This Q&A is about a strata renewal proposal or the collective sale process.
Table of Contents:
- QUESTION: What happens to the capital works fund if the strata is terminated as part of a collective sale? Do the funds get redistributed to owners, or does the purchaser keep the fund as part of the purchase?
- QUESTION: Two adjacent strata schemes would like to explore the tendering process for a collective sale. How do we go about achieving this? What steps do we need to follow?
- QUESTION: Is it ok for a developer to convene the strata meetings to buy out a strata during the collective sale process? What can we do to take back control?
Question: What happens to the capital works fund if the strata is terminated as part of a collective sale? Do the funds get redistributed to owners, or does the purchaser keep the fund as part of the purchase?
Answer: It would ultimately depend on the negotiated outcome agreed to by the owners corporation and purchaser.
It would ultimately depend on the negotiated outcome agreed to by the owners corporation and purchaser (developer) and settlement price therein.
Under section 77 of the Strata Schemes Management Act 2015 (NSW), there is the option for the owners corporation to distribute funds from the administrative or capital works fund. This would require a unanimous resolution by the owners corporation in a general meeting. The funds would be distributed back to the owners in accordance with their unit entitlements.
Tim Sara Strata Choice E: tsara@stratachoice.com.au P: 1300 322 213
This post appears in the September 2023 edition of The NSW Strata Magazine.
Question: Two adjacent strata schemes would like to explore the tendering process for a collective sale. How do we go about achieving this? What steps do we need to follow?
We are 2 strata schemes adjoining each other on the same street.
Combined, we have a lot of land in a prime area. We have been approached by developers for a collective sale in the past but we feel that we are being short changed and therefore we wish to go down the path where we take control of the tendering process for our combined land.
How do we go about achieving this? What steps do we need to follow?
Answer: Sale of the whole building is on a per strata basis so there is no explicit mechanism under the Act for multiple strata schemes to combine forces and act together, however…..
The collective sale process under the Strata Schemes Development Act 2015 (the Act) is on a per strata basis so there is no explicit mechanism under the Act for multiple strata schemes to combine forces and act together. However, that is not to say arrangements cannot be put in place to run the separate processes concurrently to achieve the same practical result.
It is important to take the preliminary step to ensure that each owners corporation has opted into the collective sale processes under the Act.
For the opt-in meeting, a motion should be put forward for the two owners corporations to jointly seek expressions of interest from developers for proposals involving both owners corporations.
Further, a joint committee from both owners corporation will be established to manage the process for each strata for a defined period.
If there is any proposal received from the developers during the expression of interest period, the usual processes under the Act should be followed by each owners corporation, and the meetings may take place concurrently or immediately after one another – whichever is more efficient and practical for the owners.
This post appears in Strata News #296
Question: Is it ok for a developer to convene the strata meetings to buy out a strata during the collective sale process? What can we do to take back control?
A developer has approached the members of the strata committee and is refusing to deal with the committee to set up a proposal/offer but instead is insisting on creating their own meeting off-premises and invite all owners.
As a committee member, I have asked the developer to put their proposal and offer in writing so we can assess this and pass it on to the owners. The developer claims that we must all be at their scheduled meeting for a written offer/proposal to be put forward.
They held a meeting and only a few turned up. Again no written documentation was provided and when I request that they should put their claims in writing the developer insists that they require all owners to be present before this can be done.
I feel that the developer is not following the collective sale process. He is taking away the control of these proceedings from the strata committee and the owners corporation by these actions. Am I correct to assume this?
What can I do for the owners corporation and the strata committee to take back control of the collective sale process? It is causing certain anxieties among some unit owners.
Answer: It is indeed unusual for the developer to conduct the process in this particular manner.
For a collective sale to proceed under the Strata Schemes Development Act the processes, as prescribed under that Act, must be followed. So it is indeed unusual for the developer to conduct the process in this particular manner.
From what you have described, it appears that the following key processes required by the Act have not been followed:
- a general meeting for the owners to ‘opt in’ (For readers who want to find out more, see our previous blog on what preliminary information a developer can provide);
- a written strata renewal proposal, after at least 50% of the owners agree to opt in; and
- a general meeting convened by the strata committee to consider the proposal.
Who can convene a general meeting to consider a strata renewal proposal?
A general meeting can only be validly convened by the strata committee or the secretary of the strata corporation, whether on its own volition or after receiving a request from at least 25% of the owners by unit entitlement.
An attempt by the developer to take control of the process in the manner that you have described will undesirably waste everyone’s time for the purposes of the collective sale process. The owners should be put on notice that the developer’s direct contact with the owners for a collective sale is not approved or supported by the strata committee and consequently the enforceability of any agreement reached with the developer cannot be guaranteed.
Reminder to owners – obtain your own legal advice early
The developer may still acquire each unit individually by inviting all of the owners to attend a meeting it organises so as not to take advantage of the collective sale process. But this is difficult to achieve and I recommend that the owners obtain their own legal and financial advice earlier on to ensure their interests are protected.
Yuhao Gu Omega Legal E: info@omegalegal.com.au P: 0402 990 108
This post appears in Strata News #264
Have a question about the collective sale process or something to add to the article? Leave a comment below.
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