On 1 May 2024, proposed changes to the Body Corporate and Community Management Act 1997 (BCCM Act) relating to strata scheme termination in Queensland commenced. There are now three options to terminate a scheme; either by unanimous consent, application for a court order, or via the new process.
Key Takeaway Points:
- Queensland has significantly reformed its strata scheme termination requirements to facilitate the renewal and redevelopment of uneconomic schemes.
- There are now three options to terminate a scheme; either by unanimous consent, application for a court order, or via the new process.
- Under the new process, termination is possible if there are economic reasons to terminate the scheme and 75% of all lot owners’ consent to the termination.
- The BCCM Act provides that there are two scenarios in which a scheme may be deemed uneconomic, however, it stops short of providing a definition for ‘uneconomically viable’.
What is the new process?
Termination is possible if there are economic reasons to terminate the scheme and 75% of all lot owners’ consent to the termination. Hence, the critical condition of the new process is that the scheme must be ‘uneconomic’.
What is an uneconomic strata scheme?
The BCCM Act provides that there are two scenarios in which a scheme may be deemed uneconomic:
- The first is a scheme in which all the lots are used for a commercial purpose and it is not economically viable to continue.
- The second applies to any scheme in which it is not economically viable to carry out repairs and maintenance to the scheme at present or in the future.
However, it is unclear what ‘economically viable’ means as no definition is provided by the BCCM Act.
Procedure to follow to terminate an uneconomic scheme
The procedural requirements that must be satisfied under the new process include:
- Preparation of a pre-termination report by the body corporate that evidences the economic reasons present;
- Approval of a termination plan setting out the arrangements to sell the scheme;
- Economic reasons and termination plan being passed by majority resolution at a general meeting;
- Motion for a termination resolution being consented to by 75% of lot owners at a general meeting; and
- Appointment of a facilitator to assist the body corporate to implement the termination plan.
Limitations of the legislation.
To instigate a termination process, the body corporate will be required to obtain market valuations of the scheme, estimated values of body corporate assets and liabilities, and specialist reports pertaining to the scheme’s economic viability, structural condition, and costs to repair any defects.
These requirements suggest a high threshold and a possible limited application of the legislation noting that dissenting lot owners may apply for specialist adjudication to review an economic reasons resolution, or a court order that a termination resolution should not have been passed.
Potential key characteristics
Given the high threshold required, characteristics would include schemes in a serious state of disrepair. Minor defects that could be dealt with by sinking funds or modest special levies would not, in our view, meet the ‘not economically viable’ threshold.
Next Steps
Our Property team is happy to assist if you have any preliminary queries about how the changes to Queensland’s termination process of strata schemes may affect you / your clients.
