Sydney’s eastern suburbs, inner northern suburbs and CBD areas are becoming hot spots for strata renewals, collective sales, and clever conversion of common property areas on the back of higher residential property prices and depreciating strata improvements.
Many strata plans in Sydney’s CBD, inner suburbs and other established areas developed in 1960s and 1970s, or developed earlier and converted from company title or tenancies in common, are situated in areas that have been subject to changes in town planning controls. Additionally, building improvements have significantly aged both physically and from a utility and design perspective.
This scenario has resulted in many of these buildings located on sites that are ripe for redevelopment, creating an opportunity to undertake substantial property improvement, convert under-utilised common property areas or redevelop.
Legislation supporting “collectively renewal” (where the strata scheme collectively redevelops or refurbishes the whole scheme without selling) or “collectively selling” (the sale of the whole of the property in the strata plan to a developer for demolition or significant refurbishment) was enacted in 2015 under the Strata Schemes Development Act 2015 (SSD Act).
The Edmonds and Associates Group and Edmonds Associates Valuers (EA Valuers) have over 25 years’ experience in strata management services, property development and valuation. This experience has seen us recently engaged by Body Corporates and individual owners to assist in a number of interesting strata renewal projects to maximise the potential (and the value) of the property in their Strata Plan.
Strata renewal and collective sales of strata property is emerging as a means of adding to property value in more established Sydney locations. EA Valuers recently assisted the owners of the 6 lots in a strata plan in Vaucluse create a 7th lot from non-utilised common property. This process included a transfer of common property and a downward adjustment to existing unit entitlements. The sale of lot 7 in the strata plan provided funds to the original owners to modernise and refurbish the whole building. We have also assisted many strata plans utilise their roof space in the same manner. This type of property development can significantly benefit existing lot owners in older strata plans.
The SSD Act, which commenced on 30 November 2015, enables owners in a strata scheme to collectively redevelop or sell their strata scheme. This can occur where 75% of the lot owners agree to the sale or redevelopment. The Land and Environment Court must be satisfied that the sale or renewal plan is just and equitable. Commonly this occurs where the building is aging and the vast majority of residents would prefer to sell their scheme instead of having to pay the cost of extensive repairs.
The part of the process designed to protect unit holders is Part 10 of the SSD Act. It includes the preparation of a detailed strata renewal plan prepared in accordance with the Strata Schemes Development Regulations 2016 (SSD Regulations).
- The plan must: -Provide a general overview of the proposal.
- Include a full and frank statement by the proposed purchaser or developer of their intended use of the strata parcel.
- Address matters like the amounts to be paid to each owner in the renewal process and when owners will be required to vacate units.
- Provide for the purchase of each owner´s unit in a collective sale, or a dissenting owner´s lot in a redevelopment, for an amount not less than the compensation value of the unit.
To assist in this process an independent valuer’s report should accompany the plan. It will show the market value of the whole strata complex and compensation value of each lot in the strata plan.
Market value of the whole site is to be determined on a “highest and best use” basis and the amounts attributable to each lot owner must also be disclosed in the report prepared by the independent valuer.
Compensation value is determined pursuant to the heads of compensation under section 55 of the Land Acquisition (Just Terms Compensation) Act 1991 (JTC Act). Section 55 also provides for out of pocket expenses such as valuation fees and relocation expenses incurred as a consequence of the sale, and the disadvantage from the loss of a principal place of residence (among other amounts).
Tenants whose leases are terminated as a consequence are also entitled to be compensated by the purchaser/developer pursuant to the JTC Act.
Alternative Strata Renewal Procedures
The above process under Part 10 is an alternative to the simpler circumstances under which a strata scheme may be terminated by the Registrar General under Part 9 Division 4 of the Act where one party owns all the lots or each lot owner desires the termination of the strata scheme.