Strata Reform Overview Continued Sean Macfarlane, Senior Lawyer, Landgate

Leasehold strata – what is it? Strata scheme is set up for a fixed term ( yrs) Buyer acquires long term lease of lot (strata lease) Owner of strata lease issued with Certificate of Title Strata lease owner: can transfer lot & strata lease mortgage the lot without the lessor’s consent. Strata company responsible for managing buildings and common property (not the lessor)

Leasehold strata options Loosely based on NSW leasehold strata legislation Only over freehold land & s75 LAA conditional tenure Strata leases for 20 to 99 years Staging of leasehold schemes permitted Off-the-plan sales of leasehold permitted Leasehold strata or survey-strata (not community title) Development options: by land owner or developer

Staged Development - variations Difficult to vary a staged scheme development now Major variation on plan requires consents of owners, registered interest holders and caveators Reforms will widen the definition of minor variations Decision of what is minor variation will be reviewable through the State Administrative Tribunal (SAT)

Staged: Deemed consent process Only applies to registered interest holders & caveators Non-minor variation: serve notice on interest holders Interest holder must respond within 30 days No response within 30 days: consent is deemed Objections to variation must be reasonable Developer can apply to SAT to review objection and if not reasonable, SAT will deem consent has been given Staged development disputes resolved at SAT

Strata manager regulation Statutory duties imposed on strata manager: Hold strata company funds in a trust account Inform strata company before contracting with associate Act honestly, with loyalty and in good faith Keep and provide records of key services delivered Strata company given power to terminate strata manager contract if contract or statutory duty is breached & not rectified Strata manager can apply to SAT for stay of termination

Improve management of schemes Allow electronic notices, voting & record keeping (levies may also be ed) Strengthen by-law enforcement By-laws cannot be unreasonable or oppressive Easier to install sustainable infrastructure (solar, etc.) Statutory duty imposed on strata council members Act honestly and in good faith Exercise due care and diligence

Dispute resolution Currently: 4 different forums and complex provisions Research: SAT effective in resolving strata disputes Strata disputes resolved in specialist forum: SAT Simplify dispute resolution provisions in Act Empower SAT to streamline dispute processes

Strengthen SAT powers Monetary orders up from $1000 to $75,000 Penalty for breach of any by-law Resolve strata manager and strata company disputes Amend and repeal by-laws and resolutions Resolve leasehold and community title disputes Resolve vendor disclosure disputes

Buyers given more useful information Full set of by-laws and minutes of recent AGM Details of levies and insurance policies Details of administrative and reserve fund accounts Electronic disclosure allowed

Buyer avoidance rights Notifiable variations: Seller to tell buyer if variation impacts buyer Seller to tell buyer of variation within reasonable time Administrative by-law change is not a variation Buyer avoidance rights clarified: Buyer will have 10 days to avoid (now 7 days) Cannot avoid if sale contract specifies variation

Questions? For more information: Photographs provided courtesy of the Metropolitan Redevelopment Authority

Staged Development Case Study Sean Macfarlane, Senior Lawyer, Landgate

Minor variations: now and after reforms Variation in the scheme Now: Regulation 36After reforms* Number of lots within the scheme 0% change. Any change in the number of lots is a non-minor variation and requires consents Less than 10% is a minor variation – no consents required Unit Entitlement (UE) of each of the lots 0% change. Any change in UE of lots is a non-minor variation and requires consents Less than 5% variation in UE is a minor variation * Note that the final definition of what is a minor variation has not been confirmed. For the purpose of this case study, we have hypothetically fixed the definition of minor variation. Further consultation will be undertaken before confirming the definition of what is a minor variation as part of the reforms to the Strata Titles General Regulations 1996.

Case Study: Staged Development – Pt1 After the reforms, developer (Dave) registers a strata scheme plan indicating that he is undertaking a staged development in 3 stages. Dave sells and transfers all the lots in stage 1 to buyers. Dave decides to increase the number of lots in stage 2: Dave lodges WAPC approved amended plan of re-subdivision for stage 2 showing 115 lots will be built (original plan was for 100 lots) Other variation includes UE will change for all lots by 4% approx. Registrar of Titles rejects amended plan of re-subdivision: Increase in number of lots is a non-minor variation Dave is advised he needs to obtain consents Dave applies to SAT to review Registrar’s decision. What will SAT decide?

Staged Case Study: Part 2 SAT rules that the Registrar’s decision is correct Variation is non-minor: Dave needs consents Dave notifies all 30 registered interest holders of variation 10 interest holders do not reply after 60 days 10 interest holders object 15 days after notice given, citing: That the variation will result in the value of the lots in stage 1 over which they have mortgages being adversely affected 10 interest holders object 35 days after notice given That the variation work will cause too much noise What can Dave do?

Staged Case Study: Part 3 Assuming Dave has obtained all the deemed consents of the registered interest holders to the variation, he now needs the consents of all the owners in the scheme. The strata company does not pass a unanimous resolution in favour of proposed variation in scheme (vote was 28 in favour of the variation and 2 against) 2 out of the 30 owners in the scheme objected, citing: The variation will cause too many people to use the swimming pool (common property) What should Dave do?

Termination of schemes Strata Titles Act Reform

Termination of schemes: current law Three ways to terminate a scheme now Unanimous resolution of all owners One owner or one mortgagee can apply to the District Court for an order to terminate a scheme One owner can apply to District Court for an order deeming the resolution to terminate was unanimous, if: a special resolution was reached the owner applying was part of the majority who voted to terminate

Majority termination process Now No detailed termination proposal required No safeguards for owners District Court given no guidance Reforms will introduce a transparent process address the problem of aging strata buildings becoming too expensive to maintain provide owners with a solution where the maintenance costs exceed the owners ability to pay enable owners to terminate and receive fair market value before the building becomes unsafe include safeguards and mandatory procedural and fairness reviews

More than just a vote: whole process There will be whole process that must be followed if you want to terminate a scheme. The vote is only one part of that process. Termination process: Proposal must contain prescribed information Proposal must be served on all owners and mortgagees All owners must be given at least 3 months before voting Vote must be properly conducted All ratified proposals must then undergo a fairness and procedure review by the State Administrative Tribunal (SAT)

Vote required before SAT review Schemes of 4 or more lots: 75% of lots in favour 3 lot scheme: 2 lots in favour 2 lot scheme: 1 lot in favour Leasehold strata: 75% of lots and lessor in favour Community title: 75% of all lots in favour If the required vote is attained, the proposal must then be reviewed by SAT

SAT review of termination No majority termination without a SAT Order SAT must be satisfied that: the Termination process was properly followed each owner will get fair market compensation proposal is just and equitable Extensive guidance provided in the Strata Titles Act 1985 to assist SAT in deciding whether the proposal is just and equitable

What SAT is to consider To decide whether the proposal is just and equitable SAT must consider views of owners and mortgagees SAT must consider if there is a more appropriate order, such as the strata company should repair the building instead May consider condition of buildings and cost to maintain May consider whether a different vote would have been obtained if votes cast using unit entitlement May consider the use of proxies and whether they have been used in the best interest of the owner Impact of taxes and stamp duty is to be considered by SAT

Compensation which must be paid Every owner must get fair market value for apartment: open market price for their apartment Owner’s removal expenses must be paid if loss suffered Business losses are to be compensated is loss suffered Proposal can include offer to provide owner with a replacement apartment

Safeguards for vulnerable owners Person seeking to terminate must provide funding to vulnerable owners to respond to the proposal Vulnerable owners can use that funding to: Pay for legal advice on the termination proposal Pay for expert reports including valuation of their apartment Pay for expert advice on taxation and financial implications Regulations will define who is a vulnerable owner SAT will determine who is a vulnerable owner

Questions? Photographs provided courtesy of the Metropolitan Redevelopment Authority

Leasehold Strata Schemes Sean Macfarlane, Senior Lawyer, Landgate

Leasehold strata overview Loosely based on NSW leasehold strata legislation Only over freehold land & s75 LAA conditional tenure Strata leases for 20 to 99 years Staging of leasehold schemes permitted Off-the-plan sales of leasehold permitted Leasehold strata or survey-strata (not community title) Development options: by land owner or developer

1. Fee Simple Title Lot 1 2. Lease to Developer “Original Lease” 2. Lease to Developer “Original Lease” 3. Construct Building 4. Leasehold Strata Plan Strata Leases to developer Cancel Original Lease to Developer 4. Leasehold Strata Plan Strata Leases to developer Cancel Original Lease to Developer Lot 2 Lot 3 Lot 4 Lot 5 Lot 6 Progress of development 5. Titles are issued to developer for leasehold interest in strata units Leasehold development option 1

Option 1 Leasehold development steps Original (initial) Lease granted to developer by lessor Developer obtains approvals (WAPC, etc.) & develops scheme Leasehold scheme plan and strata leases lodged – strata leases to be signed by fee simple owner as lessor and developer as lessee Registration of scheme plan and strata leases Original lease cancelled & “replaced” by strata leases Certificates of title issued for each lot / strata lease Developer is lessee of strata leases until transfer to buyers Strata company created and strata company responsible for maintaining common property Developer may exit the scheme by transferring all lots with no further obligations owed to lessor (under the leases)

1. Fee Simple Title Lot 1 2. Owner Constructs Building 3. Strata Plan Lodged 4. Strata leases by the owner as lessor to the owner as lessee for say 99 years Lot 2 Lot 3 Lot 4 Lot 5 Lot 6 Progress of development 5. Titles are issued for owner’s leasehold interest in strata units Leasehold development option 2

Leasehold strata vs. normal leases ItemLeasehold StrataOrdinary leases Regular rental payments No. Deposit and balance payment Yes Remedies for breach by lessee Damages, injunction, specific performance, re-entry and forfeiture Re-entryRe-entry only by order of SATYes, subject to s81 PLA RenewalBy exercising option in lease or separate agreement between lessor and lessees: Statutory process to be followed By exercising option in lease or separate agreement between lessor and lessee; no statutory process Conversion to freeholdStatutory process to be followed No statutory process Merger of leasehold interest Does not applyDoes apply

Leasehold strata governance Fundamental difference between normal lease and long term strata lease (20 to 99 years) Single large payment for strata lease Equivalent to purchase of freehold lot Protect value of strata lease Additional governance required for: Re-entry (only by order of SAT) Renewal of lease (proper process) Conversion to freehold process Strata lease governance (strata lease must not be inconsistent with STA)

Leasehold strata management Strata company responsible for managing buildings and common property in leasehold scheme (not the lessor) Owners (lessees) of leasehold apartments: are members of the strata company decide how the scheme will be managed through the strata company and the council of that strata company have to comply with by-laws of the scheme (management statement) have to comply with the strata lease for their lot Strata lease prevails over management statement

Leasehold strata – other features Lessor consent required for the following dealings: Transfer of common property Lease of common property (beyond duration of leasehold scheme) Grant or surrender of easement or restrictive covenant burdening or benefitting scheme land Lessor consent required for alteration of lot Lessor consent not required for: Mortgage or charge over lot Transfer of lot / strata lease Sub-lease of lot Lessee to pay rates, land taxes Duty payable on transfer of lot

Leasehold strata renewal process No statutory right to renew: only by option or agreement Statutory process to renew: At least 75% of lot proprietors (lessees must vote in favour) Must give lessor notice at least 6 months before expiry of leases All strata leases must be renewed: all to expire on same date Strata lease renewed in lessor’s name where lessees don’t renew Lessor may decline renewal of strata lease if lease breached SAT to resolve renewal disputes including power to: Order lessor to sign strata leases / renew Amend the proportionate allocation of renewal fees between lessees Extend term of strata leases to enable registration of renewal Order strata lease not be renewed if lease breached & not rectified

Questions? Photographs provided courtesy of the Metropolitan Redevelopment Authority

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