Amalgamation of Strata-titled Lots for Development

Morning of the Earth

It's a warm, almost hot, sunny Sunday morning at the beginning of winter on the Gold Coast.

You've enjoyed an early morning surf at Main Beach just two minutes walk from your unit in a three storey walk-up apartment block.

During the mid 1960's, the government introduced strata-titling, which for the first time allowed multiple dwellings to be developed and sold on a single parcel of land. There was an explosion in the development of these popular apartment buildings during the 1970s.

You work in the field of IT and run your business from your home office. The rooms in your strata title apartment are large, sturdy and reasonably sound proof.

Low-rise apartment blocks from this era also offer secure underground car-parking spaces and a lock-up shed or an individual large lock-up garage for each unit. There's room to securely store surfboards, bicycles, cars and jet skis and the ‘Body Corp' fees to maintain the exterior walls, gardens, stairwells and other communal facilities are as low as $200 per unit per month.

During the week, you trailer your jet ski to a nearby boat ramp and ride it at dawn to the surf location known as TOS. You surf among a hardy crew of locals who know each other, if not by name then certainly by face. But by Saturday, it's far too crowded with visiting weekend surf warriors, so you have a more relaxed session at the local beach break.

You're enjoying a well-deserved cuppa and some toast and jam while sitting at a timber outdoor-table in the shade of the palms that you are growing in pots on your ground floor courtyard.

You and your wife have lived peacefully in this unit for 30 years without any major problems with neighbours or the building. You feel like you are living everyday in a relaxed tropical holiday resort without having to put up with the constant noise and rush of tourists (or 'schoolies').

A guy breaks the 'serenity' when he pushes the buzzer on your unit block security-door and speaks just a little too loudly through the intercom.

"It's Flavio specialising in amalgamations acting for an interstate based developer. (Name changed to protect the guilty)
Can I have a quick word with you Tim?" (Name changed to protect the innocent)

You poke your head over the courtyard brush-fence.

He is standing at the locked glass security-door at the exterior of the communal foyer and stairwell at your end of the unit block. He is wearing a dark, three-piece suit and carrying a manila folder thick with documents. He looks out of place in a beachside suburb unless he's just been to church or he's a funeral director.

You respond,
"Yeah mate, can I help you?"

He is slightly stunned to hear your actual voice coming from over his shoulder and not through the intercom. He turns to see your face poking over the brush-fence.

You don't recognise him and yet his body language seems to expect you to invite him into your unit. You don't.

He is forced to speak to you over the brush-fence and he does so reluctantly, all the while trying to keep his volume down and constantly checking that no one else is overhearing the conversation.

He tells you he wants to buy your unit and he'll give you a great price for it.

He says he has spoken to all the other unit owners in your block and they are willing to sell up (a lie). His aim is to amalgamate this block with the block of apartments next door and knock them down so he can build a beautiful, architect-designed high-rise apartment building using both blocks.

He has "done these kinds of developments before" and he has "a wonderful reputation for treating people fairly when he buys their units" and he is "highly respected for the outcomes of his developments."

Yeah right!

You remember the line by the Scarecrow in The Wizard of Oz:
"Some people without brains do an awful lot of talking, don't you think?"

You have already been tipped off by a neighbour in your apartment block that some guy is approaching the current residents separately to pressure all 9 owners of the units in your block to sell their units to him.

Flavio's intention is to amalgamate the unit strata-titles into one lot and then amalgamate your block of units with the amalgamated lots in the block next door to create a large development site on which to construct a speculative high-profit (for him) high-rise apartment building.

You have become aware through previous approaches by speculative real-estate developers that the amalgamation of units through the buying out of all strata title owners in a block of flats often operates on a strict profit-based formula for the benefit of the purchaser and not the seller.

The Queensland Act

The principle Act covering strata-title buildings in Queensland is called the Body Corporate and Community Management Act 1997 (BCCM)

This Act is supplemented by the Body Corporate and Community Management (Standard Module) Regulation 1997 (Qld); the BCCM (Accommodation Module) Regulation 1997 (Qld); the BCCM (Commercial Module) Regulation 1997 (Qld): and the BCCM (Small Schemes Module) Regulation 1997 (Qld).

Consequently, each Regulation Module contains detailed and individualised provisions on the rules, policies and procedures for corporate governance, which includes amongst other things: the constitution of the Body Corporate Committee; the scheduling, conduct and reporting of committee meetings; and the regulatory requirements for financial and property management.

The specific content of each Regulation Module is guided by the type of Community Titles Scheme it is intended to govern. For instance, the Standard Module is a generic module designed for residential schemes consisting mostly of owner/occupiers.

An accommodation lot is defined as a lot that is the subject of, or immediately available to be the subject of, a lease or letting for accommodation for long or short term residential purposes, or part of a hotel.

A commercial lot is defined as a lot used for commercial or industrial purposes, that is not an accommodation or residential lot.

The Small Schemes Module is the least regulated and is restricted to buildings where there are no more than six lots included in the scheme and there is no letting agent.

While the relevant legislation differs in each state, section 78 of the Body Corporate and Community Management Act 1997 (Qld), provides that a scheme [strata-titles] may be terminated by a resolution of the body corporate (passed without dissent) with all registered owners in agreement of how the termination is to be undertaken. Alternatively, the scheme may be terminated by the court if it considers it is "just and equitable to do so".

https://worrells.net.au/newsletter-articles/court-ordered-termination-of-a-well-known-community-titles-scheme/

The Unit Owners Association of Queensland (UOAQ):

UOAQ objectives include:

1 To raise the level of quality in the building of strata developments.
2 To ensure that the properties are properly and fully maintained through the life of the building.
3 To ensure that the rights of all owners are respected and equitable for 100% of owners in a scheme.

Developers call for Queensland BCCM law changes to force unit owners to sell

Currently to amalgamate and extinguish existing strata title lots the Queensland BCCM Act requires:

• All owners (100%) in a strata titled scheme to unanimously consent to a collective sale of their lots, or
• A court order to terminate the community title scheme.

The Property Council of Australia (PCA) is campaigning to change the requirement for unanimous consent in Queensland. The PCA members (property developers) will be the greatest beneficiaries of their redevelopment approval reduction recommendations from 100% to 75% of owners' agreement as occurred in NSW in November 2016, bringing the end to the unanimous vote of owners previously required to end a strata scheme in NSW.

Even high population density, land-scarce cities such as Singapore have an over 80% minimum approval threshold. Applying the PCA recommendation, three owners in a 4-unit block could overrule one owner automatically. This could be the case with developers who hold existing unit holdings, as they do in many sites up and down the prime coastal sea-front such as the Gold Coast.

The PCA argument for lower than 100% owner agreement in strata titles is that existing unit blocks are "heavily dilapidated" and "rapidly deteriorating assets".

Construction quality

What does it say about the quality of the building construction of unit developments if they must be demolished after 30 to 40 years?

Could it be the outcome of a lack of consumer protection laws, which may require increased builder warranty periods to raise building standards?

Alternately, has a lack of any construction quality assessment scheme and control regulation created the major numbers of defects the PCA claim or has industry self-regulation in property construction failed strata title consumers and their communities?

Single dwelling owners' rights

Single dwelling owners of four adjoining lots in a street would never be exposed to a campaign where 3 owners (75%) could force 1 owner (25%) to sell their home. The PCA considers that strata owners have fewer rights than single dwelling owners.

Consumer protection for strata living

Strata living is expanding to a situation where it will eventually become the largest form of home choice in Australia, so it is bewildering that these homeowners, representing such a substantial proportion of the Australian community, should be denied protections afforded by Australian Consumer Law (ACL).

When 'unfair contract terms' legislation under ACL was introduced in 2011, Bodies Corporate were specifically excluded from its coverage (for reasons unknown but suspected to be to protect Queensland government interests in the insidious regime of Management Rights). Single dwelling owners by contrast are protected by ACL.

Many owners in Australia, in both individual houses and strata schemes have achieved 100% agreement to sell for redevelopment. In fact, most redevelopments on the Gold Coast have, as legislated, been 100% agreed to en-bloc sale.

In a nutshell - the Property Council of Australia's objective is to make it easier, quicker and cheaper for their members (developers) to purchase prime location redevelopment sites and maximise their financial profits.

The UOAQ is philosophically opposed to the principle of any proportion of owners over ruling a minority leading to the forced sale of their property. These processes are best left with the courts where equitable outcomes may be better achieved.

https://uoaq.org.au/2016/08/developers-bccm-law-changes-owners-forced-sell/

Tactics used by Developers in Queensland

Developers use tactics to deliberately create conflict amongst unit owners who are interested in selling and those who do not want to sell. They are known to stalk vulnerable home owners.

1 Developers appeal to the greed of some unit holders to influence and "harass" others.

If you are happy where you live, it is not up to another person with a purely monetary motivation to put their monetary value on your lifestyle. The planting of the seeds of greed by speculative developers is intended to create disharmony in the strata-title community.

2 Not maintaining the building

There are numerous examples on the Gold Coast of some unit holders not wanting to maintain buildings when entering into speculative amalgamated sales discussions with developers.

Unscrupulous developers argue to susceptible unit owners that they are wasting good money on maintaining the current building which is "heavily dilapidated" and a "rapidly deteriorating asset" when they will be able to buy into a newer apartment building once the sale of all units in their block is completed.

Motions for core maintenance may be voted down. If long-term essential maintenance is voted down an individual owner can take it to the Office of the Commissioner. Additional amendments have been made to body corporate regulations to further support bodies corporate dealing with issues arising due to COVID-19; in particular, the challenges with social distancing. COVID-19 has been used by some unscrupulous developers to drive a wedge through owners and delay important maintenance.

3 Artist's impression of fictional buildings

Developers invite individual owners to a "show and tell" and reveal artist's impressions of the high-rise that is going ahead "no matter what" and will tower over your unit, take away your privacy and shadow your building.

They imply that you would be better off with the deal they are offering "because this development is going ahead anyway."

If it's going ahead anyway why do they need to purchase the land that your unit sits on?

4 Insiders join the Body Corporate Management Committee

Developers sometimes take the risk of purchasing one or two units in a block from mortgage stressed unit owners through an intermediary, so that the developer can install an insider to control and manipulate the Body Corp. Management Committee and their decisions about the future maintenance and/or sale of the strata titles.

5 Sales conditioning

Developers send in fake buyers to offer sales figures far lower than the developer's offer so that it appears that the developer's offer is a really good deal, "the best deal on offer".

6 Confidentiality Agreements

Confidentiality agreements are often used to gain an advantage for the developer as the more powerful entity. One unit owner is not permitted to discuss the offer they have been made with another unit owner in the block.

This 'confidentiality agreement' can also be exploited in a legal threat if a unit owner reveals the disparity between one offer by the developer and a different offer to another unit owner in the same block.

Hence, an additional issue (expense) is involved that may require legal representation by every unit holder on an individual basis when dealing with 'confidentiality agreements'.

7 Let the owners fight it out

Developers often prefer to offer a lump sum for the whole site and let the Body Corp Management Committee or its special "Sales Negotiation Committee" decide how the $millions are to be distributed among the unit owners.

However, this can cause huge tension in the strata title community especially if, for instance, the lump sum offered by the developer for 9 strata title units is $9 million. The 'Sales Committee' might vote for an even distribution of $1 million per owner. And yet the unit owner who has recently spent $150-200,000 on renovations will receive the same amount as the owner who has let their unit become rundown.

8 Individual long-term contracts

Long-term individual contracts that are not enforceable by a strata title unit owner are to the advantage of the 'speculative' developer.

Each unit owner has to engage legal representation prior to a prospective sale while there are numerous opportunities for the 'possible purchaser' to renege on the contract if the market changes or no longer suits the developer.

You are bound individually by the contract while the 'possible purchaser' has multiple ways of discontinuing the contract.

The unit owner can face years of uncertainty about if/when the deal goes through and what will be available if/when they are finally able to look for an alternative residence to purchase from the sale of their existing unit.

9 Compare Body Corp. fees

Developers often claim, "There are units better than yours going for a song just around the corner. Let me show you some."

The opportunities for acquiring beachside, residential real-estate on the Gold Coast are increasingly reduced to high-rise apartment options. But what if you don't want to live in a high-rise?

An amalgamated sale of a strata title low-rise unit may lead to a huge disadvantage due to the massive ongoing body-corporate costs associated with the high-rise alternative.

Low-rise strata title Body Corp fees are often only $200 - 300 per month ($2,400 p.a.) while high-rise apartment Body Corp fees can be in the zone of $2000 - 3000 per month ($24,000 p.a.).

10 The price is not necessarily right

Financial time-value calculations over a 10 - 20 year period based on the extra costs of expensive body-corporate fees would discount the sale price of a unit in today's money.

For example, a sale price of one strata title unit for $800,000 in an amalgamated sale scenario with the new added expense of $200,000 for body-corporate fees over the next 10 years with the purchase of a high-rise unit is actually a sale of only $600,000 for your old unit in today's terms. Also the annual Council rates on the value of high-rise apartments are generally much greater than low-rise apartment rates.

The above tactics are often conducted by speculative developers in aggressive interactions. The ethics and lawfulness of this behaviour is questionable.

Paradise Found

Your low-rise block of units is unique. You have very low-body corporate fees, an abundance of parking, a stunning location, all within walking distance of the Main Beach shopping village, the surf beach and the Gold Coast's treasure, over 100 hectares of public beaches, waterways, bike paths, parks, open space and wild life conservation areas on The Spit.

You agree to meet with Flavio and his 'colleague' in Flavio's unit to look at some drawings of his vision for the highrise building following the amalgamation of your block and the one next door where he currently lives.

It's a pretty ordinary design so you mention this and ask if it's the actual design. Flavio's mate says, "Umm, no, it's indicative but not the actual design". They suggest that the value of your old unit will continue to decrease as the building deteriorates and especially if they build their high-rise next door anyway with the shadows and the lack of privacy it will create.

"This is a once in a lifetime offer. Don't miss it".

You are not impressed.

They use charm, pressure and veiled threats to convince you to join other owners in your block who have "agreed in principle to sell to Flavio". These 'other owners' are not present for you to confirm if this statement is true or not (divide and conquer). Unbeknown to Flavio, you have already had conversations with other owners and at least two out of the other 8 owners have told you they are not interested in selling.

You are also wary of Flavio's suggestion that similar properties are available elsewhere in the area because you know the 'opportunities' to which he is alluding are high-density high-rise apartments that bring their own issues and huge Body Corporate fees, in addition to compulsory large 'sinking fund' payments to maintain/repair the lift systems ($220,000 per lift in a nearby high-rise), swimming pools, plumbing, replacement of salt-corroded windows and concrete cancer repairs etc.

In comparison, the stairwell and carpets in your low-rise apartment block and the occasional repairs to the exterior brickwork, cost far less to maintain.

Your choice to live in this location in a small and affordable community block of units is a lifestyle choice. You value your lifestyle here and a monetary price cannot compensate for that.

As a surfer living near the beach, this is the ultimate.

It's Paradise.

If someone's life ambition is to get filthy rich, you advise them to "knock yourself out, but not at the expense of my lifestyle thanks." After careful research you decide you are not interested in Flavio's speculation on the sale of your unit to him and which could also result in up to 5 years of uncertainty while Flavio tries to acquire all the bits of the jig-saw puzzle before attempting to put them in place. You send Flavio a text message:

Hi Flavio.
At this stage I am declining any further discussions. You have implied that you will go ahead with a high-rise development next door to me whether I agree to sell or not. If you had our interests at heart would you have used these tactics and are they lawful? This is a very poor starting point to build trust. My unit is not for sale." – end text.

You quietly say to yourself, "We're not in NSW anymore Flavio."

Developer Loophole

Reading the local paper some time down the track you notice a story about people losing their homes - a developer loophole that does not require the developer to be upfront and disclose that they do not have development approval. People become homeless as a result.