VIC: Q&A Forced sale and the 75% rule

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These Victorian Lot Owners are wondering whether there is any information available about Forced Sale in Victoria.

Table of Contents:

• QUESTION: Our ageing building has escalating maintenance costs and no sinking fund. Should we sell? Do we need 75% of owners to agree?
• QUESTION: I live in Victoria and own a strata title office suite. Most of the 85 owners want to sell the building. Three lot owners chose not to respond to correspondence or were simply not interested in selling. Is there any legal mechanism such as forced sale we can use against the three owners?
• QUESTION: We were wondering if we could have information about a rule that we have just heard of which allows a strata title to sell when 75% of owners decide to sell. Has a reform for a Forced Sale been approved in Victoria and if so where can we find information on this rule and what our rights are?

Question: Our ageing building has escalating maintenance costs and no sinking fund. Should we sell? Do we need 75% of owners to agree?

We live in an ageing 2 story Strata title block of 24 units built around 1970. There are two separate brick buildings.

The complex has big external common areas. Maintenance and upkeep of these areas takes up 29% of the Budget.

We have extreme maintenance and repairs that need to be attended to including leakage issues, drain problems, cracks and movement etc.

Repairs and maintenance of the building are currently 21% of the Budget, rising every year unless extensive remedial works are undertaken.

There is currently no sinking fund. Our Units are at the lower end of the market, both in cost and rents. 25% of the lots are owner-occupied. Filling rental vacancies during COVID has been problematic.

Is a redevelopment buy-out proposal too dramatic for our situation? What can we do?

Answer: Selling the property collectively to a developer, rather than having to deal with the maintenance issues and constant upkeep the property, could make sense

It comes down to the appetite of the other owners and if it makes sense that it’s going to be a lot easier and cheaper for lot owners to sell the property collectively, rather than having to deal with the maintenance issues and constant upkeep the property, then selling to a developer could make sense.

It’s about surveying your fellow lot owners and seeking their feedback as to whether they would be keen for that scenario to occur. In NSW, there’s legislation that has been introduced recently, and I understand that it only requires 25% of owners to agree to sell the property as long as a few other conditions are met.

However, in Victoria the threshold is still 100% of owners, (which is an unanimous resolution) to agree to sell the property. If you can’t get that support from other lot owners, then it may be worthwhile for you to consider whether you sell your own apartment to get out of the future obligations of the maintenance requirements.

Gregor Evans
The Knight
Email
P: 03 9509 3144

This post appears in Strata News #484.

Question: I live in Victoria and own a strata title office suite. Most of the 85 owners want to sell the building. Three lot owners chose not to respond to correspondence or were simply not interested in selling. Is there any legal mechanism such as forced sale we can use against the three owners?

Answer: It is difficult under the current legislation to arrange the sale of a strata property.

Section 32 of the Subdivision Act (1988) stipulates that a unanimous resolution is required to alter a subdivision. This means that any plan to sell an Owners Corporation needs to be approved by every owner. It is therefore difficult under the current legislation to arrange the sale of a strata property.

The unanimous decision would need to be made either by ballot or at a Special General Meeting. If the three owners are not responding to the ballot or do not attend the meeting, your strata manager should be able to assist in following up these owners for a response.

Ballots go out by post or email which can easily be ignored. You may wish to ask your manager to try calling the owners who are not responding. If you do not have a phone number for the owner and they live in the property, the building manager or another owner can try knocking on their door or leaving a note under it.

If the owner lives overseas, you may wish to try contacting the real estate agent or even the tenant as they may have alternative contact details for the owner. You can even arrange a title search on their property to ensure you have the correct address.

Failing this, the Owners Corporation may apply for an exemption order from VCAT for the need to obtain a unanimous resolution under section 170 of the Owners Corporation Act 2006. In order to gain this order, you need 75% of the total votes to be in favour and none opposed as per section 171 of the Owners Corporation Act. Please also note that there is no guarantee of success in this endeavour and it is up to the discretion of VCAT whether an exemption order is granted.

Can We Force a Sale?

If the three owners are voting against the motion, it may be helpful to try and have a conversation with them and understand the reasons why. You could hold a Special General Meeting (which all owners would be invited to) and debate the pros and cons of selling the property. You may not have the right to force them to agree to sell under the current legislation, but you can use soft pressure to try and persuade them.

If they continue to vote against the motion, under section 34D of the Subdivision Act (1988) the Owners Corporation or a member of the Owners Corporation may make an application to VCAT for an order requiring the Owners Corporation to alter a plan. However, this order cannot be made unless VCAT is satisfied that more than half of the members of the Owners Corporation approve the action and the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economic or social disadvantages to the members who voted against it.

Again, there is no guarantee that VCAT would grant such an order, so rather than rush to make an application, it is best to first try to convince the other owners to approve the motion or try to understand their reasons for voting against it. Should you choose to proceed to VCAT, it is recommended the Owners Corporation seek legal advice about the viability of any such action.

Alex Smale
Owners Corporation Manager
The Knight
https://theknight.com.au/
Email

This article is for reference purposes only and is not intended to be a comprehensive review of the developments in the law and practice or to cover all aspect of the subject matter. It does not constitute legal or other advice and should not be relied upon this way. Readers should take legal or other advice before applying the information containing in this publication.

This post appears in Strata News #274.

Question: We were wondering if we could have information about a rule that we have just heard of which allows a strata title to sell when 75% of owners decide to sell. Has a reform for a Forced Sale been approved in Victoria and if so where can we find information on this rule and what our rights are?

Answer: There are no forced sale provisions in Victoria that would force a lot owner to sell their own lot.

There are two parts to the reader’s question that needs answering. My first response will focus on a forced sale of a lot owner’s own apartment and then secondly look at the forced sale of common property.

Forced Sale of an Owner’s Lot

There are no forced sale provisions in Victoria that would force a lot owner to sell their own lot.

Forced Sale provisions were recently introduced in New South Wales and have received some media attention in Victoria. The New South Wales procedure is quite robust and allows owners and other stakeholders (e.g. developers) to input into developing the best Strata Renewal Plan for owners to vote on. A 75% approval of the Strata (Owners Corporation) is required prior to the Strata seeking final approval of the Collective Sale in the Land and Environment Court.

In Victoria, the 2016 Consumer Affairs – Property Law Review Options paper sought responses from the community to the 5 different proposals (including the NSW procedure). The Victorian Government is likely to revisit this topic with significant changes expected to be proposed to the Owners Corporation Act later this year.

Collective Sale of Common Property

Under the Subdivision Act (Vic) a unanimous resolution of members is required to sell or transfer all or part of the common property.

However, if the majority of members having more than half (50%) of the lot entitlements consent to the resolution, then a lot owner/ the Owners Corporation/ a person with an interest in the owners corporation may apply to VCAT under s34D of the Subdivision Act for an Order binding all lot owners to sell the common property. In which case, the VCAT Member must consider the economic and social benefits and disadvantages such an order would bring to the development collectively and to member(s) who voted against the resolution. The provisions of the Subdivision Act do not extend to a compulsory sale of an owner’s private lot.

Naturally, with the aging of many strata buildings, expensive repairs or refurbishment or property developers presenting attractive offers to owners corporation, we can expect to see an increase in these types of sales occurring. The recent sales of a strata titled office building in Franklin Street and residential buildings on both St Kilda Road and in Southbank are examples of unanimous support by lot owners to redevelop.

This post appears in Strata News #187.

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Robert Savage,
McClusky Lawyers
E: [email protected]
LinkedIn Profile

Read Next:

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

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