Stakeholders Agreements for Group Property Sales in NSW: What You Need to Know

A growing trend in the Sydney property market is for groups of neighbours to join together and sell their properties collectively to a developer. Done well, this approach can significantly increase what each owner receives — often well above what each property would achieve in an individual sale.

A Stakeholders Agreement is a legally binding document that records how a group of property owners will work together, make decisions, and share the proceeds of a collective sale to a developer.

CLS Legal has been advising property owners on collective sales and development transactions in NSW since 2010.

These sales can involve groups of Torrens Title landowners or all owners within a Strata Scheme. Developers purchasing these sites typically require an extended settlement period, and sales are commonly structured by way of a put and call option.

At CLS Legal, we developed our Stakeholders Agreement to anticipate and address the issues that commonly arise between group members. Here is what it typically covers.

1. Instructions to the Real Estate Agent

The agreement sets out the group’s instructions to the appointed agent, including any agreed sales process and the appointment of additional consultants — such as architects to prepare draft development schemes and artist impressions of what could be built on the combined site.

2. Promotional Expenses

It records which promotional expenses will be incurred and how those costs will be shared.

3. Whether Further Agreements Are Needed

Sometimes a further Stakeholders Agreement is required — for example, between sub-groups within the main group, or with owners of a neighbouring property who may also be included in the sale.

4. Confirming Group Consensus

Before approaching the market, it is essential to confirm that everyone in the group agrees to sell.

Some strata groups have been interested in the strata renewal legislation that commenced on 30 November 2016. That legislation provides that where 75% of owners in a strata block agree to redevelop or sell the block for redevelopment, the remaining 25% can be compelled to participate. The legislation remains untested in many respects and contains safeguards for dissenting owners — any plan requires approval from the Land and Environment Court.

Until those laws have been more thoroughly tested and proven flexible enough for the purposes of a selling group, the better approach is to:

1. Bring all willing participants together.
2. Review each owner’s individual needs.
3. Have everyone sign a Stakeholders Agreement.
4. Then approach any reluctant owner to understand what — if anything — could bring them on board.

In a number of buildings, a single lot has been purchased by an astute developer and used as leverage against the remaining owners. An application under the strata renewal legislation may ultimately be the right path, but that decision is best made after all other options have been explored.

The simplest way for a strata group to sell is for all owners to agree and leave the termination of the strata plan to the successful purchaser.

5. How the Sale Price Is Apportioned

The agreement must record how the purchase price will be divided. The most common and reliable method is on a price-per-square-metre basis, or on a unit entitlement basis for strata blocks.

However, other factors can affect how the price should be split. For example:

• Different zonings across the site. Take a group of eight houses — four fronting one street with a floor space ratio (FSR) of 4:1, and four fronting another street with an FSR of 2:1. The group with the higher FSR would ordinarily receive double the price of the lower-FSR group. That calculation may shift, though, if the developer cannot access the higher-FSR properties without passing through the lower-FSR lots.
• Heritage constraints. If one property is heritage-listed and must be retained, that affects its value to the developer relative to the rest of the site.

One thing that does not affect the value to a developer is the quality of the home on the land. Developers are buying land and FSR — they will demolish the buildings. In fact, a larger or more expensive home may cost more to demolish than a simpler one, which can work against its owner if apportionment is not properly structured.

Where the circumstances fall outside the usual, the group may wish to obtain an independent valuation to inform the apportionment.

If you are unsure how your property’s value should be calculated within the group, call CLS Legal on (02) 9279 0919 — this is one of the most contested issues in any group sale.

6. The “Strike Rate”

The agreement can set a minimum price per square metre — called a “strike rate” — at which all parties agree they will definitely sign. In practice, it is rare for a group to set a strike rate upfront, but the agreement should address how and when such a threshold might be agreed.

7. Power of Attorney

If a strike rate is met and a party refuses to sign, the agreement can include a power of attorney authorising a nominated third party to sign contracts on that person’s behalf.

8. Decision-Making Within the Group

The agreement records how the group makes decisions — for example, by a special majority of 75% of stakeholders, by unanimous vote, or by some other threshold.

9. Sales Must Be Interdependent

A key protection for all owners is that the sales must be interdependent — meaning the developer must buy all properties together. This prevents a developer from settling on only some properties and using those as leverage against the remaining owners, or effectively sabotaging the rest of the site.

10. Survey Issues

Lot sizes as shown on deposited plans registered at Land Registry Services often differ from the areas shown on the Valuer General’s records. Deposited plans typically show the correct bearings but the area calculations — particularly conversions from imperial to metric — have frequently been estimated and rounded rather than precisely calculated.

Because properties are being sold on lot size, we recommend the group commission a surveyor to recalculate each lot’s area as early as possible after we receive instructions.

11. Timeframes and Handling of Offers

The agreement sets out time periods and procedures for dealing with proposed offers, which may include deemed refusal provisions to avoid any one owner stalling the process.

12. Transparency Between Parties

The agreement authorises the agent and CLS Legal to be transparent between all parties regarding agreed matters — reducing the risk of information asymmetries causing conflict.

13. Keeping the Group Together

If properties do not sell in the initial campaign, it is important for the group to stay together. This is particularly valuable when development sites are not selling well — a group that remains intact is better positioned when market conditions improve.

If an individual owner later needs to sell for personal reasons — such as moving into aged care or relocating for work — the agreement provides that their property is sold subject to the incoming purchaser signing a Deed of Accession, making them a member of the group.

14. Restraints and Withdrawal Consequences

The agreement sets out any restraints on individual owners during a specified period and the consequences of withdrawing from the group during that time.

15. Non-Negotiable Individual Requirements

Each owner may have absolute requirements that are non-negotiable for them to proceed with the sale. These are recorded in the agreement upfront so there are no surprises later.

16. Confidentiality

The agreement includes confidentiality and announcement provisions to protect the group’s negotiating position.

17. Criteria for Evaluating Developers

The agreement can set out criteria for assessing potential purchasers, including financial checks and other due diligence on the developer.

18. Good Faith Obligations

All stakeholders agree to act together in good faith.

19. Dispute Resolution

The agreement includes a dispute resolution process to manage any disagreements that arise during the sale process.