Madison Marcus | Strata Law Reform: New Strata Laws Take Effect in NSW

NSW New Strata Laws Take Effect – Strata Law Reform 2016

The NSW Strata Scheme Amendments took effect on the 30th of November 2016. In this article, Madison Marcus discuss how the new strata laws will affect the many residents of New South Wales, currently living in a strata dwelling, all Owners Corporations and Strata Committees as well as developers and builders who plan on erecting a strata building.

This article has been prepared as a summary and to provide commentary on the new strata laws in NSW.  This article is intended as a summary only and if you require any specific advice on the proposed law reform or any other matter you should seek legal advice specific to your circumstances. The topics covered in this article include:

1. Management of strata schemes
2. Technology and strata meetings
3. Accountability of Strata Managers
4. Sale of whole strata buildings
5. Building defect bond scheme
6. New limits imposed on proxy voting
7. Renovations to strata titled units
8. Pets, smoking and compulsory review of by-laws
9. Tenant Representation – Giving tenants more of a say
10. Developers become liable for inaccurate levy estimates
11. Resolving disputes arising out of strata schemes

1. Management of Strata Schemes

The objectives of the following new strata laws are to provide for the management of strata schemes and the resolution of disputes, should disputes occur. The amendments attempt to strike a balance in providing schemes the ability to make decisions whilst ensuring sufficient safeguards are in place protecting minorities and unfair practises.

All existing arrangements in force at the commencement of new laws, will remain on foot, subject to the following:

Strata Management Agents who have been appointed to their position prior to 30 November 2016 (new laws commencement date), will have their agreement end on the latter of:

  1. The date which is 3 years after their position commenced, or
  2. The date which is 6 months from the start of the new laws (30 May 2017).

After the commencement of the amendments a strata managing agent may only enter into an agreement for 12 months at the first AGM, and a maximum term of 3 years for every subsequent contract.

Building Managers/Caretakers who have entered into an agreement prior to 30 November 2016 will remain valid for the length of the period agreed upon. This is subject to a maximum period of up to 10 years after the commencement of the new laws (30 November 2026).

Any agreements entered into after the commencement date will be limited to the terms of the agreement, but will be subject to certain other laws, varied by the amendments (this will be considered further in the seminar scheduled for 30 September 2016 – i.e. tribunal early termination).

All currently existing owner corporation bodies will continue as they have been operating.

The Executive Committee will become the new Strata Committee, appointments however do not need to be made until the following AGM.

2. Technology and Strata Meetings

The new strata laws  have been designed to benefit owners and increase participation in member meetings and voting ballots by allowing the use of technological platforms to conduct business.

The amendments will allow for the following technology in strata meetings to be adopted:

1.General Meetings will be able to be held via:

  • social media,
  • video conference, or
  • teleconference.

Furthermore; agendas, meeting minutes and other documents relied on at general meetings will be able to be distributed via email.

2. Laws governing Annual General Meetings (AGM) will become more flexible. AGM’s will no longer being required to be held within 11 – 13 months of the last AGM. The amendments will allow for an AGM to be called at any time so long as one is held every financial year.

3. The ability to cast votes by any of the following means:

  • postal voting,
  • telephone conferences,
  • video conferences,
  • email,
  • social media,
  • specifically designed voting websites, or
  • other electronic means.

All votes must be cast prior to the meeting that will determine the outcome of the vote.

3. Accountability of Strata Managers

After 30 November, the length of the term that any agreement can be entered into between a strata committee and a contractor (caretakers, strata managers, etc.) will be limited to:

1 year, if the strata manager is appointed at the first annual general meeting of the strata committee, or
3 years (inclusive of options), for every agreement after that (with a possibility of reappointment).

The strata committee may extend an appointment for up to 3 months after the expiry of an agreement (but not to a date past that of the next annual general meeting).

The following changes will also affect strata managers:

• A blanket ban of the acceptance of gifts over a particular dollar amount,
• Mandatory disclosure of any financial interests in the scheme,
• Mandatory disclosure of any connections with an original owner,
• Mandatory disclosure of all commissions and training services provided in connection with the scheme and the value of each,
• A ban on strata managers being appointed as treasures and/or secretaries of a strata scheme, and
• A blanket ban on strata managers owning a lot in the scheme.

Fines of up to $2,200.00 apply to offences committed by strata managers.

All functions exercised by strata mangers and the manner in which such functions were exercised need to be recorded. A copy of this record is to be provided at each annual general meeting to the strata committee.

Any instances of strata managers failing to fulfill their duties will give rise to the strata committee to seek intervention of the NSW Civil and Administrative Tribunal to remove, make decisions about payments, or order the forfeiture of commissions of agents.

4. Sale of Whole Buildings

For a strata scheme formed after commencement of the new strata laws (30 November 2016), a minimum of 75% of owners must agree to the winding up of a strata scheme for the purpose of selling the whole building. This is reduced from 100% of owners as is required under current law.

For a strata scheme existing prior to the amendments taking effect, owners must first opt in to the new system provided by the amendments, with a minimum of 50% of owners agreeing to opt in. Once opt-ed in, the new laws apply, i.e. 75% of owners must agree to the winding up of a strata scheme. If owners choose not to opt in to the new system, 100% of owners must vote to wind up a strata scheme in order to sell the building.

Process of sale:

1. Once the proposal to sell/develop a strata scheme is offered, a meeting of all owners is called for the purpose of considering the sale/development offer.

2. Should 50% of owners want to consider the offer, a committee is elected to examine and explore the proposal. This committee may appoint experts/specialists, e.g. valuers, lawyers, architects, to assist in the examination of the offer.

3. The committee along with the owners corporation will meet regularly for the purpose of discussing the process and details of the sale, such as, the amount of money each owner will receive and costs and liabilities faced by the owners corporation.

4. Once a final plan is formally served, owners will have a period of time (minimum 60 days) to obtain independent advice. Should owners agree to the plan, they are to sign a support notice and provide the notice to the secretary of the committee.

5. Should 75% of the owners (or 100%, if the strata scheme has not opted in) return signed notices, the plan will be approved and agreements and plans will be drawn up and submitted to the Land and Environment Court for approval.

The amendments will establish a Strata Renewal Advice Advocacy Program where owners of lots may seek further information or be directed to  agencies which can assist with any issues or problems being faced by owners.

5. Building Defect Bond Scheme

The Strata Scheme Management Act Amendments took effect 30 November 2016, however, the Building Defect Bond Scheme, does not come into effect until 1 July 2017.

From 1 July 2017, Developers entering Construction Contracts  for multi-storey residential developments will need to pay a Building Bond to the Department of Fair Trading.

Who will the Bond Apply to?
The Building Bond will apply to all Developers who enter construction contracts on or after 1 July 2017. The Building Bond will be payable for all construction contracts after 1 July 2017 where the building is strata titled and more than 3 stories (i.e. multi-storey).

How will the Bond Work?
All Developers meeting the above criteria must provide a Bond, prior to the Occupational Certificate being issued. The Bond is to be for 2% of the total Contract amount payable to the Developer. The Bond is paid to the Department of Fair Trading and will be held in a trust account.

Process
The Developer must appoint an Independent Building Inspector (from a list of accredited inspectors) to prepare an interim report between 15 – 18 months after the building works are complete, as well as a final report 21 – 24 months after completion.  If the Developer does not appoint a Building Inspector, one will be appointed by the Department of Fair Trading. The Building Inspector must be independent of the Builder/Developer.

If any defects are identified in the report, and are not rectified by the time the second (and final) report is prepared, the Owners Corporation may make a claim to the Department of Fair Trading for the release of all or part of the Bond to pay for the rectification works at any time, up to 2 years after the Occupational Certificate is issued, or 60 days after the final report is given (whichever is later).

Return of the Bond
The Department of Fair Trading will, on application by the Developer, return the Bond (or the balance of it) to the Developer if there are no unsatisfied claims at the expiration of the 2 year period.  There are detailed steps and applications required to be taken by Developers to retrieve the Bond.  Based on the present legislation, there does not appear to be any scope for the Bond to be released to other parties (i.e. such as to the Builder).  Therefore, all applications for recovery of the Building Bond must be made by the Developer.

6. Renovations to Strata Titled Units

The new strata laws introduces approval processes for owners who wish to renovate their lot. The approval process differs depending on the type of renovation proposed by the owner.

Cosmetic Changes
Renovations to strata titled lots which involve mere cosmetic changes do not require any approval from the Owners Corporation.

The Act sets out some examples of what may be considered as Cosmetic Works, which include (but are not limited to):

  1. laying carpet;
  2. installing built in wardrobes;
  3. installing internal blinds or curtains;
  4. painting internal walls or ceilings; or
  5. installing hooks, nails or screws to hang pictures on.

Minor Renovations
Renovations to a strata titled lot which are classified as “Minor Renovations” require the owner to obtain approval by resolution which requires the Owners Corporation to vote in favour by a simple majority (i.e. at least 51%) of the Owners Corporation at an Annual General Meeting or a Special General Meeting.

The Act sets out a number of examples of what may be classed as a Minor Renovation, and those include:

  1. renovating a kitchen;
  2. changing recessed light fittings;
  3. installing wood flooring; or
  4. reconfiguring walls.

Works affecting Common Property
Renovations to parts of a strata titled building which are classed as common property require a special approval process of a special resolution which requires the Owners Corporation to vote in favour by at least 75% of the owners.

Works that affect common property may include Cosmetic or Minor Works. Some examples of common property may be as follows:

  1. Construction of additional storeys to penthouse/top floor apartments;
  2. Extension of balconies;
  3. Installation of shades, or awnings affixed to external façades; and
  4. Installation of externally mounted or ducted air-conditioning.

Generally
The amendments to the Act do not override any existing by-laws that may apply to strata titled scheme buildings. There may be By-Laws which specifically prohibit or limit the nature and extent of renovation works that may be undertaken by an owner.
Nothing in the Act alters the previous requirement of owners who undertake a renovation to repair any and all damage occasioned by those works to common property (or other lot property). All renovations must be carried out in competent and proper manner and the Home Building Act may apply to those works.

Before undertaking any renovation, be it Cosmetic, Minor or to Common Property, you should seek independent legal advice.

7. New Limits Imposed on Proxy Voting

New strata laws relating to proxy voting are designed to ensure no single owner has a majority of the votes and places a limit on the number of proxies that may be held by an individual.

The Strata Schemes Management Act amendments received Royal Assent and most of the amendments have effect on and from 30 November 2016.

Proxy Farming
Previous legislation allowed for owners to freely nominate any other owner to proxy vote on their behalf, this eventually led to the practice of proxy farming. Proxy farming occurs when an owner would obtain as many votes as possible from other owners. This led to situations, where a small number of owners would have the majority of the votes at meetings.

Amendments
The recently effected amendments have now capped the amount of votes any one owner may have.

Schemes with 20 lots or less:
Owners in a scheme with 20 lots or less are only permitted to have one proxy vote. That is one other vote than the one they are entitled to for their lot.

Schemes with more than 20 lots:
Owners in a scheme with more than 20 lots, have a capped proxy amount of 5% of the total number of lots in the scheme (rounded down to the nearest whole number).

For example, an owner part of a strata scheme of 100 lots, will only be permitted to hold 5 proxy votes (being 5%). They will also be entitled to use their vote, so the owner in a 100 lot scheme will be capped at a total of 6 votes (5 proxy votes and 1 for their own lot).

All owners of schemes who historically appointed a proxy who was a proxy farmer will need to reconsider their appointment of a proxy. The amendment should promote the engagement of more lot owners in the management of a Strata Scheme Building.

8. Pets, Smoking and Compulsory Review of By-Laws

The new strata laws change the model by-laws proposed for a strata scheme building. All existing schemes are now required to review their by-laws and ensure that they are valid.

The Strata Schemes Management Regulation amendments received Royal Assent and most of the amendments have effect from 30 November 2016.

Changes to the Model by-laws
The amendments to the regulation include proposed model by-laws which will only become binding on a strata scheme if adopted (either wholly or partly) by the owners corporation. The updated model by-laws differ from the model by-laws under the old legislation, in the following (limited) ways:

No smoking in lots or common property
Smoking in lots – Owners or guests of owners must ensure that if they smoke cigarettes (or other tobacco products) or any other substances in their unit, that the smoke does not penetrate the lot of another owner. This would appear to suggest that an owner may smoke in their unit, but only inside the unit (ie not on a balcony) and only if the smoke does not escape from the unit and go into another unit.
Smoking in common property – The proposed by-laws provide certain options to owners corporations for smoking in common property areas, those being:

  • banning smoking altogether from the common property; or
  • allowing the scheme to have a designated smoking section located on common property.

Keeping of pets
The proposed by-laws make it easier for owners of pets to keep a pet in their lot. The by-laws propose two options which may be adopted by an owners corporation, those being:

  1. the owner to give the owners corporation notice of the pet in their lot; or
  1. the owner to seek approval from the owners corporation (which cannot be reasonably withheld) to keep the pet in their lot.

Review of by-laws
The new law requires existing owners corporations to review their by-laws. The purpose of the review is for all owners corporations to ensure that their existing by-laws comply with the new laws. The review of the existing by-laws must be completed prior to 30 November 2017.

9. Tenant Representation – Giving Tenants More of a Say

New strata laws relating to Tenant Representation are aimed at encouraging greater tenant participation in the management of strata schemes.

Current situation
Current legislation only permits owners of lots to be involved in the meetings of the owners corporation. The only way for tenants to be involved in the management of their building is to become a proxy vote for the owner of the lot in which they live (or a proxy vote for another owner).

This has been a matter of concern for tenants, with many tenants voicing their concerns at the public commentary stage during the amendment process.

Tenant representation
Under the Act, landlords who lease a unit within a strata scheme must notify the owners corporation that the unit has been leased. Notice must take place within 14 days of the lease being entered into.This is defined as a Tenancy Notice.

From 30 November 2016, for all schemes where 50% (or more) of the lots are occupied by a tenant, a meeting for all eligible tenants is to be convened at least 14 days prior to the Annual General Meeting (AGM) of the owners corporation. This meeting is to be convened by the same person appointed to convene the AGM for the owners corporation (usually the Secretary).

The Act defines an eligible tenant as a tenant who has been notified to the owners corporation by a Tenancy Notice.

Notice of the meeting for eligible tenants may be provided to tenants by either:

  1. a personal notice to each tenant, or
  2. a general notice being placed on the strata notice board, or another common property area.

At the meeting held for eligible tenants, a representative, called the Tenant Representative, must be elected to represent the eligible tenants at all future meetings held by the owners corporation.

Tenant representative powers
Once a Tenant Representative is nominated they are to attend and participate in meetings. However, the Tenant Representative is not entitled to:

  1. vote on decisions, or put forth a motion to the committee; or
  2. nominate a person for office, to be counted in determining whether the quorum (the minimum number of members required for a meeting to proceed) is met.

Additionally, committee members of the owners corporation may remove a Tenant Representative from a meeting of the owners corporation (or a portion of the meeting) which deals with the following:

  1. financials statements or reports of the scheme;
  2. levy contributions; or
  3. the strata renewal proposals.

10. Developers Become Liable for Inaccurate Levy Estimates

These changes relate to the levies and funds charged from lot owners and the ways in which an owners’ corporation can claim compensation from an original owner, if these funds are not adequately set.

New laws regarding levies
Currently there are two ongoing funds managed and maintained by the owners’ corporations on behalf of all lot owners – the Administrative Fund and the Sinking Fund.  Under the new legislation the “Sinking Fund” is to be renamed to the “Capital Works Fund”.

Administrative Fund – The purpose of the Administrative Fund, as its name suggests, is to be used for the day-to-day administration of the strata scheme.  Some examples of the Administration Fund expenditure are costs relating to cleaning, gardening and general maintenance.

Capital Works Fund  (previously the Sinking Fund) – The purpose of the Capital Works Fund remains the same; namely to be used for large expenditure required for the repair and the upkeep of the building.

Each owner of a lot in the strata scheme will have a levy (usually due quarterly) which they must pay which will contribute towards the Capital Works Fund and the Administrative Fund.

Developer’s duty to accurately estimate levies
If it is found that the levies, as prepared by the estimates given by the developer, during the Initial Period are insufficient to meet the expenditure of the owners’ corporation, the developer may be found liable. The new amendments to the strata laws allow an owners’ corporation to apply to the Tribunal for an order requiring the developer of the strata scheme to pay compensation to the owners corporation.

The Initial Period commences on the date the owners’ corporation is established and ends on the date on which at least one-third of the units are owned by people other than the developer.

Owners’ corporations will have 3 years from the last date of the Initial Period to make a claim in the Tribunal.

11.Resolving Disputes Arising out of Strata Schemes

The Tribunal powers which relate to Strata Schemes have been expanded. The objective of this amendment is to resolve disputes arising from the management of a Strata Scheme quickly and cheaply.

Tribunals powers prior to amendments
Prior to the amendments, the Tribunal had limited powers to intervene in the management of a Strata Scheme. Under the old laws, the Tribunal’s powers were limited to removing and replacing Strata Managing Agents who failed to adequately perform and fulfil their duties.

Any other disputes arising from the management of a Strata Scheme required the Owners’ Corporation to commence proceedings in the Local, District or Supreme Court (as necessary). This often can be lengthy and more costly than proceedings in the Tribunal.

Tribunals powers after amendments
The amendments grant a greater range of powers being conferred upon the Tribunal. The Tribunal may now make findings in a wider range of disputes, which include but are not limited to:

  1. requiring the scheme to have a meeting for a decision to be made;
  2. allocating surplus funds in a scheme;
  3. altering the contributions or levies;
  4. disallowing an attempt to raise the interest charged on late contribution or levy payments;
  5. allowing the Owners’ Corporation to enter a lot;
  6. approval of alterations to common property;
  7. determining the level or extent of renovation work a lot owner proposes to undergo (see previous article relating to renovations to strata schemes);
  8. invalidating, changing or revoking by-laws;
  9. granting access to a lot for the purpose of inspection or building work; and
  10. removal of a person from the strata committee;

If you are of the opinion that you have any entitlement to seek relief from the Tribunal under the new laws, you should seek independent legal advice and call Madison Marcus Law Firm for more information.

If you have any questions regarding any of the new strata laws  or you would like further information about strata law, please contact: Partner, Denis Hall at denis.hall@madisonmarcus.co; Group Managing Director, Bechara Shamieh at bechara@madisonmarcus.co; Partner, Mark Yum at mark.yum@madisonmarcus.co; or Lawyer Andrew Benjamin at andrew.benjamin@madisonmarcus.co or call +61 2 8022 1222.

Madison Marcus Law Firm produced this article. It is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.

 

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