As we approach the first anniversary of new strata laws in Queensland, not one project has been approved.

Why? The reforms made were certainly welcomed by investors frustrated by a minority of holdout owners preventing redevelopment in strata schemes.

But where these well-intentioned laws have come unstuck is the introduction of an “economic viability test”.

Many of the businesses attempting to work under the new laws enter the process mistakenly thinking it is straightforward and purely a question of having the necessary 75% threshold in favour of termination, but this isn’t the case. 

Under the new rules, a scheme can only be terminated if it is proven that the building is "not economically viable" or will not be within five years. 

This is meant to ensure schemes are not terminated prematurely, protecting owners who may still find value in maintaining their properties. However, the new economic viability test has become a major sticking point.

While the legislation lowers the bar for termination, the ambiguity in applying the “economic viability test” has become a major hurdle. Since the new frameworks came into force in May 2024, no one has successfully navigated the process yet.

Of the few businesses trying to use it, many end up embroiled in disputes with other scheme owners. 

The challenge for these businesses lies in the lack of clear guidance on what constitutes economic viability. The framework requires reports from structural engineers and other experts, but no explicit threshold is set by the government. The evidence must be assessed by a "suitably qualified person,” but who is suitably qualified? 

This raises concerns around impartiality and potential for reputational damage if expert reports are challenged or inaccurate.

This leaves room for varying interpretations, increases complexity, time and legal costs, and ultimately leaves the minority hold-outs with pretty much the same disproportionate power they had 12 months ago.

Something needs to change. 

As a lawyer specialising in property law, I have been working with my team at RedeMont to help the industry manage the unintended complexities that these reforms have created. 

A further challenge faced by businesses navigating the unclear economic viability threshold is that the process is open to disputes. Lot owners can dissent at different stages of the uneconomic scheme process, which may ultimately cause an attempt to terminate the scheme to fall through. 

The fact that decisions may be easily contested can lead to prolonged and costly disputes. This can discourage developers from even attempting to engage in the process, knowing that it may be delayed by legal challenges. The uncertainty faced by property owners and developers further erodes confidence and stalls redevelopment. 

In New South Wales, similar laws introduced in 2015 shifted owners' mindsets and led to faster resolutions and more lucrative outcomes. Unfortunately, in Queensland, the economic viability test prevents the same shift. Even if the 75% threshold is met, a scheme cannot be terminated if it is ‘economically viable’. We see a lot of owners remaining hesitant to engage with developers due to the complexities of the process.

The Queensland Government’s economic viability test is out of step with the urgency of the state’s housing crisis. One solution the new Government could consider is to remove the viability threshold, at least for the duration of the current national housing crisis.

We cannot afford to let clearly unintended consequences get in the way of facilitating more housing stock and without a more streamlined and clearer process, Queensland risks losing an opportunity to address housing pressures in high-demand areas.

The reforms, while well-intentioned, have introduced a system that is complex and uncertain, with too much potential for dispute. The ability to terminate a strata scheme with the support of 75% of owners is a step forward, but the economic viability test complicates the process.

For developers, strata managers and property owners, understanding the implications of the economic viability test is crucial. Until the government provides clearer guidance, many will find themselves navigating a convoluted process ripe for legal challenges.

There is a pressing need for a rethink, particularly regarding the economic viability test. While the current system aims to resolve the stalemate caused by holdout owners, it remains a barrier to faster redevelopment.

Considering the current housing crisis, a more flexible approach to strata scheme termination could unlock much-needed development in Queensland.