Safeguards for the termination of schemes
The first strata schemes in Western Australia were created in 1968. Scheme buildings are ageing and many are costing owners large amounts in maintenance. Therefore, termination and redevelopment of a strata scheme will become increasingly common. To protect the assets held by all strata owners, Landgate is revising the process of terminating a strata scheme.
The new majority termination process will:
- introduce safeguards for owners
- introduce a termination process that is transparent, reasonable and requires a vote, and
- require a full procedural and fairness review by the State Administrative Tribunal (the Tribunal) to consider all owners’ views.
The current law
Under the Strata Titles Act 1985 (the Act) there are three ways a strata scheme can be terminated:
- all owners vote to terminate (a unanimous resolution)
- one owner or one mortgagee can apply to the District Court for an order to terminate a scheme (under section 31 of the Act)
- one owner can apply to the District Court for an order (under section 51 of the Act) deeming that a resolution to terminate is unanimous, provided that:
- a special resolution was reached and
- the person applying was part of the majority who voted to terminate.
Currently the Act does not provide adequate safeguards for owners in relation to the termination of a scheme as:
- there is no requirement for a detailed proposal be prepared or even given to other owners before launching the District Court action
- there is no requirement for a vote before applying to the District Court
- there is no additional assistance or safeguards for vulnerable owners to help them in responding to the District Court action and
- the Act provides no guidance to the District Court on how it should assess a termination application.
Overview of the reforms
The majority termination process is more than just a vote. There is a complete, transparent process that must be followed.
If the vote produces the required majority, but is not unanimous, the termination proposal must undergo a fairness and procedure review by the Tribunal. A majority termination proposal cannot proceed without an order from the Tribunal.
The Tribunal can only order that a scheme be terminated under a majority vote if it is satisfied of three key things:
- the termination process was properly followed, and
- every owner who objects to the termination will get at least fair market value for their lot (eg: apartment or unit), and
- the proposal to terminate is just and equitable.
The revised Act will provide extensive guidance to assist the Tribunal in deciding whether the proposal is just and equitable. All owners will have access to funding to respond to a full proposal and vulnerable owners will have access to additional funding and assistance to respond to the termination proposal.
The termination proposal process
If an owner or a person who has a contract to buy a lot within a scheme wishes to terminate a strata scheme, they must follow a three-part process to terminate the scheme.
Part A – The proposal
- prepare an outline termination proposal
- distribute the outline to owners and mortgagees
- vote on outline proposal
- then, if the majority approve
- obtain subdivision approval
- prepare a full proposal
- otherwise the proposal goes no further
Part B – The vote
- distribute the full proposal to all parties
- vote on the full proposal and if the required vote is not attained the proposal goes no further
Part C – The fairness and procedure review
- if less than 100% approve an application for a Tribunal review can be made. The Tribunal may reject the proposal and the process goes no further
- request the WAPC endorse the plan of survey
- apply to the Registrar to register the termination.
Part A – The proposal
Step 1. Prepare outline termination proposal
An owner or a person who has a contract to buy a lot within a scheme (the proponent) who wants to terminate the scheme must prepare an outline of the termination proposal telling owners:
- what each owner is being offered for their lot, and
- what is proposed for the termination. For example: is the termination aimed at redeveloping the land, are owners getting a replacement lot or going to be paid money for their lot, etc.
Step 2. Distribute to owners and mortgagees
The outline proposal can then be submitted to the strata company which serves it on all owners and mortgagees within 14 days. The strata company must lodge a notification with the Registrar so that the Registrar can record that a termination proposal is current for the scheme (this is to ensure people who search the scheme plan can see if the scheme is considering a termination proposal).
The Act specifies the information that needs to be in the outline proposal.
Step 3. Vote on outline proposal
All owners and mortgagees have three months to consider the outline proposal, after which time the strata company will hold a general meeting. If an ordinary resolution (a simple majority vote) is passed in favour of the outline proposal, the proponent can proceed to the next step.
If the strata company does not pass an ordinary resolution in favour of the outline proposal, the termination proposal comes to an end and the Registrar is notified.
Safeguard to protect strata companies from receiving too many proposals
A termination proposal cannot be submitted to a strata company:
- during a period where the strata company has passed an ordinary resolution in favour of an outline proposal and that proposal has not come to an end;
- during a period where the strata company has, by ordinary resolution, prohibited termination proposals from being submitted to it; or
- during a period for which the Tribunal has (on the application of the strata company) ordered that proposals are not to be submitted to the strata company.
Step 4. Obtain planning approval
Planning approval is required because when a scheme terminates, all the lots and common property become a single lot. This is regarded as a form of subdivision which requires approval from the West Australian Planning Commission (WAPC).
If the subdivision gets WAPC approval, the proponent will prepare a detailed termination proposal.
If the WAPC does not approve the subdivision the termination proposal process comes to an end.
Step 5. Prepare full proposal
The proponent prepares a full (detailed) termination proposal which must contain:
- The approved plan of subdivision for the proposal
- Specifics of what each owner is being offered for their lot, including:
- how much money the proponent is offering
- whether the owner is being offered a replacement lot in a new scheme to be built on the current site or
- whether the owner is being offered a replacement lot in a scheme nearby (in the same neighbourhood)
- terms and conditions of any contracts of sale before termination
- details of what is proposed to happen with any mortgages and leases over the lots
- details of how the strata company’s assets and liabilities will be finalised if the scheme is terminated
- an infrastructure report (paid for by the proponent) containing:
- a report from a structural engineer on the condition of each building in the scheme
- a report from a person specified in the regulations about the work that would be needed to repair or replace the buildings and infrastructure
- a report from a quantity surveyor estimating the cost to repair or replace the buildings and infrastructure
- a valuation report (paid for by the proponent) prepared by a licensed valuer stating the market value of each lot
- any other information required by the regulations.
The proponent must serve the full proposal on the strata company within 12 months of the date when the majority vote for the outline proposal was obtained.
Part B – The vote
Step 6. Distribute the full proposal to all parties
The strata company must serve the full proposal on:
- every lot owner
- every registered mortgagee of a lot in the scheme and
- every occupier of a lot in the scheme.
No decision may be made on the termination until two months have passed, enabling detailed consideration of the proposal.
Independent Advocate Safeguard
- The strata company must refer the full proposal to an independent advocate (the regulations will specify who can be an independent advocate).
- The independent advocate will:
- review the full proposal and provide the strata company with an independent assessment of the full proposal
- arrange a briefing session (conducted on a multisensory basis to cater for people with disabilities) for owners and occupiers to deliver the independent assessment of the full proposal
- assess which owners in the scheme are vulnerable owners who should receive additional funding to respond to the proposal
- advise vulnerable owners of their entitlement to additional funding
- refer the vulnerable owners to specialist advisers (lawyers, etc) who vulnerable owners can see to obtain advice and or representation
- assist vulnerable owners in obtaining the funding provided by the proponent to pay for the advice and or representation
- represent vulnerable owners in SAT if the proponent disagrees about who is or is not a vulnerable owner entitled to the additional funding to ensure vulnerable owners have access to funding to pay for expert advice and legal representation.
- The strata company will be required to pay the independent advocate for the services listed above.
- The strata company can require the proponent to reimburse the strata company the cost of the independent advocate's services.
Step 7. Vote on the full proposal
Multiple meetings may be held to understand and negotiate with the proponent on the termination proposal. The strata council may meet with the proponent to clarify and provide further information to the affected people and all people who were served the full proposal can make submissions to the proponent and the strata company. If required, more than one general meeting of the strata company may be held.
A vote in favour of the termination proposal is only effective if it happens between two and six months after the proposal was served; a maximum four-month window. Only 3 votes are permitted. The vote must be conducted by way of a secret ballot so that owners cannot be coerced.
If the vote to terminate is unanimous there is no need for a Tribunal review. The process continues at step 9.
If the vote is not unanimous but the required percentage of owners vote in favour, the proponent can apply to the Tribunal to undertake a fairness and procedure review (step 8).
The majority vote required to ratify a termination proposal before a Tribunal review is:
- for schemes of five or more lots, 80 per cent of lot owners must vote in favour.
- schemes with 2, 3 or 4 lots can only terminate by unanimous resolution.
Required vote not attained
If the required majority vote is not attained, the termination proposal comes to an end.
Part C – The review
Step 8. Apply for a Tribunal review
If the detailed proposal attains the required majority vote (but not 100 per cent) the proponent must apply to the Tribunal for a fairness and procedure review. This review will be conducted by a judicial member or a judicial member and other members of the Tribunal.
A termination proposal can only proceed further if the Tribunal confirms the termination resolution.
The Tribunal cannot give an order confirming the termination resolution unless the Tribunal is satisfied of three key things:
- the termination process was properly followed and
- every owner will receive fair market value for their lot or a like for like exchange for the lot
- the proposal to terminate is otherwise just and equitable.
If the Tribunal is not satisfied of all three points the Tribunal must order that the termination proposal comes to an end.
Just and equitable
The Act will provide extensive guidance to assist the Tribunal to decide whether the proposal is just and equitable.
The Tribunal must consider:
- the interests of owners of lots in the scheme
- the interests of occupiers of lots in the scheme
- the interests of registered mortgagees and any other person with a registered estate, interest or right over a lot or the common property in the scheme
- evidence of any impropriety in the termination process including evidence of proxy votes being exercised improperly and evidence of false or misleading information in the outline or full termination proposal
- the proportion of owner support for the termination by number of lots and unit entitlement
- the termination infrastructure report and options readily available to address problems identified in the report
- the benefits and detriments of the termination proposal proceeding or not proceeding for owners, occupiers, registered mortgagees and all people with a registered estate, interest or right over a lot or the common property.
At proceedings, the Tribunal will hear from:
- an owner of a lot in the scheme
- an occupier (including a tenant) of a lot in the scheme
- a registered mortgagee and other people who have a registered interest in a lot or the common property.
Fair market value and compensation safeguards
In deciding whether each owner who objects will receive fair market value for the lot or a like for like exchange for the lot, the Tribunal must be satisfied that:
- the owner will receive an amount that is at least the amount of compensation that would be required to be paid by an acquiring authority under the Land Administration Act 1997 for taking of the lot without agreement and
- the owner will not be disadvantaged in terms of the owner’s financial position as a result of the termination of the strata titles scheme.
In considering the amount of compensation that would be payable under the Land Administration Act 1997, the Tribunal may also award an additional amount appropriate to compensate for the taking without agreement (but it may not be more than 10% of the amount otherwise awarded or offered unless the Tribunal is satisfied that exceptional circumstances justify a higher amount).
Without limitation, the Tribunal must consider the loss or damage, if any, sustained by the owner by reason of any of the following:
- removal expenses
- disruption and reinstatement of a business
- liability for capital gains tax, goods and services tax or other tax or duty
- conveyancing and legal costs and other costs associated with the creation or discharge of mortgages and other interests, including for the acquisition of a replacement property.
If the objecting owner is being offered a like-for-like replacement lot, the Tribunal must consider:
- whether the value of the replacement lot is equivalent to the fair market value of the current lot
- how the location, facilities and amenity of the replacement lot compares with the current lot.
The Tribunal can modify the termination proposal to:
- ensure each objecting owner receives fair market value and
- ensure that lessees will be properly compensated by the proponent, if the termination goes ahead.
The Tribunal will have the power to make orders when reviewing a termination proposal which include:
- for the scheme to be terminated according to the detailed termination proposal
- that the scheme should not be terminated
- orders that are required to give effect to the termination proposal, such as to complete a transfer of a lot or vacate a lot. If the termination proposal sets out that after termination, the land will be collectively sold to a developer, the Tribunal can order that every lot owner transfer their lot on the terms set out in the termination proposal (the owner will still receive the required fair market value compensation, or, if they took up the offer, a like-for-like replacement lot)
- ordering the discharge of a mortgage on such terms as the Tribunal sees fit
- ordering the termination of a lease on termination and ordering compensation be paid to the tenant for the termination of the lease
- verifying that an owner is vulnerable and may have access to the funds provided for within the termination proposal, to seek advice and advocacy in relation to the termination proposal.
Step 9. Request WAPC endorse the plan of survey
If the Tribunal orders that the majority termination can proceed (or the termination proposal is supported by a unanimous resolution), the proponent then needs to request the WAPC endorse the plan of survey required to register the termination.
If the plan of survey is not endorsed, the termination proposal comes to an end.
Step 10. Apply to the Registrar to register the termination
The termination of the scheme will take effect on registration of the termination with Landgate. The registration of the termination will only occur if:
- the detailed termination proposal is passed by the required number of votes
- the Tribunal orders that the detailed termination proposal may proceed (or the termination proposal was supported by a unanimous resolution)
- the WAPC endorsed the plan of survey showing how the scheme will terminate and
- the proponent lodges all the other documents required with the Registrar of Titles.
Note: The proponent can withdraw their proposal at any time before registration of the termination.
All owners will have access to funds to respond to the proposal
The person seeking to terminate a strata scheme (proponent) must provide funding to all owners in the scheme to:
- pay for legal advice on the termination proposal
- pay for expert reports including obtaining a valuation report for their lot
- pay for the expert advice on the taxation and financial implications of the termination.
The Regulations will:
- specify what amount needs to be set aside for every owner and
- specify what the owner can use that money for.
Vulnerable owners will be given additional protection
The proponent must also provide additional funding to vulnerable owners to respond to the proposal. Vulnerable owners can then use that funding to:
- pay for legal advice on the termination proposal
- pay for legal representation in the Tribunal
- pay for expert reports including obtaining a valuation report for their lot
- pay for expert advice on the taxation and financial implications of the termination.
The Regulations will:
- define who is a vulnerable owner
- specify what amount needs to be set aside for each vulnerable owner and
- specify what the vulnerable owner can use that money for.
If there is an argument about who is a vulnerable owner, the Tribunal will decide.
Expenses associated with a proposed termination
The proponent will have to cover the expenses of many activities linked with a termination, including preparing the outline and full termination proposal, making the planning applications and paying for the infrastructure and valuation reports. If the strata company needs to do things during the termination process (such as serve notices on the owners or registered mortgagees) the strata company can require the proponent to pay certain expenses arising from a termination, such as serving notices on owners and the expenses of the independent advocate.
The Tribunal will hear termination matters
Under current Act, strata scheme termination applications must be heard in the District Court. Reforms will mean that the Tribunal will hear applications to terminate under the new majority termination process. the Tribunal will review every majority termination proposal.
If a party to a termination proceeding is not satisfied with the Tribunal’s order to terminate or not terminate a scheme, that person may apply to the Court of Appeal (Supreme Court) for leave to appeal the Tribunal decision.
Discharging the strata company’s liabilities
The reforms will provide that for majority or unanimous termination:
- the assets of the strata company are to be distributed
- the liabilities of the strata company must be discharged.
Meeting and vote of the strata company
The meeting of the strata company where owners vote on a termination proposal must be properly called and conducted. There must be minutes kept of any general meeting or meeting of the council to discuss the termination proposal.
There will be one vote cast per lot. Owners who have not paid levies (unfinancial owners) will still have a vote.
Who is entitled to vote?
Only lot owners can vote. Registered mortgagees won’t be able to vote on the termination proposal, but they will be able to speak at the meeting. Registered mortgagees can also have their views heard at the Tribunal if the termination proposal is approved by the strata company.
If a termination proposal fails
Where a termination proposal has expired or been rejected, no termination proposal may be served on the strata company for six months. In addition, the strata company may apply to the Tribunal for an order extending the period during which termination proposals cannot be served on the strata company. This will give some schemes the ability to focus on running the scheme rather than responding to a termination proposal.
If the termination proposal attains the required vote
The strata company must:
- serve a notice on every lot owner and registered mortgagee of the outline proposal
- serve a notice on every owner, every registered mortgagee and every occupier when the strata company receives a detailed proposal
- serve a notice on every owner, every registered mortgagee and every occupier if the termination proposal is to be reviewed by the Tribunal.
- lodge a notification with the Registrar of Titles noting that:
- the strata company has received an outline proposal or a detailed proposal
- the strata company has passed a detailed proposal or the Tribunal has approved a termination proposal
This will ensure every lot owner, registered mortgagee and anyone searching the title records for the scheme is aware of the status of the termination proposal.
Termination of a leasehold scheme
A leasehold scheme may:
- expire at the end of the scheme (when all strata leases expire at the same time)
- be terminated before the end of the scheme or
- have the original expiry date postponed.
Termination of a leasehold scheme will happen automatically when the scheme and all the strata leases simultaneously expire. Termination or postponement of expiry of a scheme will always require consent from the strata company and the lessor. More information about how a leasehold scheme can be converted or extended is set out in the leasehold schemes section.
Expiry of a leasehold scheme
Every leasehold scheme will automatically be terminated when all the strata leases simultaneously expire. This doesn’t require the strata company to vote or have the termination reviewed by the Tribunal. Certain documents will be lodged at Landgate to show the leasehold scheme has been terminated because the strata leases and the leasehold scheme have expired.
A leasehold scheme can be terminated before the expiry date if the leasehold lot owners unanimously consent to the termination. The also requires the lessor to consent to the termination before it can proceed.
The unanimous termination process for freehold schemes will apply to leasehold schemes (with the consent of the lessor required for the outline and the detailed termination proposal).
A leasehold scheme can also use the majority termination process. The same steps must be followed as for other strata or survey-strata schemes. However, the lessor (freehold landowner) must consent to the outline proposal and the detailed termination proposal. The owners of the lots will also receive fair compensation for their interest in their lot, if the scheme is terminated before the expiry of their strata leases. The majority termination of a leasehold scheme will ensure both the rights of the lot owners and the lessor (owner of the leasehold scheme) are protected.
- Fair market value for each owner of a lot in a leasehold scheme who objects is decided by assessing the fair market price for a lot within the leasehold scheme, considering the remaining time left to run on the strata lease for that lot
- The Tribunal will consider the rights of owners, registered mortgagees, occupiers and the lessor before ordering the termination.
This information has been prepared for the purposes of informing stakeholders and the community on the nature and scope of the proposed reforms to the legislation relating to strata title. Every effort has been made to ensure the information presented is accurate at the time of publication. Because this information avoids the use of legal language, information about the law may have been summarised or expressed in general statements. This information should not be relied upon as a substitute for professional legal advice or reference to the actual or proposed legislation. The contents should not be relied on as a guide for current or future legislation relating to strata title or community title in Western Australia or in relation to current or future subdivision or development proposals, commercial transactions or dealings in strata title.