Evacuation and Reconstruction: What Apartment Owners Need to Know
In an evacuation and reconstruction project owners hand over an existing apartment and receive an undertaking for one still to be built, moving to alternative housing for several years in the meantime. This guide covers the stages, the securities that should never be waived, and the question of the majority and the owner who does not agree.
What evacuation and reconstruction is
Evacuation and reconstruction is an urban renewal route in which several older buildings are cleared and new ones built in their place, usually at higher density. The owners receive a new and larger apartment, and the developer funds the project out of the additional rights.
Unlike renewal of a single building, the unit here is the district. The process is therefore longer, more complex, and involves a large number of owners who have to reach agreement. A project is usually measured in years, during which residents live in alternative housing.
The stages
- Organising and choosing a residents committee. The owners choose a committee and set out its authority in writing.
- Appointing the owners own professionals: a lawyer, a valuer and sometimes a construction supervisor.
- Choosing a developer and entering into an agreement, usually after a competitive process between several developers.
- Advancing a plan before the local and district committees, which is the longest stage.
- The building permit and putting the securities in place.
- Evacuation, demolition and construction, ending with delivery of the apartments and registration of the rights.
The agreement is signed before the plan is approved. That is the weak point of the route: owners commit at a stage when how many rights will actually be approved is still unknown. The agreement must therefore carry conditions precedent, expiry dates, and a right to withdraw if the plan does not progress.
The question of the majority
Evacuation and reconstruction does not require every owner to agree, but it does require a special majority fixed by statute, not a majority set in the agreement with the developer.
The majority required is not uniform. In a single building it is high, standing at around eighty per cent of the owners and of the common property attached to their apartments. In a district of several buildings the majority was reduced on certain conditions to two thirds, provided that a corresponding majority also exists in each building separately. The majority applying to the specific case needs establishing before the process begins, because it changes the whole approach.
An owner who does not agree is not a holdout merely by objecting. The law distinguishes reasonable refusal from unreasonable refusal, and recognises circumstances in which objecting is justified, for example where an elderly owner or an owner with a disability has not been offered a suitable arrangement, or where the consideration is inadequate. Only where the refusal is held unreasonable do remedies arise against that owner.
The securities
The owner hands over an existing asset and receives an undertaking. The securities are what bridges the gap, and none of them should be waived:
- A performance guarantee for completion on time and to the agreed standard.
- A statutory sale guarantee for the replacement apartment.
- A rent guarantee for the whole period of alternative housing, including a scenario of delay.
- A tax guarantee, covering a liability that emerges after the event.
- A registration guarantee, securing registration of the rights in the new apartment in the owner name.
- A caveat in the owners favour, and a release letter from the financing bank.
The alternative housing is a substantive clause and not an incidental one: where it is, its size relative to the existing apartment, the move-in date, who bears the removal costs, and what happens if the project runs beyond the agreed period.
Tax and the declared district
The Real Estate Taxation Law contains a dedicated chapter for evacuation and reconstruction, designed to avoid an owner paying tax on a transaction in which no money was received. The reliefs depend on the district having been declared an evacuation and reconstruction district, and on the consideration meeting the conditions set out.
Two practical conclusions follow. First, the status of the district is not a technical detail but a condition for the reliefs. Second, where an owner receives consideration exceeding the ceiling set, for example two apartments or a substantial cash element, a liability may arise, and that needs checking in advance rather than afterwards.
The owners own professionals
- A lawyer acting for the owners alone. The fee is usually paid by the developer, but that lawyer must not be the one acting for the developer as well.
- A valuer for the owners, examining the value of the rights and whether the consideration is reasonable. The developer valuer is answering a different question.
- A construction supervisor, following the works on the ground and reporting to the committee.
- A residents committee with a clear written mandate. A committee acting without a defined authority is a source of internal conflict, and sometimes of agreements being unwound after the fact.
The developer usually bears the cost of these professionals, and that is accepted practice. What is not acceptable is for that arrangement to turn them into his representatives. Who acts for whom is the first thing to establish, before any discussion of the consideration.
Before you sign, talk to us. Our office drafts the agreement for you, conducts the negotiation and represents you through to completion of registration. Our real estate department has accompanied transactions for over 15 years, alongside an architect, a surveyor and a property valuer. Call 02-5953322, send a WhatsApp message to 050-4411343 or leave your details in the form below, and we will get back to you as soon as possible.
What people ask most often
How many owners have to agree?
Who pays for the alternative housing during construction?
We signed with a developer and the plan is not advancing. Can we get out?
Will I pay tax on the new apartment?
One neighbour objects. Does the project stop?
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