Changing Unit Entitlements

Section 183 (below) is the relevant part of the Strata Act and I think your strata manager is right – you only need an ordinary resolution to ask for a ruling (given that any individual owner is entitled to seek an order under this section).

However, a special resolution would carry a lot of weight with the adjudicator as it would indicate that the vast majority of owners agreed with the proposed changes.

Section 183 is long and complicated but the key element is to include a valuation by an accredited valuer which indicates that the valuation was unreasonable to begin with, or became unreasonable because of a subsequent re-valuation of the unit entitlements, or became unfair because of a change in circumstances (such as an owner acquiring common property and attaching it to the title of their lot).

I can’t see why you would need a special reolution for this – there’s nothing about that in the Act – but I have a sneaking feeling that a CTTT Order is not required if there is unanimous agreement of all owners to change the UEs.  Maybe someone with direct experience can enlighten us.

183   Order for reallocation of unit entitlements

(1) Tribunal may make order allocating unit entitlements
The Tribunal may make an order allocating unit entitlements among the lots that are subject to a strata scheme in the manner specified in the order.

(2) Circumstances in which order may be made
An order may be made only if the Tribunal considers that the allocation of unit entitlements among the lots:

(a)  was unreasonable when the strata plan was registered or when a strata plan of subdivision was registered, or

(a1)  was unreasonable when a revised schedule of unit entitlements was lodged at the conclusion of a development scheme, or

(b)  became unreasonable because of a change in the permitted land use, being a change (for example, because of a rezoning) in the ways in which the whole or any part of the parcel could lawfully be used, whether with or without development consent.

(3) Matters to be taken into consideration
In making a determination under this section, the Tribunal is to have regard to the respective values of the lots and (if a strata development contract is in force in relation to the strata scheme) to such other matters as the Tribunal considers relevant.

(4) Application to be accompanied by valuation
An application for an order must be accompanied by a certificate specifying the valuation, at the relevant time of registration or immediately after the change in the permitted land use, of each of the lots to which the application relates.

(5) Qualifications of person making valuation
The certificate must have been given by a registered valuer under the Valuers Act 2003 authorised under that Act to make such a valuation (a qualified valuer).

(6) Ancillary orders that may be made if original valuation unsatisfactory
The Tribunal may, if it makes an order allocating unit entitlements that were not allocated in accordance with a valuation of a qualified valuer and, in the opinion of the Tribunal, were allocated unreasonably by a developer, also order:

(a)  the payment by the developer to the applicant for the order of the costs incurred by the applicant, including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by a qualified valuer, and

(b)  the payment by the developer to any or all of the following people of such amounts as may be assessed by the Tribunal to represent any overpayments (due to the unreasonable allocation) for which liability arose not earlier than 6 years before the date of the order:

the lessor of a leasehold strata scheme

the owners corporation

the owners of lots.

(7) Recovery of amounts awarded
An amount ordered to be paid under this section may be recovered as a debt.

(8) Who may make application?
An application for an order under this section may be made only by:

(a)  an owner of a lot (whether or not a development lot) within the parcel, or

(b)  the owners corporation, or

(c)  the lessor of a leasehold strata scheme, or

(d)  the local council, or by any other public authority or statutory body representing the Crown, being an authority or body that is empowered to impose a rate, tax or other charge by reference to a valuation of land.

(9) Lodgment of order
The owners corporation must ensure that a copy of an order made by the Tribunal under this section is lodged in the Registrar-General’s office no more than 2 years after the order is made.

Note. Section 209 contains provisions with respect to the lodgment of an order made under this section.

(10)  Nothing in this section prevents a person referred to in subsection (8) from lodging a copy of an order made under this section.

 

We recently had an owner who raised this issue, as they felt that the allocation was unfair.  I went away and did some calculations and was surprised to find that although at first glance they did look a bit out of whack, the entitlements were surprisingly fair, based on the value of the lots.  It is often the case that owners will claim that the allocations are unfair, but when you work it out by percentage of the total pool it isn’t.

I’m curious as to why the minority of owners believe the allocation is unfair, what were the reasons they gave?

Like Jimmy I thought that you could reallocate unit entitlements if the owners unanimously agreed, but it seems that isn’t the case in NSW (other States provide for this).  So if you have to apply for an order, there are some key things:

– the principal consideration is value of lots, as distinct from size, or views or whatever else (as those other elements will go to the value anyway)

– you have to satisfy the CTTT that the entitlements were unreasonable at the time of allocation, and this has to be supported by a valuation of the lots at the time of registration

Note that valuation now is not relevant, unless you fall into 2(a1) or 2(b), which is unusual.

– the valuation and application process is expensive.

Unless the OC is pretty certain that the entitlements were unreasonable at the time of allocation, then they should ask themselves why they are making the application.

(unless of course there was a subsequent subdivision or changed use of land etc.)

@scotlandx said:

Unless the OC is pretty certain that the entitlements were unreasonable at the time of allocation, then they should ask themselves why they are making the application.

I guess one good reason would be if the developer had set the UEs themselves and skewed the figures for the larger units or commercial properties to either benefit themselves (or mates) or to make them more attractive to purchasers.  That’s when this delicious clause kicks in, meaning the developer has to pay back any over-payments plus the cost of making the application: 

183   Order for reallocation of unit entitlements

(6) Ancillary orders that may be made if original valuation unsatisfactory

The Tribunal may, if it makes an order allocating unit entitlements that were not allocated in accordance with a valuation of a qualified valuer and, in the opinion of the Tribunal, were allocated unreasonably by a developer, also order:

(a)  the payment by the developer to the applicant for the order of the costs incurred by the applicant, including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by a qualified valuer, and

(b)  the payment by the developer to any or all of the following people of such amounts as may be assessed by the Tribunal to represent any overpayments (due to the unreasonable allocation) for which liability arose not earlier than 6 years before the date of the order:

the lessor of a leasehold strata scheme

the owners corporation

the owners of lots.

(7) Recovery of amounts awarded
An amount ordered to be paid under this section may be recovered as a debt.

Scotty,

Yes, that would seem unreasonable.

But what if there is no copy of the valuation of the lots at the time of registration, because the scheme is older than that requirement, or a chain of SMs have “lost” bits and pieces over time?

As you say, there would seem to be no way to reallocate UEs, even if the OC passed a special resolution or even a unanimous resolution.

How do you fix the problem? There’s another Curly Q for the Minister.

Thanks Aquarian, that fills in a few gaps.  So the scheme is relatively recent.  It is true that valuations based on purchase price may not be accurate, given that some of the transactions may not have been at arms length.  But it would not be difficult for a qualified independent valuer to do a proper valuation of the lots at the time the scheme was registered.

Re Kangaroo’s question – how do you work out the value (at the time of registration)?  That is what a valuer does.  If you look at the unit entitlements cases, there are lots of examples of valuations being given for schemes built a long time ago.  Bear in mind that the Land Titles Office records the prices paid for properties when they change hands, if you want to you can find out what any property sold for, by doing a search. 

“Value” is an elastic concept, and you can have both a subjective and objective valuation.  So just because someone buys something for certain price, that doesn’t mean that will the value ascribed to it by a valuer.  Refer this from one case:

The values of the lots are to be determined by a valuer. The High Court in Spencer v the Commonwealth [1907] HCA 82; (1907) 5 CLR 418, defined how to arrive at the valued – that is the “willing but not anxious vendor and purchaser”. In many cases to ascertain this it is necessary to obtain evidence of prices in surrounding properties at or near the relevant time….

So a report giving the value of the properties now isn’t going to assist, and from what Aquarian has said, it sounds like the valuer hasn’t even given a basis for his/her conclusions.  What you need to do is engage an independent valuer and instruct them to provide a valuation of the lots at the time of registration.  The reason I keep saying independent is because I get the feeling that the current valuer is not independent, but I could be wrong.  At the extreme, the owners of the penthouses may find that the entitlements should be readjusted in a way that is not in their favour.

Here are some cases to give you a feel re the CTTT approach.

https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCTTT/2008/769.html?stem=0&synonyms=0&query=%22unit%20entitlement%20%22

https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCTTT/2011/28.html?stem=0&synonyms=0&query=%22unit%20entitlement%20%22

https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCTTT/2012/233.html?stem=0&synonyms=0&query=%22unit%20entitlement%20%22

Thanks Scotty.

I knew there were different types of current valuations, e.g. for insurance (rebuilding) or for market sale, but I didn’t realise you could get an historic valuation.

@Aquarian said:
3. the four lots on the lowest level have unit entitlements of 11; the four on the next level up have UE of 12; the four on the third level have UE of 13 and the two on the top level have UE of 14. Unit entitlements total 200

I think he meant the top level (penthouses) currently have a UE of 28 each, which came about as explained in point (7), otherwise the total wouldn’t be 200.

So the question is, is each penthouse twice the floor space of a lower unit, or did the building end up as some sort of stepped pyramid?

Floor space has to be a significant contributor to the “value” for UE purposes, perhaps the major contributor.

I’m not trying to do the valuer’s job here, but knowing this information might help Aquarian evaluate whether an application for a reallocation of UEs is worth pursuing.