Submission on the Strata Schemes Development Bill 2015

CPSA appreciates the opportunity to comment on the exposure draft of the Strata Schemes Development Bill 2015 (NSW).

CPSA’s focus in the matter of strata scheme reform is on the rules governing scheme termination, especially the proposed change to the voting threshold from 100 per cent to 75 per cent.

CPSA is concerned that dissenting owner-occupiers are in many if not all instances going to be (1) forced out of their residential area and (2) drop out of their support network. Some, particularly the old and the frail, will be unable to cope with being forced out of their home and may end up homeless or in nursing homes. The reality is that those unable to afford accommodation in cities have always moved to the fringes or further or have become homeless. To have this happen to you because three out of four people in your apartment building wanted to turn a profit and could lawfully turn you out of your owner-occupied home would be very tough indeed, and an unintended consequence of the draft legislation.

To prevent this unintended consequence, owners in existing schemes should be given the opportunity of opting into the 75 per cent rule by means of a unanimous vote. As a consequence, all those buying into the scheme will know what they let themselves in for and dissenting owners would not need to be compensated, but would just accept their entitlement to a share of the sale price determined as part of the collective sale process.

While CPSA has serious misgivings about strata scheme termination by any other mechanism than by a unanimous decision, it is acknowledged that applying the 75 per cent rule to new schemes as proposed in the draft legislation means that all those buying into a new scheme know what they let themselves in for. As a consequence, dissenting owners would not need to be compensated.

CPSA points out that there is a continuing push among some think-tanks, aged care providers and even some community organisations for the equity in the owner-occupied home to be used through some form of equity release, such as reverse mortgages, for the purpose of retirement income funding or the funding of aged care, both in-home and residential. Obviously, any owner-occupier in a strata scheme whose home is encumbered by equity release would be required to pay out their equity release provider if forced to sell as a result of a collective sale. The consequence of this would be that the owner-occupier would not be able to buy a home elsewhere. CPSA has no handle on the current take-up of equity release among owner-occupiers in strata schemes and notes that equity release as a product class has yet to cut through in Australia. However, if and when it does, it would be taken up predominantly by older people, certainly if older people are effectively forced through pension and aged care means testing to take up equity release of their homes.

The draft legislation seeks to mitigate the effects of a collective sale on dissenting owners by giving them access to statutory compensation. CPSA appreciates that compensation is part of the proposed scheme termination and views it as acknowledgement that dissenting owners sustain damages as a result of forced participation in scheme termination. However, compensation is envisaged to be purely and solely financial and the most likely formula is it to consist of: (1) entitlement to a share of collective sale proceeds; (2) an amount to cover removal costs and other incidentals. This means that it is very unlikely a person receiving compensation will be able to afford a replacement apartment in their area. Strata schemes that are likely to be targeted are likely to contain older, lower-priced units. In areas so targeted, all such schemes would be under threat, so that it is hardly attractive to buy into one, while newer, less-at-risk apartments would be outside an affordable price range.

CPSA’s opposition to the 75 per cent rule would be less vehement if the compensation were to be in kind and would consist of replacement accommodation in the same area. This could be an apartment in a to-be constructed apartment building on the site of the old one (with temporary accommodation offered during construction), or an existing apartment in a block not opted into the 75 per cent rule in the same area.

One of the principal arguments used to justify the lowering of the voting threshold for the termination of residential strata schemes from 100 per cent to 75 per cent is that strata renewal will increase supply of residential dwellings. However, the draft legislation does not distinguish between commercial and residential strata and allows for a proposal to be put for the “collective sale or redevelopment of a strata scheme” without prescribing that the redevelopment of a strata scheme needs to increase the supply of housing, affordable or otherwise, let alone prescribing to what extent the supply of housing needs to be increased by. Also, a residential strata scheme could be replaced by a development of any type permitted under relevant planning legislation, which would reduce the supply of housing.

For the argument that the 75 per cent rule will increase the supply of housing to hold any water at all, the draft legislation would need to distinguish between residential and commercial strata and stipulate that the proposed lower voting threshold of 75 per cent for strata scheme termination will only be available for proposals for the collective sale and strata renewal proposals which propose to increase the supply of dwellings as compared with the number of dwellings in the scheme proposed to be terminated.

The draft legislation requires the strata management committee to assess all proposals for a collective sale or strata scheme redevelopment from anyone. The responsibility for this assessment rests with the strata committee and, if approved by the strata committee, by an especially constituted strata renewal committee.

A strata committee and a strata renewal committee, particularly in smaller blocks, may not have the expertise or the wherewithal to outsource the expertise for making a full and proper assessment of proposals put to them. The number of proposals is not limited. These factors may cause the unjustified acceptance or rejection of proposals and thus compromise the interests of owners.

The legislation should require the proponent of a collective sale or strata renewal to fund an independent appraisal of the proposal by an expert approved by the Registrar-General. The effect of this requirement (1) will enable the strata committee to decide if the proposal should be considered by a strata renewal committee; and, (2) given the cost involved to proponents, will discourage proposals made for other than the purpose to pursue a collective sale or strata renewal.