Sinnett v The Owners Strata Plan No. 92002

[2021] NSWCATCD 13

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Sinnett v The Owners - Strata Plan No. 92002 [2021] NSWCATCD 13

Hearing dates:

19 May 2021

Date of orders:

19 May 2021

Decision date:

19 May 2021

Jurisdiction:

Consumer and Commercial Division

Before:

G Ellis SC, Senior Member

Decision:

1.That, pursuant to section 236(1) of the Strata Schemes Management Act 2015, the allocation of unit entitlements among the lots in Strata Plan No 92002 be in accordance with the schedule of proposed unit entitlements in the valuation report of Christopher Smith of Robertson & Robertson dated 27 July 2020, details of which are set out below, with the total number of unit entitlements being 1,000.

Lot 1      77      Lot 9      79

Lot 2      70      Lot 10      79

Lot 3      70      Lot 11      79

Lot 4      70      Lot 12      71

Lot 5      70      Lot 13      59

Lot 6      69      Lot 14      57

Lot 7      68      Lot 15      52

Lot 8       0       Lot 16      30

2. On or before 16 June 2021, being 28 days from the date of these orders, the respondent is to take all necessary steps to lodge with the Registrar General of the Land and Property Management Authority to have recorded on the common property title of Strata Plan No 92002 the orders of the Tribunal.

3.  The respondent is to inform each of the Lot Owners in writing of it lodging a copy of these orders with the Registrar-General of the Land and Property Management Authority within 7 days of that lodgement.

Catchwords:

LAND LAW – Strata Title – reallocation of unit entitlements – consideration of valuation -unreasonable initial allocation – exercise of discretion

Legislation Cited:

Strata Schemes Development Act 2015 (NSW)

Strata Schemes Management Act 2015 (NSW)

Strata Titles Act 1973 (NSW)

Cases Cited:

Sahade v Owners – Strata Plan 2022 (2014) 87 NSWLR 261

Category:

Principal judgment

Parties:

Andrew Mark Sinnett (Applicant)
The Owners - Strata Plan No. 92002 (Respondent)

Representation:

File Number(s):

SC 20/47894

Publication restriction:

Nil

REASONS FOR DECISION

Overview

1. The applicant, who was nominated by the lot owners, seeks an order for the reallocation of unit entitlements under section 236 of the Strata Schemes Management Act 2015 (the SSMA) in respect of a development, located in Wamberal.

2. That development was constructed in two stages. Stage 1, being SP92002 that was registered on 28 July 2015, comprises 8 lots: seven townhouses in Stage 1 (Lots 1-7) plus what became Stage 2 (Lot 8). Stage 2, being SP95152 that was registered on 07 March 2017, comprises 8 lots: four townhouses (Lots 9-12) and three smaller apartments (Lots 13-15) plus a shop (Lot 16).

3. The applicant is the owner of Lot 12, which is unit 11. The respondent is the Owners Corporation SP 92002.

The relevant statutory provision

4. Section 236 of the SSMA provides as follows:

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. Lodgment 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.

Jurisdiction

5. The Tribunal is satisfied that the applicant is a lot owner in the strata plan which is the subject of this application and thus has standing to bring the application by reason of section 236(3) of the SSMA.

6. The document which became Exhibit 5 satisfies the Tribunal that the proprietors of all lots in the Strata Scheme have been given notice of the application and that the provisions of the SSMA apply to this application.

7. It is necessary to consider the threshold question in relation to the valuation evidence before the Tribunal as it is only if the valuation satisfies the requirements of section 236 that the Tribunal will be entitled consider the merits of the application and then decide whether to exercise its discretion.

8. The applicant relies on valuation report of Mr Smith of Robertson & Robertson dated 27 July 2020. That report reveals that Mr Smith is a member of the Australian Property Institute with the result that he satisfies the definition of valuer in the Strata Schemes Development Act 2015. Accordingly, the Tribunal is satisfied that Mr Smith’s valuation complies with section 236(5) with the result that the Tribunal has jurisdiction to determine this application.

Hearing

9. Due to the COVID-19 pandemic, the hearing was conducted over the telephone. The applicant attended while the respondent was represented by Ms Maughan of All Strata Services, the strata managing agent. Mr Smith, the valuer, was also contacted during the hearing.

10. During the hearing, the following documents became exhibits:

Exhibit 1   Valuation report of Mr Smith dated 27 July 2020

Exhibit 2   Notice of Extraordinary General Meeting (EGM)

Exhibit 3   Minutes of that EGM, held on 24 August 2020

Exhibit 4   Submission from the applicant dated 22 February 2021

Exhibit 5   Page headed “Correspondence Summary”

11. As there was no cross-examination, it only remained to check aspects of the valuation with Mr Smith and provide an opportunity for oral submissions to be made. The applicant did not wish to supplement his written submissions with oral submissions and Ms Maughan did not seek to make any oral submissions.

Findings

12. Based on the documents which became evidence at the hearing, and what was said during the hearing, the Tribunal is able to make the following findings:

1. Exhibit 2 and Exhibit 3 reveal that notice was provided of a meeting at which a decision was made to pursue this application, based on Mr Smith’s valuation.

2. Exhibit 5 confirms that each lot owner has been advised by email of this application.

3. The area of each lot is set out below, in Appendix 1.

4. The proposed unit entitlements were calculated by reference to the assessed market value of each lot.

5. Of the 15 lot owners, 8 support the application and 4 oppose it.

Consideration

13. Tribunal is required to engage in a three-stage process as set out in Sahade v Owners – Strata Plan 2022 (2014) 87 NSWLR 261 (Sahade) at [62]:

First, the Tribunal must ascertain the respective values of the lots subject to the strata scheme. Secondly, the Tribunal must determine whether, having regard to the respective values of the lots at the time the strata plan was registered, the allocation of unit entitlements at that time was unreasonable. Thirdly, if the allocation was unreasonable at that time, the Tribunal must consider whether to make an order reallocating unit entitlements among the lots subject to the strata scheme.

14. Although that decision was based on the wording of section 119 of the Strata Titles Act 1973, the wording of the current provision, section 236 in the 2015 statute, is not so different as to suggest a different approach.

15. It is first necessary to determine the respective values of the lots the subject of the strata scheme. Since the applicant’s case is based on section 236(1)(a), namely that the allocation of unit entitlements was unreasonable when the strata plan was registered, it is necessary to determine the value of each lot as at the date when the current strata scheme was registered, namely 07 March 2017. Although the market values assessed by Mr Smith were not included in either his report or the annexures, they were obtained from him orally during the hearing and he indicated that the figures he provided orally were the figures to which his report refers. Those figures have been noted and placed on the Tribunal’s file (in a page marked for identification as MFI 1) but not included in these reasons as they can give rise to misinterpretation, especially when they are figures assessed at a date which is now more than four years ago. The Tribunal also confirmed with Mr Smith during the hearing that the method used to make that assessment was the usual method of a consideration of comparable sales.

16. The Tribunal accepts the valuation of each lot as suggested by Mr Smith as establishing the respective values of each of the lots in the subject strata scheme at the date of the registration of the strata scheme in its current form.

17. The second stage in the three-stage process suggested by Sahade’s case is to consider whether those value suggest existing unit entitlements are unreasonable. A consideration of the current unit entitlements (51 for Stage 1 and 49 for Stage 2) with those proposed by Mr Smith, based on his valuation of the lots, combined with the details provided by the applicant in his submission (Exhibit 4), suggests the following matters:

1. Lot 7 is the same size as lots 2 to 6 but has a unit entitlement of 8 while they have 7.

2. Although Lots 14 and 15 are considerably smaller they have a unit entitlement of 6.

3. Lots 9, 10 and 11 in Stage 2 are larger than all the lots in Stage 1 but have the same unit entitlements.

18. The proposed unit entitlements, set out in Appendix 1, address the matters summarised in the three points in the previous paragraph. A comparison of the current unit entitlements, multiplied by 10, with the proposed unit entitlements enables a comparison and a calculation of the percentage change, is set out in Appendix 1.

19. In this instance, there is no evidence of any valuation upon which the current unit entitlements were based. However, the applicant suggests that, for Stage 1, a total of 51 unit entitlements were provided by the developer while the 49 unit entitlements for Stage 2 were allocated by a valuer but no report was provided for that valuation. It appears that the current situation may derive from the fact that the unit entitlements for the two stages were assessed separately, by different methods, as that would explain the third point set out above.

20. Adoption of the proposed changes would have little impact on voting if the outcome of a resolution was to be determined by reference to unit entitlements. The practical impact of the proposed charges to the unit entitlements is that the proportion of the total levies paid by lot owners would change. For that reason, it is necessary consider what would be the impact of the suggested changes. From the last column in Appendix 1, it appears that the differences reflect the three considerations set out above:

1. Lot 7, which is the same size as lots 2 to 6, and previously had 14% more unit entitlements (8 vs 7), would obtain a 15% decrease.

2. As Lots 14 and 15 are considerably smaller they would obtain decreases of 4% and 14% respectively.

3. Lots 9, 10 and 11 in Stage 2, which are more than 12% larger than lots 2 to 6 in Stage 1 but currently have the same unit entitlements, would experience increases of 12%, 12% and 13% respectively.

21. Those increases and decreases are the result of the market values of the lots which are obviously influenced largely but not wholly by the differing floor areas. Those floor areas, obtained from the copy of the strata plan which was annexure D to Mr Smith’s report, are included in Appendix 1.

22. Reviewing the existing unit entitlements in isolation does reveal some anomalies. The market value of each lot as at the date of registration of the strata scheme does provide a reasonable basis. In such circumstances, the Tribunal is satisfied that the existing unit entitlements are unreasonable.

23. The final stage of the process suggested by Sahade’s case is to consider whether to make the order sought. It is plain that the Tribunal has a discretion by reason of the inclusion of the word “may” in section 236(1). Further, it was ascertained during the hearing that, of the 15 lot owners, 8 are in favour and 4 oppose a change in the unit entitlements. The fact that there are lot owners who are not in favour of the proposed reallocation provides a further reason for consideration by the Tribunal of whether the proposed adjustment should be made.

24. There is no evidence that the desired reallocation of property rights would impact on the current market value of the lots which would experience higher levy contributions. There is no evidence that either the original allocation of unit entitlements was either a factor that influenced a decision to purchase a lot or that a reallocation would cause injustice to any lot owner.

25. In the exercise of its discretion, having considered the evidence and submissions, the Tribunal considers the proposed reallocation warranted.

Costs

26. Neither party is seeking any order for costs.

Orders

27. For the reasons set out above, the Tribunal makes the following orders:

1 That, pursuant to section 236(1) of the Strata Schemes Management Act 2015, the allocation of unit entitlements among the lots in Strata Plan No 92002 be in accordance with the schedule of proposed unit entitlements in the valuation report of Christopher Smith of Robertson & Robertson dated 27 July 2020, details of which are set out below, with the total number of unit entitlements being 1,000.

Lot 1      77      Lot 9      79

Lot 2      70      Lot 10      79

Lot 3      70      Lot 11      79

Lot 4      70      Lot 12      71      

Lot 5      70      Lot 13      59

Lot 6      69      Lot 14      57

Lot 7      68      Lot 15      52

Lot 8       0       Lot 16      30

2   On or before 16 June 2021, being 28 days from the date of these orders, the respondent is to take all necessary steps to lodge with the Registrar General of the Land and Property Management Authority to have recorded on the common property title of Strata Plan No 92002 the orders of the Tribunal.

3   The respondent is to inform each of the Lot Owners in writing of it lodging a copy of these orders with the Registrar-General of the Land and Property Management Authority within 7 days of that lodgement.

**********

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

Registrar

Appendix 1

Lot no	Strata Plan	Area (sqm)	Current UE x 10	Proposed UE	% change
1	92002	227	80	77	-3
2	92002	202	70	70	0
3	92002	203	70	70	0
4	92002	199	70	70	0
5	92002	196	70	70	0
6	92002	200	70	69	-1
7	92002	202	80	68	-15
8	92002	0
9	95152	255	70	79	+12
10	95152	279	70	79	+12
11	95152	294	70	79	+13
12	95152	219	70	71	+2
13	95152	147	60	59	-1
14	95152	128	60	57	-4
15	95152	100	60	52	-14
16	95152	72	30	30	0
Totals	1,000	1,000

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: 04 August 2021