Edward is a strata committee member of a 54 lot strata scheme where most of the occupiers are tenants. He received a phone call from a property developer who is interested in buying a block of apartments in Edward’s strata scheme. The developer asked Edward to request a general meeting and pass on their details to the owners. Edward is unsure how to proceed and asks the following questions.

What is the current legal process for buying-out an entire strata?

The Strata Schemes Development Act 2015 (NSW) (Act) provides the processes for the acquisition of an entire strata scheme.  If a strata complex was registered before 30 November 2016, the majority of the owners (more than 50% of the owners) need to first agree for the processes in the Act to apply to the strata scheme in a general meeting (opt-in meeting).  If the majority of the owners do not agree to ‘opt-in’, the developer may have to acquire each unit in the Strata individually from its owner.  For an overview of the strata renewal process visit the NSW Office of the Registrar General webpage. 

What initial steps should I take if I am approached by a developer?

It would not be wise to act on anything based on a mere phone call with the developer.  A strata committee member in this situation should at least:

• avoid conflict of interest – if you are contacted by the developer but you do not presently have any intention to sell, it does not mean that you can outrightly reject an approach by the developer for the entire strata; and
• qualify the developer’s interest by asking them to put their expression of interest in writing to the owners corporation, rather than approaching any individual owner.

What preliminary information can the developer provide before calling the ‘opt-in meeting’?

Before the strata committee calls the opt-in meeting, it would be prudent to ask the developer to substantiate that their interest is genuine by asking for a written expression of interest.  The expression of interest could outline some important preliminary information to satisfy the committee members that the developer’s interest is genuine and therefore warrants further exploration.  The information could include background on the developer, current valuations of the property, indicative proposal for the acquisition, its source of funding, and any fee reimbursement for the owners corporation to undertake the required work to progress the developer’s request.

If the strata committee is satisfied with the developer’s written expression of interest they can then call the opt-in meeting for the owners to decide whether the acquisition processes prescribed by the Act should apply.  If the majority of the owners do not agree, then no further action can be taken in respect of the processes under the Act. The developer may still negotiate with each owner for the acquisition of individual units.

What happens after the majority of the owners opt-in?

Once the owners opt-in to the processes under the Act, the developer will need to submit a strata renewal proposal, which is a prescribed document under the Act for consideration and approval by the owners at a general meeting.

At least 75% of the owners by lot need to approve the strata renewal proposal.  This majority is a much higher threshold than the usual standard for passing of a resolution under an ordinary general meeting (which is normally the majority of the owners present/by proxy). 

If the strata renewal proposal is approved, then certain prescribed steps under the Act will need to be taken, including obtaining a court order for the acquisition by the developer, before the sale of the entire complex can be effected.

Before taking further action…

Before accommodating the developer’s request, verify the genuineness of the interest and readiness of the developer.  Particularly when it may be challenging to have the support from the majority of the owners in your scheme to approve any further action for a strata renewal proposal.

If you have any questions about buying, selling or living in a strata, contact us at info@omegalegal.com.au or call 0402 990 108.