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I had a phone call this morning from one of my absent proprietors about a rather innovative proposal that he’s received from a developer, and as he’s one of those (few) that keeps a tight rein on his tenants and always pays his levies on time, I offered to do a bit of research for him via FlatChat.
The background is that my proprietor owns two (2) units in an older block of seven (7) on the South Coast (NSW) where he’s the resident on-site manager, and has all units casually rented on a regular basis generating a good return to his fellow proprietors, who are all part of the letting pool.
My proprietor was introduced to an overseas developer who wants to purchase all seven (7) units, and to then keep the Strata Plan going under the same on-site management arrangements, except that my proprietor would rent-back his unit under some form of new agreement that he hasn’t seen as yet.
The developer’s proposal is conditional on all proprietors agreeing to sell.
The Strata Manager has initially advised that there needs to be a General Meeting of the Owners Corporation, where all proprietors would need to unanimously resolve to accept the developer’s offer.
My interim response to my proprietor was that in the circumstances described, where the developer’s not going to terminate the Strata Scheme (yet), I don’t believe that a General Meeting is necessary other than possibly as a venue for the developer’s proposal to be discussed.
The developer can doubtless purchase the building more cheaply by this mechanism than by a means more conventional, and then at some future time have a General Meeting with himself to resolve to terminate the Scheme.
It all sounds rather innovative to me; the proverbial win-win, but what do you all think? Any downside?
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Would this be an OC issue?
Wouldn’t he just have to get all the individual proprietors to agree to sell, then he becomes the OC.
I don’t see the need for a meeting because:
Currently, a strata scheme can only be terminated by two methods:
- by order of the Supreme Court; or
- by application to the Registrar General, which must be supported by a unanimous resolution of the owners corporation.
The current owners don’t want to terminate the scheme, the developer needs to purchase each unit and once this is done he can terminate the scheme because he has all the votes.
Any vote the current owners make is irrelevant, as they won’t own the units when scheme is terminated.
The important point is the contracts for sale need to specify that each individual sale is dependent on all the other sales proceeding, and so you are going to need a very on the ball solicitor to arrange this. Just needs one seller to have doubts (or get greedy) for the whole thing to collapse.
The smart way to do this is for the developer to approach each owner and offer them a provisional deal whereby they say, I will give you, let’s say $20K right now if you agree to sell the apartment to me at such and such an agreed price provided everyone else agrees to sell by a certain date. If the others don’t agree to sell, then you pay me back the money, interest-free.
That way there is a legally binding pathway for the developer, a premium built into the purchase price and a lot of peer pressure on the other owners not to hold out for silly money.
At worst, the developer loses the amount of interest on the ‘loan’ that they would have got had they kept it in their own bank account.
Apparently this is going on right now all over Sydney. A more cynical developer would buy up the majority of apartments in the building then start demanding that expensive building work be done, forcing the other owners to sell. This is also happening around town.
But KP is right, this has nothing to do with extinguishment of strata since, if the developer owns all the units then they can do what they want with the building.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
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