A collective sale (strata renewal) process can be a daunting experience for the owners of a strata scheme looking to sell or redevelop their building let alone the journey for the purchaser. But it needn’t be. A lot of the mystique around a collective sale can be brought to light with the right guidance and approach. Tony McGinley of Cornerstone RE is currently conducting collective sales on behalf of 100 owners over various sites in Sydney and he says it’s a long road; but managed well it can very beneficial for everyone involved.
“Whilst the time taken to engage and manage the process of a collective sale can be lengthy and frustrating, its actually easier for both parties when the process is managed properly and as outlined by the Strata Schemes Development Act. This journey is simply not for anyone wanting to take shortcuts. Anyone not following a compliant process will put the sale in jeopardy when or if it comes time for a court decision.”
Given that the laws surrounding a collective sale are relatively new, are there precedents to call on in terms of guidance and preventing a potential strata renewal from derailing?
“There are a certain interlocutory and procedural matters before court at the moment which gives me some guidance but essentially I always come back to these principles:
- Owners should be compensated fairly for their property with a premium above market value and a sound valuation methodology employed to ascertain a fair and equitable apportionment of the sale price. In my opinion, simply applying unit entitlements as a means of apportioning sale proceeds can be unfair.
- The process of investigating a collective sale is conducted fairly, with transparency and not biased towards any specific owner or proponent;
- Sound legal guidance from the very beginning to the end of the process;
- The terms of the sale should be broad enough to cover most if not all, financial situations that each owner faces in the collective sale. This includes dealing with capital gains tax, options to ‘buy back in’ to the new development and a clear, compliant and inclusive strata renewal plan. Interestingly, the highest price may not necessarily be the offer accepted. A lot of the consideration is in the terms of the sale as well.”
“I always keep my ear to the ground for the outcomes of recent Land & Environment Court decisions on collective sales but feedback from property lawyers point conclusively to a need for a concerted effort by both the elected Strata Renewal Committee and/or the proponent to follow the steps of a strata renewal plan accurately and with sound legal advice supporting the pathway and decision making process”.
Just starting the process of a collective sale can be difficult. Strata Managers can provide guidance and compliancy around commencing a strata renewal but who takes it forward from there?
“I have found that executive committees need help in starting this process as they are not usually up to speed with new laws surrounding strata renewal and they are also worried about how to proceed without there being issues of conflict and self-interest amongst owners. It’s a lot easier when there is a proponent taking on the strata renewal investigation on behalf of the owners – whether that be an agent, advisor or developer. That way the Strata Renewal Committee (SRC) can keep an arms length from the process and essentially takes on an overseer role.”
So, how do you start a strata renewal process?
“In my experience, I have found that having two distinct parties (financially involved or not) from the start lessens the pathway being derailed. In very broad terms, the process starts with a proponent – which can be anyone – but is usually an agent making the approach to the executive committee of a strata scheme on behalf of a developer. The proponent submits a strata renewal proposal for adoption by the owners corporation by way of an ‘opt in’ majority vote. After a strata renewal committee (SRC) is elected at the same owners corporation meeting, the proponent seeks to provide the SRC with a suitable offer and terms for a collective sale. Together with the offer, the SRC (with the guidance of an advisor or solicitor) puts together a strata renewal plan to take to the owners’ corporation. From there it is decided by a majority of +75% of owners whether to adopt the plan or not.”
“There are clear guidelines of a collective sale set out by the Office of Fair Trading which should be diligently followed but its the minutia and variables unique to each property and owner that need to be considered and managed well. Good legal advisors will research the property and history to ascertain any building or title issue that may arise which could hinder a sale. Having an experienced person oversee this is critical to the likelihood of a successful strata renewal plan being adopted by the owners and lessons the potential failure if it goes before the courts.”
How do you get involved with these collective sales? It seems to be a highly specialised area for real estate agents?
“It is a very specialised part of the industry and not really the domain of main stream agents but with my experience in this field, I have clients identifying sites from time to time and they want me to make the approach to the executive committee on their behalf. I usually end up as the proponent either as the agent or acting on behalf of the strata committee or the developer.”
What are the benefits to developers undertaking the strata renewal process?
“Developers can feel that a site is too hard to put together due to a large number of owners and the arduous journey that a strata renewal process can involve. They simply don’t have the resources or skill set to undertake a collective sale. I don’t believe there is a financial benefit over an in ‘one line sale’ as such but it certainly can be beneficial from the point of view of acquiring a site that they may think is out of reach. My clients have comfort in the fact that someone is working on their behalf without them committing to time and resource to achieve it.”
What key point would you provide anyone wanting to undertake a strata renewal process?
“The success or failure of a collective sale is not the initial approach, it’s making sure the journey is on the right path from the very beginning.”
Tony commenced in the property industry over 15 years ago working in residential development and has become highly experienced in project marketing off the plan residential developments in NSW and Victoria. Tony’s breadth of expertise in property extends from medium to high density in both residential and commercial sales as well as regional land sub divisions and masterplanned developments. He also provides specialist services in identifying and acquiring sites for his clients, planning and development advice and project design and creative services and of course, strata renewal advisory.