Sharks Residential Pty Ltd v The Owners - Strata Plan No. 97194

[2019] NSWCATCD 20

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Sharks Residential Pty Ltd v The Owners – Strata Plan No. 97194 [2019] NSWCATCD 20

Hearing dates:

19 March 2019

Date of orders:

02 April 2019

Decision date:

02 April 2019

Jurisdiction:

Consumer and Commercial Division

Before:

S Thode, Senior Member

Decision:

Pursuant to Section 63 of the Civil and Administrative Tribunal Act 2013, orders published on 2 April 2019 are amended on 30 April 2019 to read as follows:

 

1. The Tribunal finds the allocation of unit entitlements upon registration of strata plan 97194 was unreasonable as at the registration date of 19 March 2018 and makes an order under section 236 of the Strata Schemes Management Act 2015 (NSW) to allocate the unit entitlements of the lots in strata plan 97194 as stated in the schedule prepared by the licenced valuer and attached to this document.

 

2. The reallocation of unit entitlements is to take effect from the date that the next levy is payable by the owners.

 

3. The Registrar is directed to provide the applicant with a certified copy of the above order to enable registration to be effected in the NSW Land Registry Services.

 4. The remainder of the application is dismissed.

Catchwords:

Unit Entitlement – unreasonable allocation

Legislation Cited:

Strata Schemes Management Act 2015

Category:

Principal judgment

Parties:

Sharks Residential Pty Ltd (Applicant)
The Owners – Strata Plan No. 97194 (Respondent)

Representation:

Sparke Helmore (Applicant)
Grace Lawyers (Respondent)

File Number(s):

SC 18/36500

Publication restriction:

Nil

REASONS FOR DECISION

Application

1. In an application filed on 21 August 2018 the applicant lot owner seeks orders pursuant to s236 of the Strata Schemes Management Act 2015. The orders sought are

“Pursuant to s 236 of the Strata Schemes Management Act 2015 (NSW) an order for reallocation of unit entitlements in accordance with the figures as set out in the attached re-assessment of unit entitlement (UE’s) for strata plan 97194 dated 16 August 2018.”

2. The reasons put forward for requesting the orders are as follows:

“The developer Capital Bluestone Pty Ltd, discovered inconsistencies in the UE’s allocated to lots within the development subsequent to the registration of the Strata plan SP 97194 on 19 March 2018. The qualified valuer who completed the valuer’s certificate in respect of the UE’s on 9 March 2018 acknowledges that the original UE allocations were incorrect and unreasonable for the reasons stated in the attached re-assessment of UE’s for strata plan 97194.”

Jurisdiction

3. Mediation is not required by operation of s 227(4)(d) of the Act.

Submissions

4. Interested persons were given an opportunity to make submissions. The closing date for submissions was 5 December 2018. It was indicated by the legal representatives of the owners corporation that the owners corporation neither consents to nor opposes the application. The Tribunal has not received submissions from lot owners likely to be affected by the re-allocation of the unit entitlement that the orders sought in the application are opposed.

Procedural History

5. I note that the owners corporation was specifically directed to indicate its position in writing to the Tribunal and that the Tribunal was informed that the owners corporation neither consented to nor opposed the orders sought.

6. At a directions hearing dated 23 August 2018 lot owners who may have opposed the application were invited to make submissions and provide evidence and were directed to make application to be joined as a party to the proceedings. Affected lot owners were directed to inform the Tribunal by 5 September 2018 if they opposed the proposed re-allocation of unit entitlements.

7. The owners corporation was instructed to have a copy of the directions of the Tribunal orders and directions dated 23 August 2018 displayed on the notice board.

8. Further directions were issued on 12 September 2018. Principal Member Titterton directed the owners corporation to provide a letter to affected lot owners, informing lot owners that they may elect to have the owners corporation represent their interests at the Tribunal. The Tribunal was informed at the directions hearing that the owners convened a meeting on 25 September 2018 to discuss whether the owners corporation would agree to or oppose the application and that by 26 September 2018 the owners corporation was obliged to make its decision known to all lot owners.

9. Any affected lot owners who were not in agreement with the owners corporation were again invited to indicate to the Tribunal whether they wished to be joined as a party to the proceeding by 28 September 2018.

10. At the directions hearing of 18 October 2018 the owners corporation informed the Tribunal that it neither consents to nor opposes the orders sought and that it did not intend to make submissions in respect of the application.

Orders

11. The Tribunal finds the allocation of unit entitlements upon registration of strata plan 97194 was unreasonable as at the registration date of 19 March 2018 and makes an order under section 236 of the Strata Schemes Management Act 2015 (NSW) to allocate the unit entitlements of the lots in strata plan 97194 as stated in the schedule prepared by the licenced valuer and attached to this document.

12. The reallocation of unit entitlements is to take effect from the date that the next levy is payable by the owners.

13. The Registrar is directed to provide the applicant with a certified copy of the above order to enable registration to be effected in the NSW Land Registry Services.

Reasons for Decision

14. The applicant relies on the valuation report of Bobby Dunimagloski, Certified Practicing Valuer Australian Property Institute Number 69087 dated 20 September 2018.

15. The valuer relied on his unchallenged expertise and his report and opinion was not opposed.

16. The applicant tendered a series of documents, which evidence that the strata plan was registered on 19 March 2018 which is the relevant date for the assessment of the market value of the lots and determination of the unit entitlement. In his expert report, Mr Dunimagloski based his revised unit entitlement on his opinion of market value of the individual units as at the date of registration of the Strata Plan on 19 March 2018.

17. In order to arrive at the market value of the units at the relevant date the expert adopted the “direct comparison approach”. He analysed the unit sales in the local area which were then directly compared to the subject units, with appropriate adjustment. His primary reliance has been on evidence of similar strata title apartments within the Woolooware Town Centre – Stage 3 and surrounding localities.

18. The sales evidence which was analysed was attached to the report and marked Appendix G. Additional guidance on value was provided by taking into consideration pre-sales achieved within stage 2 of the project, and the valuer has applied adjustments for the changes and movement in value since the sales occurred.

Decision

19. I am satisfied the Tribunal has jurisdiction to make orders allocating unit entitlements pursuant to section 236 of the Act.

20. I am satisfied that the application was made by the applicants in accordance with section 236(3)(a) of the Act and complies with section 236(4) of the Act in that it attaches a certificate of valuation in relation to each of the lots of the scheme as at 19 March 2018.

21. The circumstances under which an order can be made by the Tribunal are stated in section 236(2) of the Act. For convenience I shall set out the section in full:

236 Order for reallocation of unit entitlements

(1) Tribunal may make order allocating unit entitlements The Tribunal may, on application, make an order allocating unit entitlements among the lots that are subject to a strata scheme in the manner specified in the order if the Tribunal considers that the allocation of unit entitlements among the lots:

(a) was unreasonable when the strata plan was registered or when a strata plan of subdivision was registered, or

(b) was unreasonable when a revised schedule of unit entitlement was lodged at the conclusion of a development scheme, or

(c) became unreasonable because of a change in the permitted land use, being a change (for example, because of a rezoning) in the ways in which the whole or any part of the parcel could lawfully be used, whether with or without planning approval.

(2) Matters to be taken into consideration in making a determination under this section, the Tribunal is to have regard to the respective values of the lots and to such other matters as the Tribunal considers relevant.

(3) Persons who may apply for order an application for an order under this section may be made by any of the following:

(a) an owner of a lot (whether or not a development lot) within the parcel for the strata scheme,

(b) the owners corporation,

(c) the lessor, in the case of a leasehold strata scheme,

(d) the local council, or by any other public authority or statutory body representing the Crown, being an authority or body that is empowered to impose a rate, tax or other charge by reference to a valuation of land.

(4) Application to be accompanied by valuation an application for an order must be accompanied by a certificate specifying the valuation, at the relevant time of registration or immediately after the change in the permitted land use, of each of the lots to which the application relates.

(5) Qualifications of person making valuation the certificate must have been given by a person who is a qualified valuer within the meaning of the Strata Schemes Development Act 2015.

(6) Ancillary orders that may be made if original valuation unsatisfactory The Tribunal may, if it makes an order allocating unit entitlements that were not allocated in accordance with a valuation of a qualified valuer and, in the opinion of the Tribunal, were allocated unreasonably by an original owner, also order:

(a) the payment by the original owner to the applicant for the order of the costs incurred by the applicant, including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by a qualified valuer, and

(b) the payment by the original owner to any or all of the following people of the amounts (if any) assessed by the Tribunal to represent any overpayments (due to the unreasonable allocation) for which liability arose not earlier than 6 years before the date of the order:

(i) the lessor, in the case of a leasehold strata scheme,

(ii) the owners corporation,

(iii) the owners of lots.

(7) Lodgement of order. The owners corporation must ensure that a copy of an order made by the Tribunal under this section is lodged with the Registrar-General no more than 6 months after the order is made. Nothing in this section prevents a person who is entitled to apply for an order under this section from lodging a copy of an order made under this section.

22. I have had regard to the only available expert valuation evidence provided in compliance with the Act, namely the report of Mr Dunimagloski.

23. The author of the report is a registered valuer, and a holder of a current certificate of registration No. API 69087 under the Valuer’s Act 2003 as a certified Practicing Valuer required by section 236(5) of the Act. The valuer’s expertise was not questioned.

The valuation report

24. I have had regard to the market evidence conclusions and the valuation assessment contained in the Dunimagloski reports of 16 August 2018, 20 September 2018 and 15 November 2018. I have considered the certificate of value provided in the Dunimagloski report, marked exhibit B.

25. On 20 December 2017 the valuer was engaged by the developer Capital Bluestone Pty Ltd to prepare a schedule of unit entitlements of the development. An inspection of a widespread sample of lots was conducted and a draft report titled “Valuation of unit entitlement” was prepared. It was provided to the Tribunal and annexed to the material tendered on the application. On the basis of the valuation the strata plan was registered with unit entitlements as per the first Dunimagloski valuation of 18 January 2018.

26. On or about 19 June 2018 the applicant became aware of inconsistencies in the unit entitlements allocated to the lots within the subject development as recorded in the strata plan. These inconsistencies were brought to the valuer’s attention in or about 19 June 2018. On 16 August the valuer provided the applicant with a letter including a reassessment of the unit entitlements redressing the errors identified.

27. The letter of 16 August sets out in great detail why the valuer now expresses his expert opinion that his original assessment of the unit entitlement as at the date of registration of the strata plan was unreasonable.

28. In particular the valuer states that

For the purposes of s236(1)(a) of the Strata Schemes Management Act 2015 (NSW) we consider that the UES as allocated in Strata Plan 97194, registered on 19 March 2018, are unreasonable for two (2) reasons. First , the UEs of the two towers “Landings” (70 lots and “Cove” (109 lots) which together comprise Strata Plan 97194 were calculated on a tower by tower basis and then aggregated, resulting in an incorrect reflection of an individual’s lot market value to the total gross realisation value of the Strata Plan. Secondly, no value was attributed to the storage area of any lot within the strata plan.

29. In coming to his conclusions in the original report of 10 January 2018, the valuer had taken into account comparable sales analyses of the Woolooware property market as well as the off the plan sales, Stage 2 and Stage 3 prices. I agree that this was the most persuasive method to assess the unit entitlement as at the time of registration of the strata scheme of subdivision.

30. However subsequently, after the initial consideration, and as set out above, the valuer realised that the unit entitlements as registered were not reasonable because the units in “Landings” and “Cove” were considered as effectively forming part of separate strata plans, rather than being aggregated and forming part of the same strata plan.

31. The original intention at strata title set up of the subject development was to have all of the 179 lots registered under the one strata plan. However, there being two towers, the valuer produced two independently calculated unit entitlement schedules for the purposes of determining unit entitlements. The valuer fell into error when he proceeded to aggregate the two unit entitlement schedules without giving regard to the fact that they had been prepared as if they were on separate strata plans.

32. As a result of this error, the unit entitlement allocations were disproportionately distributed across the two towers which meant that the proportional value of the individual lots within the subject development was calculated on an erroneous and unreasonable basis. The resulting allocation did not truly reflect an individual’s lots market value, as was originally intended under the one strata plan, relative to the total gross realisation value of the subject development. Further, the strata plan, as it is currently registered, does not reflect the true proportional allocation of unit entitlements. (see applicant’s submissions dated 22 November 2018).

33. In addition the valuer was asked to review his original valuation and to consider the impact on UE allocation (if any) regarding storage areas. Storage areas were not considered in the original assessment. The valuer concluded that a storage area forms part of a lot and is transferrable on title, and the valuer is of the opinion that to more accurately represent market value and therefore UE allocation, a value for the respective storage area should be accounted for.

34. Having considered the valuation contained in the report, the Tribunal finds that the variations in unit entitlements are considerable when compared to market values at the relevant time (being the first valuation undertaken by the valuer), taken from sales in the actual premises. Based on the findings and opinions expressed in the report, and in the absence of any expert evidence to the contrary, I find that the original valuations at the relevant time were unreasonable.

35. The report by the valuer provides a clear exposition of the valuer’s methodology and the reasoning behind the conclusion in respect of the value of the lots. I am satisfied that the applicant has provided the evidentiary threshold as stated by Rothman J in Riana Pty Ltd v The Owners – Strata Plan No. 22336 having established that the allocation of unit entitlements was unreasonable, it follows that the Tribunal’s discretion to make an order adjusting unit entitlements has been enlivened and that the unit entitlement should be reallocated in accordance with attachment A annexed to these reasons.

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I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 09 May 2019