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Resources Scheme terminations not as simple as developers might hope

  • Posted by Insight by Robert Lalor
  • Published Current as at 1 May 2024
  • Category Insights

The Queensland Government’s updated strata laws have caught the eye of property developers, attracted by the headline that a 75% vote of lot owners can terminate a strata scheme.

We are already being contacted by developers interested in buying multiple lots in some buildings with an eye to a knockdown and redevelopment.

However, a careful reading of the new legislation should give those hopeful of turning a tidy profit pause for thought.

How do you terminate a scheme?

While the Queensland Government promoted the changes as potentially opening up development sites to address the housing shortage, the path to terminate an existing scheme is not straightforward.

To safeguard lot owners, a body corporate must prepare a pre-termination report to establish an economic reason that a scheme is no longer viable, as well as a termination plan that outlines the logistics of any proposed sale.

These are complex documents to compile.

What is a pre-termination report?

The pre-termination report must include a market valuation for each lot in the scheme, a market valuation for the scheme land, as well as a statement outlining the body corporate’s assets and liabilities. In the case where a building faces major repairs, a report from a structural engineer is required to detail the condition of the property, in addition to a report from a qualified person on the work needed to rectify the building accompanied by a report from a quantity surveyor on the likely cost of those repairs.

What is a termination plan?

The termination plan must include, among other details, the name of the proposed purchaser of the scheme, the sale price, the day of settlement and an estimate of the amount each lot owner will receive.

What is the process to terminate a strata scheme?

The pre-termination report must be supplied to all lot owners at least 90 days before a general meeting to consider a motion on whether economic reasons for a termination exist.

If that resolution is passed by a majority vote, aggrieved lot owners have 90 days to apply for a specialist adjudicator to resolve the dispute. There is no timeframe set down in the legislation for an adjudication to be delivered.

If the body corporate can secure agreement through that process, it must supply lot owners with a copy of the termination plan at least 120 days before a general meeting to consider a motion for termination.

To pass, the resolution must have 75% or more of all lot owners vote in favour. The Act states that votes cannot be exercised by proxy and, regardless of a scheme’s by-laws, a lot owner can vote even if they owe money to the body corporate.

If a body corporate has managed to clear all those hurdles, an aggrieved lot owner can still appeal to the District Court within 90 days of the vote. The body corporate will be liable for the ‘reasonable costs’ of the proceeding and has the onus of proving that it is just and equitable to implement the termination plan.

The Act also states that the court must consider “the economic and social effects of the termination of the scheme on each lot owner”.

Given that this is new territory for the courts, the inclusion of “social effects” adds a degree of uncertainty which, should a case ever get to that point, will be closely watched.

What does this mean for me?

In summary, scheme termination is complex, long and uncertain.

Developers planning to proceed down this path would do well to seek legal advice early in the process.