How Do I Terminate A Strata Scheme?

How Do I Terminate A Strata Scheme?

Introduction

The issue of terminating a strata scheme has been the subject of debate for many years. In fact, there are many strata schemes throughout New South Wales which have truly passed their expiry date, or are fast approaching it, insofar as the maintenance and repair of their building goes and need to be demolished and re-developed.

Despite the problems that owners of old and dilapidated strata schemes endure, questions of terminating a strata scheme may arise and this article attempts to demystify some common misconceptions about the process.

The Current State of the Law

Section 51 of the Strata Schemes (Freehold Development) Act 1973 (“SSFDA”) sets out the procedure where any proprietor, mortgagee or owners corporation may apply to the Supreme Court of New South Wales for an order to terminate a strata scheme. Section 51 of the SSFDA contains a complete regime for dealing with such applications and gives the Court the power to make the following directions for or with respect to the following matters:

• the sale or disposition of any property of the owners corporation;

• the discharge of the liabilities of the owners corporation;

• the termination of any development scheme that relates to the parcel and the cancellation of the strata development contract concerned;

• the termination or amendment of any strata management statement that relates to the parcel or the amendment of any other strata management statement that relates to the building concerned;

• the persons liable to contribute moneys required for the discharge of the liabilities of the owners corporation and the proportionate liability of each such person;

• the distribution of the assets of the owners corporation and the proportionate entitlement of each person under that distribution;

• the administration, powers, authorities, duties and functions of the owners corporation;

• the voting power at meetings of the owners corporation of prescribed persons;

• any matter in respect of which it is, in the opinion of the Supreme Court, just and equitable, in the circumstances of the case, to make provision in the order, and

• the winding up of the owners corporation (including the appointment, powers, authorities, duties and functions of any person to carry out the winding up).

Due to the cost and lack of certainty involved in this type of litigation, section 51A of the SSFDA was introduced in April 1993. Section 51A of the SSFDA enables an application to terminate a strata scheme to be made directly to the Registrar General, Land and Property Information NSW. Although one may be relieved to learn that a court order is now no longer required to terminate a strata scheme, the problem is that section 51A(3) of the SSFDA still requires the signature of each lot owner in the scheme, registered lessee of a lot in the scheme and registered mortgagee under the scheme to sign the application unless the Registrar General agrees otherwise.

According to the Property Council of Australia’s paper titled “Strata Title Renewal”:

             “Owners who want to realise the investment potential of their properties are stymied by the strata title straightjacket”

Therefore, there is no ability to terminate a strata scheme short of obtaining the unanimous consent of all lot owners, registered lessees and registered mortgagees under the scheme.

Proposed Strata Law Reforms

Under the proposed strata law reforms, termination of a strata scheme may occur where 75% of the lot owners agree with the voting count based on 1 unit per lot rather than unit entitlement. In our view, this is unclear. Will votes be based on unit entitlements or the number of votes? How will votes be based and counted if a developer retains ownership of a unit or units in the strata scheme?

Some people living in strata schemes have raised the following concerns:

• The termination of strata schemes other than by a unanimous decision renders tenure in strata schemes insecur;

• Older people will become very wary of downsizing into a strata titled home, forcing them to stay in a house that may no longer meet their needs; and

• The NSW Government should not interfere in the market for strata titled homes and strata schemes.

Conclusion

It appears the debate on reforming the law in relation to terminating strata schemes in New South Wales will continue for some time and that the NSW Government will have to liaise and seek input from stakeholders in the industry including taking into account the impact of any changes on lot owners, lessees, developers, mortgagees and local councils.

Please note that the information contained in this article is not legal advice and should not be relied upon. You should obtain legal advice before you take any action or otherwise rely upon the contents of this article.