QLD: Q&A Termination of the Strata Scheme

This Q&A deals with the rights of the lot owner when the Committee explores the termination of a strata scheme in Queensland.

Table of Contents:

• QUESTION: I own 93% of the unit entitlement in a small block. Unfeasible major work is required. If we sell to a developer, how are units valued?
• QUESTION: A developer has made an offer on our seven lot scheme. Six owners would like to accept the offer. Can the seventh owner be forced to sell?
• QUESTION: We are an acreage body corporate. If all 7 lot owners agreed, could we terminate our scheme and become individual freehold lots with easements or such to share the road maintenance etc?
• QUESTION: We own both lots in our strata scheme. How can we terminate the strata scheme?
• QUESTION: What does the legislation say about the termination of a strata scheme in Queensland? If 75% of owners want to sell, can the majority force the remaining 25% into selling? How is the price for each lot determined?

Question: I own 93% of the unit entitlement in a small block. Unfeasible major work is required. If we sell to a developer, how are units valued?

I own 93% of the unit entitlement in a small Queensland block. Major work is required to repair the building, and the cost is out of the question.

If we close down the body corporate and sell the land to a developer, how is each unit valued? Will it be by unit entitlement, or must we have all the units valued separately and the land valued as a redevelopment site?

This will only relate to the minor stakeholder who currently has seven per cent of the units of entitlement.

Answer: If you look at the new legislation for scheme termination, there is consistent reference to ‘market value’.

Your query suggests that you want to terminate the scheme (that is what it is known as) rather than continue to contribute to its maintenance. In other words, you would seek to use the ‘economic reasons’ option for termination, new legislation for which is in effect from 1 May. While I note you say that the repairs are ‘out of the question’, you do need to fulfil the criteria of section 81A of the Body Corporate and Community Management Act 1997 (the Act) in order to use the economic reasons option. It is also worth remembering that a body corporate can still be terminated by resolution without dissent, unconnected to economic reasons.

Assuming that you can meet those economic reasons, section 81B of the Act will be relevant to you. It outlines everything that must be included in the ‘termination plan’. It is an extensive list, including, for example, ‘an estimate of the amount to which each owner of a lot will be entitled on the sale of the scheme’ (s81B(e)) as well as something called the ‘minimum compensation’. There will also need to be a ‘pre-termination report’, which again, is extensive, and includes a requirement for ‘a market valuation of each lot in the scheme’ (s81C(2)(a)).

You have not said if the minority owner will be happy to go along with the proposed termination. If they are not in agreement with you, that minority owner will have rights to challenge any decisions made about termination, and that the costs of such challenge will typically be borne by the body corporate, not the owner.

If you look at the new legislation for scheme termination, there is consistent reference to ‘market value’. You may want to take a look at section 81B(5) of the Body Corporate and Community Management Act 1997, which provides for the ‘respective market value of a lot principle’ in relation to scheme termination, namely:

“respective market value of a lot principle” the principle that the market value of a lot in a community titles scheme is the value expressed as a percentage of the sum of the market value of all of the lots in the scheme.

You have mentioned a ‘minority owner’. Which suggests one owner of one lot. This suggests you could make them an offer now to buy their lot to give you total ownership of the scheme, prior to any termination. Presumably, that would be like any other real estate transaction, with offer, counter offer and eventually, an agreed price. Maybe the old adage in real estate that ‘the price of a property is whatever someone is willing to pay for it’ is relevant here.

My strong recommendation is for you to seek qualified advice on your proposal, as there is plenty you need to be aware of, and the legislation surrounding it is very new. The new laws are literally a month old, with no opportunity yet to test them. Which means you do not have a benchmark to base any action on.

This is general information only and not legal advice.

Chris Irons
Strata Solve
E: chris@stratasolve.com.au
P: 0419 805 898

This post appears in Strata News #698.

Question: A developer has made an offer on our seven lot scheme. Six owners would like to accept the offer. Can the seventh owner be forced to sell?

Seven owners each own a lot in our block of seven units. A developer has made an offer to buy the whole block. Six owners would like to accept the offer. The price offered is reasonable. The final owner refuses the offer and wants to hold out for a ridiculous figure. Can the owner be forced to sell?

Answer: The proposed changes to the QLD legislation would allow a scheme to terminate with a 75% agreement threshold, but only if ‘economic reasons’ exist.

The proposed changes to the QLD legislation would allow a scheme to terminate with a 75% agreement threshold, but only if there are ‘economic reasons’ to do so. I do not know if your situation is an ‘economic reason’, mainly because that term isn’t defined.

You can find out more about the proposed changes about terminating a body corporate in the recording of a recent webinar – Queensland Body Corporate Law Changes And What They Mean For You: Scheme Termination.

Chris Irons
Strata Solve
E: chris@stratasolve.com.au
P: 0419 805 898

This post appears in Strata News #666.

Question: We are an acreage body corporate. If all 7 lot owners agreed, could we terminate our scheme and become individual freehold lots with easements or such to share the road maintenance etc?

We are an acreage body corporate comprising 7 lot owners. The common property comprises 2 access roads to individual properties, 2 automatic gates and 2 intercoms. If all 7 lot owners agreed, could we terminate our scheme and become individual freehold lots with easements or such to share the road maintenance etc?

Answer: Yes, this is possible provided you are also able to obtain the necessary council consents and reach agreement with the owners for all remaining termination issues.

Todd Garsden
Mahoneys
E: tgarsden@mahoneys.com.au
P: 07 3007 3753

Question: We own both lots in our strata scheme. How can we terminate the strata scheme?

We own 2 adjoining blocks of land in Cairns, Qld with 1 industrial building across both blocks. Previous owners created Strata to sell both properties separately. Over time, we have purchased both properties, therefore, we own 100% of Strata.

How can we now Terminate this Strata which has done nothing for more than 10 years?

Answer: A resolution can be passed at a general meeting of the Body Corporate to bring an end to the scheme.

A resolution can be passed at a general meeting of the Body Corporate to bring an end to the scheme. It may be worthwhile involving a town planner to ensure any required council approvals are in place and a lawyer to prepare the motion and provide some specific advice on the issue.

Todd Garsden
Mahoneys
E: tgarsden@mahoneys.com.au
P: 07 3007 3753

This post appears in Strata News #616.

Question: What does the legislation say about the termination of a strata scheme in Queensland? If 75% of owners want to sell, can the majority force the remaining 25% into selling? How is the price for each lot determined?

I own an apartment in a small QLD complex. The managers want to terminate the scheme and sell it to a developer. Can I be forced to sell my apartment to the developer and how is the price for each lot determined?

The manager presented me with a contract. The price offered doesn’t cover my apartment cost and the renovations I completed last year. There has been a verbal agreement of more money and also a lease after the sale, but I’ve received nothing in writing. I haven’t signed either option deed or contract.

What does the legislation say about the termination of strata schemes? If 75% of owners want to sell, can the majority force the remaining 25% into selling? Can I be forced to sell my apartment to the developer and how is the price for each lot determined?

Answer: The manager cannot arrange for the lots to be sold to a developer. Each owner would need to individually agree to this; Any reduction to a lower threshold (such as 75%) does not presently exist.

Section 78 of the Body Corporate and Community Management Act 1997 (Qld) relevantly provides that the Scheme can be terminated through either:

Termination of scheme

1. a resolution without dissent and entry into an agreement about termination issues ; or




2. by the District Court if it is just and equitable.

A resolution without dissent is only passed if no lot owners vote against the motion.

There has been very little judicial consideration of circumstances of when it is just and equitable. Mahoneys acted in one case that was ultimately resolved by consent with the parties. However, this did consider a number of issues such as the costs to continue maintaining the scheme.

Law reform in this area has been discussed for a long period of time and QUT has published some detailed research on this issue. I have extracted some of that research below:

Determining ‘just and equitable’

The District Court should have reference to the following factors when determining whether a termination plan is just and equitable:

• any structural engineer’s report, quantity surveyor’s report or valuation prepared for the purposes of scheme termination at the scheme;
• any termination plan, collective sales agreement or redevelopment plan prepared by the person proposing the termination;
• the economic reasons for the termination plan;
• the consequences to lot owners (both individually and as a whole) if the scheme is terminated;
• the consequences to lot owners (both individually and as a whole) if the scheme is not terminated;
• the age and condition of the building or any structures on scheme land;
• sinking fund forecasts and current balance;
• the aggregate market value of individual lots compared to the market value of the scheme as a whole in its highest and best use;
• any other factor specified in the relevant Regulation Module; and
• any other factor the Court decides is relevant.

Accordingly, for present purposes:

1. the manager cannot arrange for the lots to be sold to a developer – each owner would need to individually agree to this;
2. any reduction to a lower threshold (such as 75%) does not presently exist;
3. it would not be wise to sign a sale contract that does not include all the promises being made about what you will receive; and
4. it might be worthwhile receiving some formal advice as to the documents you have been sent. Option contracts can be relatively complicated as far as sale contracts go.

Todd Garsden
Mahoneys
E: tgarsden@mahoneys.com.au
P: 07 3007 3753

This post appears in the February 2022 edition of The QLD Strata Magazine.

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