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