Strata wind-ups are a great way to realize the economic potential of a multi-unit residential property, by leveraging the value of each strata unit in the strata to a developer that wishes to develop on the property. Despite being a great way to realize the economic potential of your property, the wind-up process can be a complex one that involves real estate law, condominium law with the law of restructuring.
Many strata owners wish to wind up a strata corporation but are not aware of the complications and effects this may have on all parties if they skip seeking professional advice. It is extremely important that before moving ahead with the process that all parties involved have a clear understanding of what to expect. This way, the process is much more likely to pass through smoothly right from the start.
The update to the strata property law in 2016 meant that strata corporations can now apply to the court to cancel a strata plan and voluntarily wind up, pursuant to a resolution approved by at least 80% of the owners involved.
This option is a desirable one, especially for older stratified developments that are about to face significant structural or building repair expenses. Other significant factors for owners to sell their property to a developer may include a change in zoning or an increase in neighborhood density. The former generally makes the property more attractive for developers willing to pay for the building and land.
In contrast, the issues that face a strata corporation in achieving its goal of winding up and selling it's previously strata-titled property to a developer is complicated. The process is generally technical with various steps the court requires to oversee the complete process.
If the strata wind-up process is not completely compliant with legislation, the court may also decline the proposal which will then incur additional costs and set back the sale months or even years.
Over the years, the availability of open land suitable for development has continued to dwindle. As a result, real estate developers are now turning to strata corporations to get adequate land for development.
Often a termination process starts when a developer approaches a strata corporation wishing to buy all the strata lots for redevelopment. Or a strata corporation may be interested in winding up and selling for redevelopment because of excessive repair and maintenance costs.
The key during the process is for open clear communication with owners with meetings held from the very beginning to discuss options. It is important to keep owners informed on the termination and the distribution of funds if the sale is to go ahead to a developer.
Owners will also want to understand how funds from selling would be disbursed. If the majority of owners are interested in termination, usually a resolution is adopted to enable the strata council to move the process forward and hire a legal counsel.
At this stage in the process, it’s important for the strata council to then hire an experienced real estate broker to market the property and negotiate for the best possible price from the developer. It’s important that owners understand the building value in the market and have professionals who can negotiate on their behalf.
The winding-up resolution drafted by strata’s legal counsel authorizes the strata corporation to apply for termination orders in the supreme court plus vested orders to approve expenditure or other miscellaneous matters such as rent-free timelines or move-out durations.