Unit entitlements are determined at the time a strata plan is registered and are important for many reasons, including the effect it has on voting rights and the payment of levies. Section 236 of the Strata Schemes Management Act 2015 (Act) provides that the NSW Civil and Administrative Tribunal (Tribunal) may make an order to reallocate the unit entitlements of a scheme if the unit entitlements were unreasonable at the time the plan was registered, or if they became unreasonable over time.
When deciding to make an order to re-allocate unit entitlements, the Tribunal is to have regard to the respective values of the lots and to such other matters as the Tribunal considers relevant. Unit entitlements are to be determined based on market value and an application for an order must be accompanied by a certificate from a qualified valuer specifying the valuation of the relevant lots.
When making an order re-allocating unit entitlements, the Tribunal may also order the developer to pay to the applicant the costs incurred, including fees and expenses reasonably incurred in obtaining the valuation and the giving of evidence by a qualified valuer, and any overpayments due to the unreasonable allocation for which liability arose not earlier than six years before the date of the order.
The discretionary nature of the Tribunal’s power to make an order under section 236 of the Act was demonstrated in Rita Sahade v The Owners Strata Plan No 62022 & Ors  NSWCATCD 5. Among the considerations taken into account by the Tribunal in making its decision were:
- market value of the lots (noting this is a mandatory and primary consideration, though not the only consideration);
- unit entitlements form part of bundle of rights as part of realty and ownership of unit;
- unit entitlements forms part of market value due to the degree of control and fees/responsibilities associated with unit entitlements;
- units are sold and bought on the basis of known rights (i.e. known unit entitlements);
- unit entitlements forms basis for liabilities and payments; and
- unit entitlements controls power of management of the owners corporation and determines quorum.
The Tribunal found that the original unit entitlement allocation was unreasonable based on market value yet decided not to exercise its discretion to alter the unit entitlements on the basis that:
- control of the scheme would change fundamentally with an altered unit entitlement;
- by purchasing the property with 40% of the schemes unit entitlements, it was clear to the applicant at the time of purchase that she was not buying a controlling share;
- It was likely to result in compulsory management and/or deadlock if one unit was given such control – which was not the legislative intent of the Act; and
- the unopposed evidence of the original owner showed the original reason for the unit entitlements allocation was to prevent one lot acting without the support of at least one other lot.
The Tribunal also reaffirmed that in such matters it is the applicant who bears the onus not only to demonstrate that there was unreasonableness in the original unit entitlement allocation, but also to persuade the Tribunal why it should order a reallocation of unit entitlement, with the Act conferring a discretion and not an obligation on the Tribunal to re-allocate the unit entitlements.
This is general information and should not be considered to be legal advice. You should obtain legal advice specific to your individual situation.
Authors: Jasmin H.Singh & Allison Benson