Pressures for redevelopment

As noted, there are multiple pressures that encourage the redevelopment of condominiums. Drivers of redevelopment can include the potential for profit; a desire to cover the costs of necessaiy repairs and upgrades to a property; or a desire to improve the quality (which may include the sustainability, efficiency, and comfort) of the property.

Governments promoting condommium renewal are also often driven by a desire to improve the safety of older buildings and to promote economic benefits of construction activity. Governments worldwide have also been promoting higher-density redevelopment within existing urban areas to house gi owing urban populations and to support environmental sustainability goals through increased urban density (e.g., OECD 2012). In our New South Wales, Australia (NSW) case, the NSW government was explicit in supporting redevelopment of condominiums to improve building quality and to increase the number of apartment properties available to residents (Office of the Registrar General n.d.). The properties facing the most pressure for redevelopment in NSW are older (pre-1990) properties and those that could be redeveloped at much higher densities. This includes many properties known as ‘walk-ups’, typically of brick construction, up to three stories high with fewer than 20 units and no elevator.

Depending where the pressure for redevelopment comes, how redevelopment is realised can vary significantly. Where redevelopment is led by an individual or development company driven primarily by a profit motive, that individual may gradually purchase units within the development. This is done until they hold sufficient share to have a deciding vote in condominium decisions. They may do this either in an open manner or surreptitiously, using subsidiary companies or friends and family members to purchase additional units. Such surreptitious takeovers may be easier to achieve in poorly governed condominiums where owners do not realise what is taking place until it is too late. In NSW we have been told by lawyers working in this space that some developers have deliberately purchased units m condominiums they want to redevelop to block then collective sale by others to their competitors for redevelopment. The distinction between developers and entrepreneurial owners can be blurry, with some owners buying multiple units within a building, or across buildings, and running a rental business while waiting for redevelopment opportunities. It is also possible that a developer, rather than incrementally buying units, might approach a condominium corporation directly with an offer to purchase the entire condommium through a collective sale.

Where redevelopment is led by a condommium board, it is often because the condominium is faced with a high cost associated with building maintenance or upgrades to align it with modem fire safety or other regulations. In this case, the redevelopment might be led by the board or individual board members. There is some evidence that poor management of maintenance expenses and operations is widespread in condominiums in many countlies, in part because of the difficulties associated with collective governance of the building. Researchers have spoken about how the challenges of condominium governance impact the effectiveness of building maintenance and repairs in Russia (Borisova, Polishchuk, and Peresetsky 2014); Canada, the US, and Germany (Lujanen 2010); New Zealand and Finland (Puustinen and Lysnar 2014); Hong Kong and Taiwan (Yip, Chang, and Hung 2007); and Australia (Easthope, Randolph, and Judd 2009). The potential benefit of redevelopment in these situations is that the increased value of the redeveloped property, and the potential for adding new units to the development, can partially or frilly cover the required repair costs. For a collective sale to a developer, the owners may be compensated sufficiently to buy a new unit elsewhere or in the redeveloped building. For a collective redevelopment involving the owners, even if they must cover some out-of-pocket expenses, the outcome for these owners will be a better-quality unit rather than simply a bill for rectification.

Where the land on which a condominium rests has been rezoned to allow for higher density development, a land value increase can be the catalyst for redevelopment led by an individual or group of owners, the condominium board, or an external investor or developer. If an individual owner is driving redevelopment, they will need adequate support from other owners in the condominium to make it a reality (or be able to purchase their units too) and will have to work through the governance arrangements specific to their building to do so. Where boards or influential board members are the impetus, they are likely to hire experts to assist the sale such as valuers, estate agents, and lawyers. Where a developer or external investor is the driver, they will come to the discussions with their own experts and assess a feasible offer for the land.

How these scenarios play out will be mediated by the rules governing condominium development and overarching government land-use legislation. In many jurisdictions, governments have amended their laws to facilitate condominium redevelopment. Typically, they have changed the required proportion of owners who must agree to redevelopment before it can happen. Examples include Japan (Building Unit Ownership Act 2008 and Condominium Rebuilding Facilitation Law 2002), Singapore (Land Titles (Strata) Act 2009), and some provinces/states in Canada (e.g.. Province of British Columbia 2016). the US (e.g., Government of Florida 2017), and Australia (e.g., NSW Strata Schemes Development Act 2015).

It is interesting to see how these laws allowing redevelopment with less than unanimous consent vary by their intent. In Singapore, for example, the law facilitates collective sale to a developer, but not collective redevelopment by owners. In Japan, collective sale to a developer with 80% approval is only possible if the building is insufficiently earthquake proof (under the Condominium Rebuilding Facilitation Law 2002), but is possible if the condominium is to be redeveloped by owners (under the Building Unit Ownership Act 2008). In NSW in Australia, both developer-led and owner-led redevelopment options are possible with less than unanimous consent under the NSW Strata Schemes Development Act 2015. Despite differences in legal flexibility, the primary if not exclusive approach to redeveloping condominiums in all jurisdictions we have reviewed is to facilitate collective sale to enable private-sector developer-led demolition and rebuilding.

An important reason for this is the real and imagined governance challenges associated with owner-led redevelopment or renewal in a multi-owned building or complex. The challenge of persuading all owners to collectively sell to a developer alone is formidable. If achieved with less than unanimous consent it can lead to protracted arguments (Christudason 2009). Where a redevelopment is to go beyond a collective sale, and incorporate owner involvement in the redevelopment itself, the situation becomes even more complex. We discuss the challenges associated with collective decision-making in condominium renewal below.