Forced sale under the new legislation

 

On Tuesday 14 November 2023, the Queensland Government passed new body corporate laws. The new laws will commence on a date yet to be announced, which is likely to be in early 2024. 

Three things to know about new strata laws regarding forced lot sales:

  1. The forced sale of lots will be a slow and complex process
  2. A scheme must show that it is not economically viable
  3. At least three general meeting voting hurdles must be cleared to terminate a scheme 

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Forced sale of lots

The forced sale of lots in strata schemes has been a vexing issue for the government for a long time, and they have finally decided to do something about it, most probably under the guise of the housing crisis.

There is always an element of compromise in strata, so the government has created a mechanism in the new legislation to allow a body corporate to force people to sell their lots, even if they don't want to. 

That's the headline at least.

Economically unviable: Forced sale under the new legislation

The reality is that the mechanics of forcing the sale of a lot under the new laws are complex. Before a body corporate can get through the process it must show there are economic reasons to do so, namely that it's not economically viable for the body corporate now or over the next five years to maintain the scheme in the way that it's required to be maintained, which instantaneously is a breach of the body corporate statutory obligations. 

This situation will only be applicable to bodies corporates that are in a really poor state of repair. 

If your body corporate is well maintained or your building is run well, then this simply is not going to apply to you. 

The new scheme termination process

There are quite a few hoops that must be jumped through and the legislation is quite complex, as would be expected for something of this nature. There are also protection mechanisms for people on the way through. 

First, the body corporate needs a pre-termination report that sets out why the scheme is unviable.

The plan must include reports from experts such as structural engineers, builders and quantity surveyors that set out, in detail, the financial reasons for the scheme being unviable. All of this needs to go to all owners. 

There is then an extended period for owners to consider the report. After that, the body corporate needs to have a termination plan. This addresses the question of the next steps after a scheme termination. What is the market value of the parcel as a whole, and the individual lots? How are the proceeds distributed? What liabilities are there, and how are they dealt with? For example, administration contracts for body corporate managers or even management rights agreements. It could be easements, it could be leases to telephone companies, telecommunications providers on the roof. All of those need to be dealt with as part of the plan. 

This plan also needs to go to owners months before it is voted on.

The decision to approve a pre-termination report and accept a termination plan is what's called a majority resolution, which is more than 50% of the owners of the lots in the scheme voting for it. That's not 50% of those who choose to vote, but the majority of the lots in the scheme in total. If there are 100 lots, 51 need to vote โ€˜yesโ€™.

The decision to terminate the scheme after all of those reports have been provided and approved must attract a 75% vote to pass. Owners must have this paperwork for at least 120 days before voting on it.

There are mechanisms for people to challenge either the termination plan or the pre-termination report before decisions are given effect.

Once the process is complete, the body corporate must then appoint a facilitator who will shut down the building and deal with it in accordance with the termination plan. 

All up, that will be at least a 12-month process, but realistically quite longer, subject to what people do along the way. And there is probably another vote before any of this can be started โ€“ that to deal with the approval of the expenditure relating to it!

What you can do

The more people you've got in a building, the harder it's going to be to get a termination across the line. It's a testing of the waters from the government and it will be interesting to see how it works in practice. But if you're not sure and need help, please reach out

 

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