Scheme Termination

Scheme Termination

As buildings begin to age, scheme termination is becoming more common throughout Australia. As schemes reach the end of their economic life, Bodies Corporate can decide to terminate a scheme and sell to a developer. This is known as scheme termination.

Owners benefit from the sale as the development potential of the site increases and therefore the individual owners lot value increases.

In 2017, New South Wales passed a new law stating that 75% of owners in a strata scheme are required to agree to reach a decision to terminate the scheme. Currently, Queensland legislation requires resolution without dissent (100% of owners to agree), or by escalating to the District Court. Discussions are currently happening to determine whether Queensland will change their legislation to follow New South Wales lead.

Queensland is predicting a large spike in strata titled schemes reaching the end of their economic life in the next 10-20 years. This will create a new wave of opportunity for developers. Developers will be presented with many opportunities to enhance existing landscapes and improve local infrastructure through the redevelopment of old schemes across the eastern seaboard.

The decision to change the resolution from 100% to 75% is a complex matter that has divided opinions. Some lot owners may be of the older generation and may simply want to live out their days in their lot. However, some lot owners may want to sell as the repairs and maintenance costs are too unreasonable. It becomes uneconomical to other owners if one owner disagrees. It is an objective decision that will leave wither the developer or lot owners in a tricky situation. By properly educating owners and providing them with the relevant information, it is hopeful that any legal cases will be avoided, and lot owners will not feel like they must sell their lot against their will.

Both parties need to be educated. Detailed reports such as sinking fund forecasts, WHS & fire compliance and valuations can provide owners with details they may not be familiar with. For example, a single lot owner may be objecting the perfect site for development. However, the owner may not be educated on the economic factors behind the decision. A Sinking Fund Forecast or Insurance Valuation will better display cases where the Body Corporate may be required to spend millions of dollars on upgrading the scheme or, owners could decide to terminate the scheme for a better financial outcome. This information would also be beneficial if the decision was escalated to the district court.

So, what is next?

These legislative decisions are a timely process and it seems the status quo in regard to Queensland legislation remains. Careful consideration and amendments of the current legislation could provide a fair and reasonable outcome for both sides. With a growing population and further centralization along the eastern seaboard of Australia, these types of amendments are generally seen as a good way to provide a significant increase to the availability of brownfield sites in sought after areas.

If you’re a developer on the eastern seaboard, click here to contact SSKB Developer Consultancy today.