The Strata Schemes Development Act 2015 (NSW) (‘the Development Act’) provides three principal avenues for altering or bringing an end to a strata scheme: a court-ordered variation following damage or destruction (ss 130-131), a court-ordered termination (s 136), and an administrative termination by the Registrar-General on the application of those holding registered interests (s 142). The latter two routes, though both productive of termination, differ markedly in their preconditions and in their legal effect.
Variation following damage or destruction
Where a building the subject of a strata scheme is damaged or destroyed, s 130(1) permits an application to the court for a variation order. Standing is conferred on an owner of a lot, a registered mortgagee or covenant chargee of a lot, the lessor of a leasehold strata scheme, and the owners corporation.
On such an application, s 131(1) empowers the court to make an order varying the existing scheme, or substituting a new scheme for it (a variation order). The directions that such an order may contain are cast broadly. They extend, among other things, to the substitution of a new schedule of unit entitlement; the reinstatement, in whole or in part, of the building (or, for a part strata parcel, the part subject to the scheme); the amendment of any strata development contract or strata management statement relating to the parcel; the vesting in the owners corporation, free from mortgages, charges, covenant charges and writs, of the interests of owners whose lots have been wholly or partly destroyed; the application of insurance moneys received in respect of the damage; and the payment of amounts to or by the owners corporation, an owner, or a lessor: s 131(2)(a)-(f). The court may also make provision for any matter it considers just and equitable in the circumstances: s 131(2)(i).
The defining feature of the s 130 jurisdiction is that it is predicated upon damage to or destruction of the building. Where no such damage exists, recourse must be had to the termination power in s 136.
Termination by the Supreme Court: s 136
Section 136 empowers the Supreme Court to make an order terminating a strata scheme.
Unlike s 130, the exercise of this power does not depend upon damage to or destruction of the building – although it remains available in those circumstances.
A termination order under s 136(2) may include directions across a wide range of matters incident to bringing the scheme to an end: the sale or disposition of the owners corporation’s property; the discharge of its liabilities and the identification of the persons liable to contribute (and in what proportions) to that discharge; the termination of any related development scheme and cancellation of the strata development contract; the termination or amendment of a strata management statement; the distribution of the corporation’s assets and each person’s proportionate entitlement; the administration and powers of the owners corporation; voting power at its meetings; and its winding up, including the appointment and powers of any person engaged to carry that out: s 136(2)(a)-(i). As with a variation order, the court retains a residual power to provide for any matter it considers just and equitable in the circumstances: s 136(2)(j).
Effect of a s 136 order
An order terminating the scheme under s 136 vests the whole of the “parcel” in the owners corporation as principal. The owners of the lots thereupon cease to be owners, and hold instead only such rights and bear only such liabilities as the order confers or imposes upon them: s 138(1)(d).
The court’s concern to avoid prejudice
In considering an application under s 136, the court is concerned to ensure that no person is prejudiced by the termination of the scheme. That concern extends beyond the lot owners to rating and taxing authorities and other creditors whose interests in the lots will be destroyed by the termination: Pritpro Pty Ltd v Willoughby Municipal Council (1986) 3 BPR 9572. Because termination will extinguish all unregistered interests in the land, evidence as to any such interests should ordinarily be placed before the court: Borsky v Proprietors SP No 19833 (1986) 7 NSWLR 84.
Termination by the Registrar-General: s 142
Section 142(1) permits a person to apply to the Registrar-General for termination of a strata scheme, save where the scheme relates to a parcel subject to a strata development contract.
The defining constraint of this route is the requirement of unanimity. Unless the Registrar-General otherwise agrees, the application must be signed by every owner of a lot, the lessor of a leasehold strata scheme, every registered lessee of a lot, and every registered mortgagee, chargee and covenant chargee of a lot, of a registered lease of a lot, or of the common property: s 142(3)(a)-(d). In substance, an application to the Registrar-General can be made only where the holders of all registered interests consent. It is not sufficient that termination is desired by a majority; there must be unanimity.
Effect of a s 142 order
The effect of a termination recorded by the Registrar-General under s 142 differs markedly from that of a termination ordered by the Supreme Court under s 136. Rather than vesting the parcel in the owners corporation as principal, the Registrar-General’s termination dissolves the owners corporation and vests its assets in the former owners as tenants in common, in shares proportional to the unit entitlements of their former lots (or in such other proportions as the application specifies). The former owners become liable for the corporation’s liabilities in the same proportions, and may complete any legal proceedings begun by or against the corporation: s 144.
Once a termination has been recorded, the Registrar-General cancels the folios for the lots and the common property in the former parcel and creates new folio or folios for the land: s 145.
DISCLAIMER: The information provided above is published for general informational purposes only and is not intended to be nor should it be relied upon as a substitute for legal or other advice.