Monday, April 28, 2014

Strata renewal process lacks safeguards

The NSW State Government has said it will change the law to make it easier for strata schemes to be collectively sold and redeveloped – or 'renewed'.

Currently, it takes a unanimous decision of all owners in a scheme to do this: in other words, each and every owner has the power to veto a proposal for renewal. Under the Government's proposed changes, the votes of 75 per cent of owners will be sufficient – so, no more veto. An individual, or even a small minority of individual owners, could be forced to sell and vacate against their wishes.

This represents a fundamental change to the law. For the individual owner, their current power of veto means security. And if an owner has no other assets and few other options in the housing market, this security is an effective way of defending their housing interests. The proposed 75 per cent requirement will remove that security, and reduce the ability of individuals to defend their housing interests.

And if the payout for their unit is small, the individual owner may be faced with tough options: buy somewhere cheaper – and possibly far away from their established community; or stay local and rent – possibly at a time of life when they didn't expect to be renting and when the private rental market isn't very friendly. 

Reduce the ability of individuals to defend their own interests, and the question of legislated safeguards in the strata renewal process becomes crucial. But as the legislation is currently drafted, appropriate safeguards are lacking.

This is particularly so in the provisions for oversight of the strata renewal process by the Land and Environment Court. These provide that once a strata renewal proposal gets the approval of 75 per cent of owners, the proponents may apply to the Court for an order giving effect to the strata renewal plan.

All proponents have to do is satisfy the Court that the strata renewal plan properly discloses the proponents' interests and pays out dissenting owners (market value if the scheme is being redeveloped; a fair and reasonable proportion of proceeds if the scheme is being collectively sold). The Court does not have to look into whether the renewal will cause hardship to anyone; just whether the renewal plan includes proper disclosures and payouts.

Even if a dissenting owner lodges an objection to the application with the Court, all the Court has to look at is whether the plan includes proper disclosures and payouts – not the substance of the objection, and not any hardship that would be suffered by the dissenting owners if renewal goes ahead.

If the Government is to remove the ability of individuals to defend their interests in strata renewal processes, it must at least allow them to plead their case to the Court and have their objections and prospective hardship considered by the Court when it decides whether to make an order for renewal.

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