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The owners of apartments in crumbling old buildings who were offered multimillion-dollar sums by developers to hand them over for demolition and rebuilds have had their dreams dashed by loopholes in new legislation that was ironically intended to make redevelopments easier.
The new laws allowed a majority of 75 per cent of owners to sell their entire blocks for redevelopment and contained provisions for minority, or single, objectors to have their legal fees paid by the majority. Instead, this has ended up stymieing deals.
Sydney needs more places to live, but a legal loophole is making redevelopments harder.Credit: Nic Walker
In one case, that left owners paying huge legal sums on behalf of one owner-developer who’d been the underbidder when he’d tried to buy their building, helping him to fight the winning developer … until the buyer eventually walked away.
“The legislation was intended to protect poor old granny from the ugly developer, but in this case it was actually the reverse,” said one devastated owner in the building affected, in Sydney’s north-west in Macquarie Park, who requested anonymity to speak freely. “It actually protected the ugly developer from the poor old granny.”
The mess has been outlined in a new paper published by lead author Professor Hazel Easthope, deputy director of the University of NSW’s City Futures Research Centre, Redeveloping the Compact City: the challenges of strata collective sales.
Minister for Better Regulation and Fair Trading Anoulack Chanthivong vowed to fix the glitches. “The NSW government is committed to updating and reforming this system, including fixing the loopholes that have made it out of date,” he said.
Professor Hazel Easthope is calling for law reform to make it easier for unit owners to band together and sell their block for redevelopment.Credit: Rhett Wyman
“That includes getting to work on the sensible changes recommended by the 2020 statutory review that went untouched by the last government. We’re working with the sector now and expect the first phase of changes to be before the parliament this year.”
The 2016 law reform to allow 75 per cent of owners to vote to sell their building, and dissenting owners to be protected, with the land used for bigger apartment developments, had been a central tenet in the NSW government’s plans to help solve the housing crisis.
Only a handful of buildings have managed to negotiate a sale.
“The big thing that changed was the unanticipated use of the safeguards put in place for the minority owners by commercial interests,” said Easthope. “Now we’re left in a situation where owners have told us that developers aren’t interested in buying older buildings unless there’s 100 per cent agreement from owners to sell.
“We need the legislation to change.”
The paper quoted a Macquarie Park site, rezoned to allow for bigger buildings to provide more homes. The owners have been trapped in what they describe as a never-ending nightmare.
Forty of the 45 owners in two neighbouring buildings agreed to sell them together and put them out to tender in 2016. The dissenting five owners included a developer who’d purchased units in both buildings under different company names.
That developer made a bid, then withdrew it, according to the paper, so the owners agreed to go with a rival bidder, student accommodation group GSA, who paid deposits to the 40 owners and agreed to pay the costs of any legal proceedings. GSA was contacted for comment.
Few owners have been able to negotiate a sale of their ageing building for redevelopment.Credit: Nic Walker
Then the companies associated with the other developer started proceedings in the NSW Land and Environment Court to challenge the deal. As those legal costs spiralled, GSA walked away, leaving the owners with massive legal bills and little prospect of redeveloping their buildings.
Stephen Abolakian, co-managing director of the developer in question, Hyecorp, said they had not objected to the proposed development. “We engaged in discussions with the purchaser from the beginning of the process and acted in good faith from the onset so we did not disrupt the progression of the development,” he said.
“The purchaser undertook a dual pronged approach in acquiring the site which involved, on one hand, negotiating with us directly while, on the other hand, also commencing strata renewal proceedings. In order to avoid unnecessary costs and angst, we agreed to terms to sell our lots to the purchaser in April 2018. In July 2018, we signed our copy of the agreed form of contract only for it never to be entered into by the purchaser. The contracts remain signed by us but unsigned by the purchaser.”
The owners say they’ve been left devastated by the whole affair. “It’s been horrendous,” said one owner, who asked not to be named. “Our lives have effectively been on hold for the last seven years, waiting to see what was going to happen. We’re shelling out so much money, we can’t even afford to repair our own buildings now.
“The stress of all this has made me sick, and so many of the others are just worn down. We wanted to sell our buildings as they’re past their use-by date and the government keeps saying they want to see the land used for more homes, and Macquarie Park is the perfect place for big towers. But the whole thing is an unmitigated disaster.”
The government’s Department of Customer Service admitted in a paper to parliament back in 2021 that there were problems, but still no changes have yet been tabled.
“That dissenting developer held several lots in the scheme and was able to adopt a blocking position, drawing out legal proceedings and incurring costs for the owners corporation such that the renewal proposal was ultimately withdrawn,” it said.
In the six years since the legislation commenced, the court has only approved one sale and strata lawyer Amanda Farmer says the laws have been “an almost complete failure. What the reforms did was arm some unscrupulous developers with a tool to threaten hold-out owners and achieve their 100 per cent more easily,” she said.
Karen Stiles, executive officer of the apartment owners’ peak organisation the OCN, said repeated requests to reform the legislation had fallen on deaf ears. “The state government has failed to close the loophole, preventing the development of desperately needed housing,” she said.
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