's comments on Part 10 'Strata renewal process for freehold strata schemes'.

General comments

First, CPSA suggests that the proposed legislation of the strata renewal process for freehold strata schemes should apply to new freehold strata schemes and that existing strata schemes should be given the opportunity to opt into the new regulation following a unanimous decision by the owners’ corporation.

This approach would ensure that all owners participating in existing and future freehold strata schemes get what they bargained for in terms of security of tenure and in terms of investment risk. The proposed legislation in its current form is hugely unfair to owners who do not wish to sell an asset they bought when strata law said they would not be compelled to sell.

Second, CPSA is alarmed that the proposed legislation does not provide for the interests of dissenting owners, be they owner-occupiers who do not wish to move or are financially unable to move or owners who stand to lose significant amounts of capital under the forced sale of their assets. While 183 and 185 provide for the lodgement of an objection by a dissenting owner against the application for a court order to give effect to the strata renewal plan, the proposed legislation is utterly silent on what such objection should be based on. The legislation should facilitate an easy pathway for dissenting owners to lodge an application, defining the scope of what they can achieve in some detail. In its current form, the proposed legislation would require dissenting owners to get specialist legal advice which many if not all of them could not afford.

Division 2

CPSA is concerned that Division 2 places no material restriction on the giving of strata renewal proposals to owners’ corporations. Apart from repeat submissions, anyone can give any number of proposals to an owner’s corporation anytime according to the Strata Schemes Development Bill 2014, and the owners’ corporation is obliged to consider such proposals.

By allowing literally anyone to give a strata renewal proposal, the proposed legislation would enable and encourage prospective developers who are not owners in the strata scheme to prospect for business by proposing the sale or redevelopment of any strata scheme.

Other concerns about Division 2 in its current form are:

By allowing outsiders to propose sale or renewal of any strata scheme, owners’ corporations are likely to receive multiple proposals with which they may not be equipped to deal in a manner that is equitable and within proper governance parameters.

Allowing outsiders to propose sale or renewal of any strata scheme is likely to cause a great deal of anxiety among owner-occupiers and investors who are not in a position to sell, either because it would mean losing their house without the ability to buy a replacement or because it would mean a significant financial loss. It is bad enough that the legislation will allow for the termination of strata schemes without unanimity, but to allow owners corporations and owners to be bombarded with suck-it-and-see proposals for termination and redevelopment would, quite simply, be cruel.

A strata scheme is primarily a structure for providing secure residential accommodation and should not be treated as a take-over target along the lines of listed companies so targeted.

The sale or renewal of a strata scheme is properly the domain of the owners in a scheme and any proposal should originate with them. One way of facilitating this could be that an owners’ corporation, following a vote, draws up a strata renewal proposal or invites one or more external parties to draw up one or more proposals.

Division 3

Clause 168 covers the very important issue of potential and real conflict of interests which members of the strata renewal committee may have in relation to the strata renewal proposal. It is unclear how the obvious personal financial interest of an individual member cannot be, potentially at the very least, in conflict with the personal financial interests of other owners.

Inherent in the notion of strata renewal sanctioned by a majority of owners rather than by a unanimous decision is conflict of interest, the principal conflict of interest being that strata renewal may suit some but not others. The fact that under current strata renewal rules very few strata schemes have been renewed shows the glaring reality of that conflict of interest.

It is also unclear what the consequences would be if a member of the strata renewal committee declared a conflict of interest. Clause 168 requires disclosure of conflict of interest, but does not specify what the member should do to resolve a conflict of interest.

CPSA suggests that clause 167 or Division 5 should include a set of objectives to be achieved by the strata renewal committee through the strata renewal plan. These objectives should include:

  • Maximisation of the value inherent in the strata scheme that is to be renewed;
  • Ensuring that the number of households able to be accommodated by the new scheme is equal to or greater than the number of households accommodated by the scheme that is to be renewed;
  • Resolution of the accommodation issues of owners who oppose renewal to the satisfaction of those dissenting owners;
  • Resolution of financial loss issues of owners who oppose renewal to the satisfaction of those dissenting owners.

CPSA also suggests that the strata renewal committee should be constituted to include representation by dissenting owners, so that the strata renewal plan is both prepared by a strata renewal committee and reflects the likely level of support and dissent for renewal of the scheme.

Such an approach would obviously require rules for the resolution of accommodation and financial loss issues of dissenting owners. CPSA recognises that these rules could be quite complex, but CPSA points out that this complexity needs to be countenanced to avoid dissenting owners being disadvantaged to the point of social dislocation, homelessness and bankruptcy.

The setting of objectives will ensure that members of the strata renewal committee have certainty about whether or not their interests conflict “with the proper performance of the committee’s functions”. Division 3 in its current form deals with procedural matters only and does not regulate the area where contention is certain to arise.

Finally in relation to Division 3, CPSA is concerned that prospective dissenting owners stand to contribute to the “expenditure amount” which allows the strata renewal committee to function and to operate. It would be unfair to force those whose interests would be damaged by strata renewal to contribute financially to the process of disadvantaging them. CPSA notes that 173(2)(b) exempts dissenting owners from participating in the “redevelopment process”. The legislation should make clear that the “expenditure amount” is an amount levied as part of the “redevelopment process”.

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