Unlocking Redevelopment Opportunities? The new Body Corporate Termination Process

On 1 May 2024, new strata laws came into effect in Queensland. Matthew Raven and Sharon Christensen write below about the new process, the opportunities and the risk.

Amendments to the Body Corporate and Community Management Act 1997, provide a new mechanism for 75% of the owners in a scheme to decide to terminate the scheme for ‘economic reasons’. Many in the industry hoped this would open up redevelopment opportunities and in turn the supply of housing in key urban areas. Have the amendments delivered on this promise?

How does the new process work?

There are broadly five steps for termination.

1. The body corporate must obtain a pre-termination report containing information intended to identify whether there are economic reasons for termination.  In general terms economic reasons require evidence that it will not be economically viable for a body corporate to maintain the building now or within the next 5 years.  

2. A majority of owners must agree (at an EGM) that economic reasons exist and that the body corporate should proceed to prepare a termination plan. A lot owner has 90 days to challenge the economic reasons resolution by applying for specialist adjudication.

3. The termination plan is prepared. This sets out how the scheme land will be sold and how the sale proceeds will be dealt with. Lot owners, tenants and management rights holders must receive at least market value.  The termination plan must be given to all owners at least 120 days before it is voted on.

4. The body corporate must hold a further EGM to decide whether to adopt the plan and terminate the scheme. To pass, at least 75% of all lot owners must vote for the plan. Affected people have 90 days to apply to the District Court for an order that the termination plan should be varied or not implemented. The body corporate must pay the costs of the action.

5. After the termination plan is approved and any disputes resolved, a facilitator must be appointed to implement the plan. This will include managing the sale of the land, discharging all liabilities and lodging the documents for termination of the scheme in the land registry.  The facilitator may apply to the District Court for orders necessary to effect the sale of the lots.

Opportunities and risks for developers

From the perspective of a body corporate with an aging, dilapidated building the new process provides a pathway for a collective sale.   However, there are challenges for developers wishing to engage with the body corporate up front (potentially intending to fund the process). 

Firstly, the legislation does not give a developer the ability to contract with the body corporate so that, if a termination plan is ultimately approved, the developer is assured of being the purchaser.   A developer would still need to own or have options over a significant proportion of the lots to ensure this.  Secondly, determining whether a scheme is ‘not economically viable’ is likely to be problematic except in extreme cases.  Finally, the objection/appeal rights, whilst necessary to protect the interests of affected parties, have the potential to significantly delay and add cost to the process. 

Developers may well have more opportunities to engage with bodies corporate who have been through the termination process.   However, as a mechanism for developers to identify and realise redevelopment opportunities, there are clearly shortcomings.