Question: How are the proceeds from the collective sale of a strata building divided amongst all lot owners? Is the money distributed based on lot entitlement, market value, or do owners come to some sort of agreement?
Answer: The distribution of sale proceeds is typically determined by agreement among the lot owners.
A collective sale involves selling an entire building, including all individual lots and common property, to a third party. Owners may opt for a collective sale for a range of reasons, which often include unlocking the redevelopment potential of the land, avoiding escalating repair costs and future special levies, and simplifying the management of ageing buildings, particularly when a developer offers a premium that far exceeds the value of selling lots individually.
In Victoria, this process is governed by the Subdivision Act 1988, and it requires the termination of the plan of subdivision. Under section 32 of the Act, Victoria requires unanimous consent. This is stricter than other states like NSW and WA, where only 75% owner approval is needed. International thresholds vary between 80% and 100%. While the legislation refers to the consent of ‘members’, in practice the interests of mortgagees and tenants may also need to be considered.
Once a collective sale is completed, the distribution of sale proceeds is not governed by statute. Instead, it is typically determined by agreement among the lot owners. Common approaches include:
- Lot entitlement: where proceeds are apportioned according to lot entitlement as recorded on the plan of subdivision, reflecting the proportional ownership interest in the scheme.
- Market Valuation: Independent valuations can be used to assess the fair market value of each lot, which can result in a more tailored and equitable distribution, particularly where lot sizes or conditions vary significantly.
- Negotiated Agreement: Owners may agree to a bespoke formula for distribution, taking into account qualitative factors such as views or lot size.
The best method for distributing proceeds from a collective sale often depends on the circumstances of the property and the preferences of the owners, but there is an argument that apportioning based on independent market valuations is generally the most equitable.
This approach reflects the actual value of each lot at the time of sale, taking into account differences in size, condition, orientation, and improvements. While using lot entitlements is simpler, it may not fairly account for variations in market value between lots. A negotiated formula can work well where owners are cooperative and the differences are well understood, but it can also lead to disputes if not clearly documented.
This post appears in the August 2025 edition of The VIC Strata Magazine.
Fabienne Loncar Moray & Agnew Lawyers E: floncar@moray.com.au P: 03 8687 7319