Do we need a Strata Terminator ???

How do we deal with ending strata schemes when there is disagreement about it ? 

Strata termination has been debated now around the country for almost 10 years without an outcome.  And, from my perspective, there’s no clear direction and no serious interest in implementing any strategies.

Maybe we don’t need a system ?  Maybe any system will be as good as any other ??  Or, maybe we just need someone who has the guts to terminate strata schemes and ask questions later … like a Strata Terminator ??

In this post I explore the ideas, issues and difficulties faced with strata scheme termination.

All Australian states have legal mechanisms to end a strata scheme if all the owners agree and by Court order when the circumstances warrant it even if all the owners do not agree.  Unfortunately there is no guidance in the strata laws about the criteria that should be considered (or not) in making a decision about scheme termination and there are no cases that assist much.

The existing system is fine

So, one view is that we already have a system, it can work if used and we just have to use it and when we do the Courts will tells us when (and why) it is appropriate to end strata schemes and when it isn’t.  Over time we will have a workable system and the clever lawyers amongst us will design processes and templates that are easier and easier to use.

My thoughts are that this is a perfectly acceptable approach that will (over time) give us a good outcome.


The only drawbacks are that it will take a while and the first litigants will bear the major cost of clarifying the law (but they could be subsidised by government, industry groups or consumer groups).

We need a lower vote and tribunal involvement

However, many groups (including the Property Council of Australia and the NSW Government) want to introduce a non-unanimous vote for strata termination … so that even if some owners oppose termination it can still happen.  There are various proposals about how this could happen and the main issues on which they differ are –

• What vote is enough (the range is from 60% to 90%) ?
• Should a termination proposal be approved by a Court or Tribunal first ?
• Should owners who oppose termination have rights to challenge the decision ?
• How should owners be compensated (and on what measures) ?

Many people have advocated the Singaporean system that has been in operation for about 15 years (and where strata laws are similar to NSW) which involves Tribunal approval and supervision of termination schemes.

My thoughts are that the vote level is less critical than many imagine if the system also involves Court or Tribunal approval/supervision.  After all, whether one, two, three or more owners oppose termination is less relevant than the reasons why it should (or should not) happen.

I also believe that requiring Court or Tribunal approval reduces the value of having a lower vote threshold and makes the process as complex and uncertain as the existing system since we still won’t know what the Court or Tribunal will or won’t approve (and why).

Who gets paid what

When the strata scheme is terminated it’s net assets (the value of the whole property and any money left after paying all liabilities) should be split between the owners (and their mortgagees) but it’s not clear in any of the current proposals how that split should occur.

I think there are a few options.

1.  Owners get the net assets according to their unit entitlements.  It’s the way the strata system is designed now and is certain and predictable.

2.   Owners get equal amounts.  This is probably unfair but it does incentivise those who have the least financial gain otherwise from termination.

3.  Owners get the amount or share that was agreed in their vote to approve the termination proposal.  This may not be equal or according to unit entitlements and seems fair since it’s approved and therefore agreed.  But the owners who opposed the vote may be discriminated against and/or will be unhappy.  (For instance, it could be that they opposed the vote because of the proposed payment to them.)  It also suffers the problem that unless the net assets are known when the vote is taken the actual amount owners receive can change (and be lower) causing hardship.

4.  If the strata scheme is being redeveloped as part of the termination owners get what they negotiate with the developer.  This appears fair since it involves open negotiations and allows the developer a commercial profit.  But it has the possibility of the perverse outcome that the owners who agree last will get the best premium and highest value for their property … so it’s better to hold out than agree early.

5.   Owners who approve termination get what they agreed to and owners opposed are paid the fair market value of their property with rights to dispute the value along the lines of existing compulsory acquisition schemes for land.  Any balance is the developers if htere is redevelopment or shared according to unit entitlement if not.  This hybrid approach means agreement is agreement, the opposing owners have a judicial process and there is a possible windfall to developers or owners.

My thoughts are that it is inevitable that that those who disagree about the amount they are to receive on strata termination will be the hardest to deal with and it’s better to eliminate the profit potential of opposition by giving them standardised compensation.

Kicking people out  

Assuming everything happens as agreed or ordered, how are owners (and/or their tenants) who still won’t, don’t or can’t leave removed ? 

Property possession orders remain difficult to get and may involve separate legal action at the end of the termination process. 

What do you do with the contents of the lot ?  What do you do with old and infirm people ?  And, what do you do when there simply isn’t anyone in the lot ?  Just imagine the evening news that night !


So, it all seems very difficult.  And, whichever way you go there’s going to be legal challenges.

Where’s Arnie when you need him ?  In a different place and time, we’d appoint a one man Strata Terminator who’d get agreement (one way or the other) and make sure people were out, stayed out and the building was gone.

But seriously ... I’m interested in your views on this topic and will actively canvass those and post them in future blogs.  


So, let me know your thoughts and ideas.

Francesco ….

Obsolete Strata Buildings - Going Going Gone ???

Yesterday, the NSW Minister for Planning, Tony Kelly MP, addressed ISTM members at Darling Harbour about government plans to change laws to allow the demolition and redevelopment of old buildings. 

The Minister also commented on how the Government may cope with population growth in the Sydney metropolitan area over the next 20 years as well as whether the Government intends to review planning policy and regulation to remove the inconsistencies that exist between local councils in applying the current planning laws.

A few key things he said included -

•  The government had prepared discussion papers about the termination of strata schemes in 2003 and 2004 covering the issues and options and had received hundreds of submissions.
• The ageing of strata buildings in inner Sydney suburbs was a serious issue that needed addressing in the next 10 years.
• There are good examples of ways to end strata schemes without 100% owner agreement overseas that were being considered by government.
• It was important to government (and him personally) that displaced owners (especially those who were older or less able to help themselves) were treated fairly in the termination process.
• He was working to have developed reform proposals ready for consideration by the second half of 2010.
• At this stage cabinet has not approved non unanimous strata scheme termination.
• Government policy was that 70% of new dwellings were to come from infill or brownfield sites rather than greenfield development (and that currently that ratio was 79% to 21%).
• Presently approximately half the infill development in NSW is strata or community title (about 39% of new dwellings) and that ratio was expected to increase.
• By 2036 there will be an additional 1.7 million people in Sydney and another additional 1.6 million people in the rest o f NSW.
• There are currently two important Premier Papers touching on the government’s approach on these matters; the Metro Transport Plan and the Review of the Sydney Metro Strategy.

Forcing strata schemes to end when some owners disagree is a very challenging issue.

I believe that a lot more needs to be said and considered about ending existing strata scheme arrangements before any law reforms can be safely or effectively introduced.  In later blogs I’ll cover some of the debate and developments so far.

But for now, I’m interested to hear your views about some key issues I can think of in relation to the various existing proposals.

1. Is owner agreement to end a scheme enough (regardless of appropriate level) or does there need to be a valid underlying reason (like the obsolescence of the building, uneconomic repair costs, changes to land use, unresolvable owner conflict, etc)?
2. What level of agreement to end a scheme is appropriate if less than everyone – 95%, 90%, 80%, 75%, 66% or a simple majority?
3. Should mortgagees get a vote on ending a scheme ?  And, should mortgagees have a priority vote (over an owner’s vote) or have to vote as well as the owners vote or have a veto vote?   
4. What compensation should disagreeing owners get – market value, the same as other owners (proportionately) or a premium?
5. Should a Court or Tribunal approve ending a scheme before it occurs ?  Or, should disagreeing owners have a right to challenge the decision to a Court or Tribunal instead?
6. Who bears the cost of any aborted or unsuccessful attempts to end a scheme?  The scheme, proponent owners, the government or someone else (and if so, who)?
7. What role, if any, should government play in the process?

ISTM, who hosted the Minister’s presentation, is a leading NSW strata industry association.

Francesco …