NSW: Q&A What Do We Do When A Developer Comes Knocking?

This Q&A about what happens in NSW when a developer contacts your building has been supplied by Sophia Jiang, Omega Legal.

Question: When a developer contacts your building with an offer to buy, what steps should you take? What are the committee member’s obligations to the lot owners? What questions do you need to ask the developer?

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A developer has contacted our building via phone and he has requests I pass on his inquiry. He is interested in buying our block of apartments and would like to hold a meeting to address all owners within the building. As a Committee Member, at what point do I become liable or responsible to pass on this information? Our building has around 50 units with only a few owner/occupiers. At the moment, I have no interest in selling.

Answer: As a strata committee member, you have the duty to act in the benefit of the owners corporation with due care and diligence.

The Strata Schemes Development Act 2015 (NSW) (Act) provides the processes for the acquisition of an entire strata scheme. Since your strata complex was likely 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 your scheme in a general meeting (opt-in meeting), otherwise 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.

As a strata committee member, you have the duty to act in the benefit of the owners corporation with due care and diligence. Some initial steps for your consideration include:

• qualify the developer’s interest by asking them to put their expression of interest in writing to the owners corporation, rather than approaching you as an individual
• avoid putting yourself in a position of conflict – even if you do not presently have any intention to sell does not mean you can outrightly reject an approach by the developer for the entire strata if their approach is a genuine expression of interest
• consult the strata committee about any preliminary information you have received from the developer before taking further action.

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 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 if 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 affected.

If your strata scheme has few owner occupiers, attendance of the general meeting by a sufficient number of owners to approve the strata renewal proposal could be quite a challenging task. Therefore it is important that before any effort is spent accommodating the developer’s request, steps are taken to verify the genuineness of the interest and readiness of the developer.
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Sophia Jiang
Omega Legal
E: [email protected]
P: 0402 990 108

Read next:

• NSW: Q&A Proxy Votes & Quorum Requirements for Annual General Meeting
• NSW Strata Renewal: Tips For Oc’s – Finding A Way Through The Renewal Maze
• NSW: Q&A If Executive Committee isn’t Acting Appropriately

This post appears in Strata News #255

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