TITLE OPTIONS FOR DEVELOPERS - STRATUM SUBDIVISION OR STRATA PLAN SUBDIVISION?

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1 TITLE OPTIONS FOR DEVELOPERS - STRATUM SUBDIVISION OR STRATA PLAN SUBDIVISION? 19 AUGUST 2014 LIABILITY LIMITED BY A SCHEME APPROVED UNDER PROFESSIONAL STANDARDS LEGISLATION

2 TITLE OPTIONS FOR DEVELOPERS Developers have various options for apportioning title when subdividing land into lots. For a strata or similar development, these include stratum subdivision or strata plan subdivision. Each has relative advantages and disadvantages. STRATUM SUBDIVISION FOR THE WHOLE DEVELOPMENT A stratum subdivision would enable you to subdivide the Land into separate lots limited in height and depth, such as: o Lot A (supermarket) o Lot B (retail) o Lot C (residential tower/s) o Lot D (residential tower no. 2) One would create the boundaries of the lots so that the lots comprise the whole of the Land, so there is no residue common property. A strata management statement will permit and regulate the manner in which you complete the construction of the development. Following completion of construction of one of these lots, one could either sell it as a single lot or lodge a strata plan of subdivision to strata

3 subdivide it. REQUIREMENTS Plans required The following plan would be required: o Plan of subdivision of the Land for the lots; o *Strata plan of subdivision for lot A, if you propose to strata that lot o *Strata plan of subdivision for Lot B, if you propose to strata that lot o Strata plan of subdivision for Lot C and Lot D, recommended for the residential lots *Optional - depending on whether you want to strata subdivide those lots. Management documents required You will need the following management documents: o Strata management statement ( SMS ) o *By-laws for Lot A if it is strata subdivided o *By-laws for Lot B if it is strata subdivided o *By-laws for Lot C and Lot D. *Optional the strata management statement can include by-laws for the strata schemes or alternatively, you establish separate by-laws for each lot which will be lodged with the strata plan of subdivision for that lot. Contribution for expenses One of the benefits of a stratum subdivision is that each lot will be responsible for their own expenses and will be liable to contribute to the

4 expenses for the shared facilities as set out in the strata management statement. Therefore, if you sell a lot, you will not be required to contribute to any expenses for things in that lot, except for shared facilities which will be regulated by the SMS. The SMS can apportion the contributions to shared facilities in a much fairer manner, and after registration can be modified as set out above. There are no constraints that contributions for shared facilities must be paid in accordance with unit entitlements, as Lots A, B and C are separately liable as provided in the SMS. The strata lots within lot C and possibly D are then liable in accordance with their unit entitlements, for that lot's contribution. KEY FEATURES OF THE STRATA MANAGEMENT STATEMENT I have set out below some key features of the SMS as this is what permits and regulates your construction of the development. o It operates as a covenant binding each lot and each owner within a lot o It must not be inconsistent with the development consent or any act or law o It is not required to set out a concept plan, which gives you a lot more flexibility with what you can build in the remaining stages o It must establish the building management committee (BMC), being a committee with a representative from each lot which has required functions under the Strata Schemes Freehold Development Act 1973 (SSFDA) dealing with the conduct of the meeting and the management of the whole building o It must provide for the manner in which it may be amended o It must provide a method of settling disputes or complaints in the building o It must provide the manner in which documents may be served on the committee o Without limitation it may provide for other matters, such as, the conduct of the BMC meetings and record keeping and other matters which effect the whole of the building, such as, safety and security measures, the appointment of a managing agent, the control of unacceptable noise levels, prohibiting or regulating trading activities, service contracts, an architectural code to preserve the appearance of the building, and use of the swimming pool. o It may contain the manner in which you complete your development, such as, access etc.

5 o It does not have to contain the other restrictions referred to in the SDC, such as, standard of materials and heights of the different towers, and completion within 10 years o It may set out contribution to expenses for the shared facilities, such as, the lifts and pool However, from a practical point of view the more certainty you provide in the SMS about what is going to be developed the more comfort that a buyer will have. AMENDMENT OF THE STRATA MANAGEMENT STATEMENT Your registered SMS must be carefully considered because after registration which is with the plan of subdivision, there are many limitations on the manner in which you can have it amended, which are explained below. You must comply with section 28U of the SSFDA and have the amendment registered. Section 28U deals with 4 different methods of amendment all of which require consent or an order from someone other than yourself. These four methods of amendment are: supported by each body corporate (by special resolution) and owner of each other part of the building; ordered under the SSFD Act; ordered under any other Act by a court; or consequential on the revocation or modification of a development consent (under sec 103 of the Environmental Planning and Assessment Act). CONTRIBUTION FOR EXPENSES

6 One of the benefits of a stratum subdivision is that each lot will be responsible for their own expenses and will be liable to contribute to the expenses for the shared facilities as set out in the strata management statement. Therefore, if you sell a lot, you will not be required to contribute to any expenses for things in that lot, except for shared facilities which will be regulated by the SMS. The SMS can apportion the contributions to shared facilities in a much fairer manner, and after registration can be modified as set out above. There are no constraints that contributions for shared facilities must be paid in accordance with unit entitlements, as Lots A, B and C are separately liable as provided in the SMS. The strata lots within lots A, B and C are then liable in accordance with their unit entitlements, for that lot's contribution. MANAGEMENT AFTER COMPLETION All lots will be governed by the covenants set out in the SMS and the relevant legislation. The residential lots, will be able to make decisions independently. If there are disputes about matters between the different lots, then this is dealt with at the BMC level, and if need be through the dispute resolution mechanisms set out in the SMS and finally through the courts, or through the OFT and CTTT if there are 2 adjoining strata schemes in dispute and both schemes consent. My experience is that this type of management structure provides less disputes, more harmony and a fairer system of management.

7 STAGED STRATA PLAN SUBDIVISION A stage in a stratum development, such as the stage for the residential towers, is commonly subdivided by a strata plan of subdivision. A strata plan of subdivision's key feature is to identify the lot property which is sold to the purchasers leaving the remainder of the Land as common property i.e. individual units v common property areas. Upon registration of the strata plan of subdivision the common property vests in the owners corporation as agent/trustee for the owners. The owners own the common property as tenants in common in shares equivalent to their unit entitlements. Your development Lot C (and Lot D if created) would be created in two stages. The first stage being on tower of apartments and the second stage for the other towers as a separate development lot in the stratum subdivision, just like an individual unit just a lot larger, and not subject to the same restraints as your strata development contract will permit and regulate the way you complete the development lot. Once you have completed the construction of stage 1 and obtained the necessary approvals, you could sell these lots, then complete the second stage. Upon completion of the second stage you could lodge another strata plan of subdivision, which would divide that development lot into the separate residential lots and common property. I will now set out in more detail the method by which you can conduct the development by way of strata plan of subdivision. Plans required You will need the following plans: Strata plan of for stage 1 (and stage 2 if applicable) Management documents required You will need the following management documents:

8 Strata development contract (SDC) By-laws KEY FEATURES OF STRATA DEVELOPMENT CONTRACT Key features of the SDC I have set out below some key features of the SDC as this is what permits and regulates your construction of the development. It operates as a covenant binding each owner It must not be inconsistent with the development consent or any act or law It requires you to set out a concept plan and provide a written description of: (a) the warranted development, which you must complete; and (b) the authorised development, which you may complete, which will operate to restrict what you construct in the staged development It must set out the manner in which you will use and repair the common property during the course of construction It must set out that you cannot use materials that are inferior to or substantially different to those used in the completed part of the development It must set out details of vertical staging and of insurance cover that applies to such staging It must set out the types of buildings proposed, the proposed uses of the lots in the buildings, the proposed building style and the proposed height and density of the buildings It must set out common property amenities It must set out your working hours It must set out a brief description of your landscaping It must set out your proposed access over the common property It must set out your maximum number of lots It must set out your proposed by-laws, easement, covenants and management agreements or dedications It must set out when you propose to complete the development of that lot which cannot be later than 10 years from the registration of the first strata plan It may vary the contribution towards the common property expenses related to use and maintenance, so that you are not required to

9 contribute to those expenses The regulations provide for matters which must be dealt with separately in respect of each stage ie. the types of buildings, the maximum number of lots, vertical staging and how liability is to be determined by the by-laws ADMENDMENT OF SDC Your SDC must be carefully considered because after registration, which is with the first strata plan, there are many limitations on the manner in which you can have it amended, which are explained below. You must comply with section 28J of the SSFDA and have the amendment registered. Section 28J deals with different types of amendments and sets different requirements for each, all of which require consent or an order from someone other than yourself, as is set out below. (2) A proposed amendment that involves a change in the basic architectural or landscaping design of the development, or in its essence or theme, may be made only if it is: (a) approved by the consent authority (if any), and (b) except where the developer is the only proprietor of lots in the strata scheme concerned, supported by a unanimous resolution of the body corporate of the strata scheme concerned. (3) An amendment proposed in order to give effect to a change in the law or a change in the requirements of a consent authority (but that does not involve a change in the basic architectural or landscaping design of the development, or in its essence or theme) may be made only if it is: (a) approved by the consent authority (if any), and (b) notified to:

10 the body corporate of the strata scheme concerned, and the proprietor of each lot in that scheme (other than the developer), and each registered or enrolled mortgagee, chargee, covenant chargee and lessee of a lot in that scheme. (4) Any other proposed amendment that would require a change in the terms of a development consent may be made only if it is: (a) approved by the consent authority, and (b) supported by a special resolution of the body corporate of the strata scheme concerned. (5) Any other proposed amendment that would not require a change in the terms of a development consent may be made only if: (a) it is supported by an ordinary resolution of the body corporate of the strata scheme concerned, and (b) the application for registration, or the contract as intended to be amended, is accompanied by a certificate, given in the approved form by the consent authority (if any), to the effect that a change in the terms of any development consent is not required. (6) A consent authority that approves an amendment of a strata development contract must provide the applicant for the approval with a copy of the instruments, plans and drawings that describe and illustrate the amendment and a certificate in the approved form to the effect: (a) that the copy describes and illustrates the approved amendment, and (b) that the contract, if amended as approved by the authority, would not be inconsistent with any related development consent.

11 CONTRIBUTION FOR EXPENSES Normally, in a strata scheme all owners are liable for all of the owners corporation's expenses in the proportionate amount of their unit entitlements. Whilst the development lots are not concluded, the SDC can vary your contribution towards expenses for the use and maintenance of common property. However, this does not extend to other common property or lot property expenses, such as, insurance or legal fees for recovery of levies etc, of which you will be required to contribute according to your unit entitlements. Once the development lots are concluded you will be required to contribute for all expenses of the owners corporation in accordance with your unit entitlements. MANAGEMENT AFTER COMPLETION All owners will be governed by the by-laws for the scheme and the relevant legislation. Sophisticated by-laws can seek to assist the management of many issues, however, by-laws cannot cover all situations and there will be instances of dispute and disharmony and the dispute resolution mechanism through the office of Fair Trading (OFT) and the Consumer, Trader and Tenancy Tribunal (CTTT) which combined is usually too lengthy, costly and unpredictable in view of the matters that are usually in dispute. If at the conclusion of a development scheme, a body corporate considers that the schedule of unit entitlements does not reflect market value of lots, the body corporate may lodge a revised schedule of unit entitlements. Such revised schedule must be lodged within 2 years after conclusion of the development scheme.