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1. This paper has been prepared as a summary and to provide commentary on the proposed strata law reform in New South Wales
which will be effected by the Strata Schemes Management Bill 2015 and the Strata Schemes Development Bill 2015.
2. This paper 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.
B. Building defects in strata schemes
3. Part 11 of the proposed Strata Schemes Management Bill 2015 (Management Bill) relates to building defects and requires
developers of strata scheme developments to pay a bond as security for remedial building works for up to 2 years after the completion of the Contract.
4. Under the proposed Management Bill, the Developer must cause for interim and final inspections within two years after the issue of the occupation
certificate for the strata scheme. Part 11 is a new concept for all stakeholders and there is no equivalent in the current Strata Scheme Management Act 1996 (NSW).
Developersâ€™ existing obligations
5. The Home Building Act 1989 (NSW) creates a notional contract between a developer and all subsequent owners of strata units. The statutory warranties
owed by a builder to all home owners (for all residential building works) are also implied into the notional contract, which means (in summary) that the developer
is responsible to rectify building defects.
6. The Management Bill defines â€œdeveloperâ€ in a similar way as that same term is defined in the Home Building Act. The Management Bill extends
the definition of a â€œdeveloperâ€ to persons which enter into a construction contract but are not the registered proprietor of the land being developed.
Statutory warranties proposed to apply to commercial works.
7. There are presently no statutory warranties which require developers or builders to warrant the quality of non-residential building works. Strata schemes
commonly comprise commercial, retail or mixed use areas. The owners of those commercial or retail lots do not enjoy the benefit of the statutory warranties under
the Home Building Act, or any other legislation.
8. The management Bill defines â€œdefective building workâ€ such that it extends to any works that would breach the statutory warranties under the Home Building Act,
regardless of whether the works are residential building works.
9. Therefore under the proposed Management Bill, developers (but possibly not builders) owe statutory warranties to owners of non-residential property which
forms part of a strata scheme. This is a major change.
10. The proposed Management Bill requires the developer to commission at its own cost two inspections of the strata scheme (both lot and common property)
by a registered and authorised building inspector. If the developer does not comply with its obligation to procure an inspection, the Department of Fair Trading
will appoint a building inspector. The Owners’ Corporation must approve the appointment of the building inspector and may refuse approval of a building
inspector on any grounds.
11. Since the changes to the Home Building Act which became effective in early 2015, the date for â€œcompletionâ€ of the construction works will be the date
of the issue of the occupation certificate. The legislation is not clear and authorities are not yet settled as to whether this means the â€œinterim occupation
certificateâ€ or is the â€œfinal occupation certificateâ€.
12. The regulations will dictate the persons capable of acting as building inspectors, however the Management Bill prohibits the developer appointing a building
inspector to which it is related or associated.
13. The first inspection must occur and a report must be issued between 12 to 18 months after the date of completion. The second inspection must occur and
a report must be issued between 18 months and 2 years after the date of completion. The building inspector who undertook the first inspection should also
undertake the second inspection.
14. After each of the inspections, the Building Inspector must publish a report to the developer and Owners’ Corporation. The interim report must identify
any defective building work in lot and common property and identify the cause of the building defects. The final report must identify any building defects in lot
and common property and specify how those defects should be rectified and provide an estimate for the cost of doing so.
15. The interim and final reports are not binding on the builder, developer, Owners’ Corporation, Court or Tribunal.
Developer to pay Building Bond.
16. The Management Bill will require developers to pay into a fund controlled by the Department of Fair Trading 2% of the construction contract sum (Building Bond).
The Building Bond is intended as security for the funding of future remedial works required to the strata scheme. The Building Bond must be paid as a precondition
to obtaining an occupation certificate.
17. The Building Bond must be distributed the later of 2 years after completion of the works or 60 days after the issue of the Final Report. The Building Bond
will be distributed to the Owners’ Corporation to the amount required to satisfy the estimate of cost to rectify defects identified in the Final Report (if any).
If there are no defects identified in the Final Report, the Building Bond will be distributed to the developer.
18. The Tribunal is given power to prevent a payment being made to any particular person and to vary the amount to be paid to any particular person. Therefore,
the developer may if it believes the estimate of cost to rectify is excessive may apply to alter the amount to be paid from the Building Bond.
19. The Management Bill expressly preserves any claim that the developer has against the builder or subcontractors for defective building work.
20. New warranties for commercial works
If the Management Bill were enacted, it would become integral for developers to ensure that their construction contracts included express and enforceable
warranties which are identical to the Home Building Act warranties for non-residential works within the strata scheme. If a developer does not do so,
it alone may be liable to rectify defects in commercial works and cannot pass that cost or responsibility on to its builder.
21. Interim and Final Reports
An Owners’ Corporation (or owner of a lot in a strata scheme) must bring any claim for non-major defects within 2 years after completion of the construction.
The timing of the proposed interim and final reports correlate directly with the 2 year limitation period.
Under the current laws, the Owners’ Corporation bear the upfront cost of inspections and reports which can be costly. This was a natural deterrent to Owners’ Corporations
commencing Tribunal or Court proceedings. However, the proposed Management Bill shifts that initial cost to the developer. In other words, the developer will be funding
a report which could be used against it in Tribunal and Court proceedings.
This proposed law is likely to cause an increase in the number of building defect claims in the Tribunal and Courts.
22. Building Bond
The Building Bond shifts the onus (and cost) of proving the existence of building defects from the Owners’ Corporation to the developer. As the Building Bond is proposed
to be distributed in accordance with the findings in the Final Report, if the developer does not agree with the findings in the Final Report, the developer must commence
proceedings to prove that defects do not exist and succeed in order to prevent the Building Bond being paid to the Ownersâ€™ Corporation.
The high level of power vested in the building inspector is concerning and the regulations governing building inspectors will require close scrutiny.
Generally, the proposed Management Bill will increase the cost of developing strata schemes. The Management Bill will effect actual cost, cash flow management
and potential costs for developers, builders and subcontractors. It is also likely that these changes will reduce the supply of housing in New South Wales and
will drive up the price of new strata units.
C. Original owner to pay compensation for inadequate estimates and levies
24. A new section proposed to be included in the Management Bill to provides that the Tribunal may order the original owner of a strata scheme to pay
compensation to the Owners’ Corporation if the Tribunal determines the estimates and levies determined during the initial period for expenditures relating
to the scheme were inadequate to meet the actual or expected expenditure of the Owners’ Corporation.
25. The proposal excludes liability on the part of the original owner if it is found that the original owner used due care and diligence in the determining
the estimates and levies.
D. Collective sale and renewal process
26. Current strata legislation permits termination of a strata scheme where there is 100% support from all the registered owners. This enables a group of owners
of a strata complex to sell the whole of the complex or building to a purchaser.
27. The Strata Schemes Development Bill 2015 proposes is to reduce the 100% vote of owners in a strata plan to 75% of owners in order to end a strata scheme.
There are many new sections which have been introduced under the heading of Strata Scheme Renewal for Freehold Strata Schemes and runs for 47 sections. The proposal involves the following procedures.
Summary of current position
28. Under the current Strata Schemes (Freehold Development) Act 1973, section 51A empowers the Registrar General to terminate a Strata Scheme. However,
if the Registrar General refuses to terminate the Strata Scheme, an applicant can seek to terminate the Strata Scheme by order of the Supreme Court.
29. An application must contain the signatures of all proprietors of lots within the Strata Scheme, each lessee and each registered mortgagee, chargee and
covenant chargee of a lot, lease or of the Common Property. Meaning, a hundred percent of all stakeholders must put in a â€œyesâ€ vote, before the Strata Scheme is terminated.
Summary of proposals
30. The current proposal seeks to alleviate the process and facilitate both the owners and the developers. A new system will be put in place:
(a) Owners’ Corporation must agree to utilise the system;
(b) Strata Committee will initiate the proposal to sell or redevelop the Strata Scheme;
(c) If 50% of the owners agree to pursue with the proposal, a committee will be formed for further investigation into the idea;
(d) This committee is to compile essential information for owners to make an informed decision;
(e) Owners will then have 60 days or more to agree/disagree to the proposed plans (for the plan to successfully go through, it would need the support of 75% of owners); and
(f) The plan must then be given to the Land and Environment Court for consideration
31. In order to assist elderly and vulnerable owner-occupiers, Fair Trading will set up a Strata Renewal Advice and Advocacy Program to assist
these individuals in making an informed decision, free advocacy on the sale and renewal plan and options for alternative housing.
Summary of the impact on developers
32. Current law on Strata Schemes impede development and force developers to maintain old run-down buildings.
33. For developers, the major reduction of the requirement from 100% of owners to 75% of owners in favour of and supporting the termination means
developers have a much lower threshold before development proposals can be considered by the Land and Environment Court.
34. Further, for the Government, it would also mean a much lower threshold to renew older low density unit blocks in Sydney.
35. The Strata Scheme Reform, therefore, expedites the process for developing and redeveloping Strata Schemes.
Submission of strata renewal proposal
36. A written proposal for collective sale or redevelopment may be submitted by â€œany personâ€ to the Owners’ Corporation.
Strata committee to consider proposal
37. Not less than 30 days after the Owners’ Corporation receives a strata renewal proposal, the Strata Committee must consider the proposal
at a meeting to determine whether the Strata Committee considers the strata renewal proposal warrants further consideration.
38. The Strata Committee must give each owner of a lot in the strata scheme a copy of the minutes of meeting within 14 days after the meeting.
Convening general meeting to consider proposal.
39. If the Strata Committee decides that the strata renewal proposal warrants further consideration it must do so not later than 30 days after
making the decision convene a general meeting to further consider whether the proposal warrants investigation by a strata renewal committee.
Lapsing of proposal
40. If the Strata Committee decides a strata renewal proposal does not warrant further consideration by the Owners’ Corporation and their qualified
request to consider the proposal at a general meeting of the Owners’ Corporation has not been made within 44 days after the day the Strata Committee made
its decision or the Owners’ Corporation decides a strata renewal proposal does not warrant investigation by a strata committee, then the strata renewal proposal
lapses when the decision is made.
Establishment of committee
41. If the Owners’ Corporation passes a motion that the strata renewal proposal warrants investigation, then the Owners’ Corporation must by resolution
establish a strata renewal committee to prepare a strata renewal plan for the scheme and elect its members.
Notice of decision to establish a committee
42. If a strata renewal committee is established for a strata scheme, the secretary of the Owners’ Corporation must within 14 days after it is established
give written notice of the decision to the owner of each of the lots in the strata.
Function and operation of committee
43. The function of the strata renewal committee is to prepare a strata renewal plan, relating to the strata renewal proposal for the strata scheme
for consideration by the Owners’ Corporation and the owners in accordance with the Act.
44. The strata renewal committee may hold its meetings at any time and the quorum for the meeting is the majority of its members and a decision supported
by a majority vote cast at a strata renewal committee at which a quorum is present is held to be the decision of the committee.
Contents of strata renewal plan
45. Division 5 sets out required contents of a strata renewal plan which must include the following information:
(a) a general overview of the strata renewal proposal;
(b) if the plan is for a collective sale of the scheme:
(i) the name of the purchaser, if known, or a proposal for marking the parcel of sale by public auction tender;
(ii) sale price, if known, or minimum reserve for the sale or details in which a minimum reserve price for the sale is to be set;
(iii) proposed completion date of the sale;
(iv) the proposed date on which the owners of the lots are to provide vacant possession of their lots;
(v) details, prescribed by regulations, about costs and expenses to be deducted from the sale;
(vi) any other terms and conditions of the proposed sale the strata renewal committee considers are significant;
(c) if the plan for a redevelopment of the scheme:
(i) the name of the proposed developer;
(ii) details of any planning approval required before the redevelopment can start;
(iii) an estimate of the period from the start to completion of the redevelopment;
(iv) details of any period during which the owners of the lots will be required to provide vacant possession before the redevelopment;
(v) details of arrangements for financing the redevelopment;
(vi) details of the terms of the sale and amounts to be paid to each dissenting owner of the purchaser for the purchase of the owners lot; and
(d) any other information or documents about the proposed collective sale or redevelopment prescribed by regulations.
Requirements relating to sale of lots
46. If a strata renewal plan is for the collective sale of the strata scheme, the plan must provide for the purchase of each ownerâ€™s lot at not less
than the compensation value for the lot.
47. If the strata plan is for redevelopment of the strata lot then the plan must provide for the purchase of each dissenting ownerâ€™s lot at not less than
the compensation value for the lot and must not require a dissenting owner to participate in any way in the redevelopment.
48. â€œCompensation valueâ€ means:
(a) the compensation which the owner will be entitled under section 55 Land Acquisition (Just Terms Compensation) Act 1991; or
(b) if regulations prescribe a different method of determining that valuation, the value of the lot determined in accordance with that method.
Consideration of plan by Owners’ Corporation
49. Consideration of the plan by the Owners’ Corporation must take place on receipt of a strata renewal plan.
Notice of ownerâ€™s decision to support plan
50. An owner may at least 60 days after receiving the copy of the strata renewal notice but not give to the secretary of the Owners’ Corporation a support notice.
Notice of required level of support obtained
51. If the required level of support, being at least 75% of the owners, for a strata renewal scheme is obtained before the plan lapses, the strata scheme must
as soon as practicable after that date give written notice to each of the owners and the Registrar-General.
Lapsing of plan
52. The strata renewal plan lapses if:
(a) the Owners’ Corporation decides not to give the plan to the owners for their consideration;
(b) within one year after the day in which the Owners’ Corporation decides to give the plan to the owners for consideration and the required
level of support has not been obtained; or
(c) the Owners’ Corporation decides not to apply to the Court under Division 6 for an order to give effect to the plan; or
(d) if an application is made under Division 6 to the Court for an order to give effect to the plan and the Court decides not to make the order.
Decision to apply for order
53. If the required level of support for a strata renewal scheme is obtained:
(a) the secretary of the Owners’ Corporation or a member of the strata renewal committee may convene a meeting of the Owners’ Corporation for the purposes
of deciding whether to apply to the Court for an order to give effect to the plan; and
(b) the Owners’ Corporation may by special resolution decide to apply to the Court for the order.
Application for order
54. An application for an order to give effect to the strata renewal scheme must be accompanied by:
(a) a plan;
(b) a copy of each support notice that is in effect under the Act for the plan;
(c) the names of the dissenting owners and each registered mortgagee or covenant charge of a dissenting owners lot;
(d) a declaration given by the Owners’ Corporation:
(i) identifying the steps taken in preparing the plan and obtaining required level of support;
(ii) confirming the steps were carried out in accordance with the Act;
(e) if the plan is for a collective sale of the strata scheme:
(i) a declaration given by the owner if known disclosing the nature of any relationship whether personal or commercial the purchaser may have with the owner of any lot in the scheme; and
(ii) a report of an independent valuer that includes details of the market value of the whole building and its site and details of the compensation value of each lot;
(f) if the plan is for redevelopment of a strata scheme:
(i) a declaration given by the developer disclosing the nature of any relationship whether personal or commercial a developer may have with an owner of any lot;
(ii) a document specifying the amount to be paid to each dissenting owner for the ownerâ€™s lot;
(iii) a report of an independent valuer that includes details of the market value of the whole building and its site and details of compensation value of each dissenting ownerâ€™s lot;
(iv) a document detailing enough financial information to show there is a secure source of finance for the carrying out of the proposed redevelopment of the plan;
(g) any other information document about the proposed collective sale or development prescribed by regulations.
Decision of court
55. The Court must make an order giving effect to the strata renewal plan if satisfied of the following matters:
(a) the relationship, if any, between the owners of the lot and the purchaser or a developer has not prevented the plan being prepared in good faith;
(b) the steps taken in preparing the plan and obtaining the required level of support were carried out in accordance with the Act;
(c) if the plan is for a collective sale â€“ the proposed distribution of the proceeds of sale apportioned to each lot is not less than the compensation value
of the lot and the terms of the settlement under the plan are just and equitable in all these circumstances;
(d) if the plan is for redevelopment â€“ no dissenting owner will be required under the plan to participate in any way in the redevelopment and the amount
to be paid to a dissenting owner is not less than whichever of the following is the greater:
(i) the compensation value of the ownerâ€™s lot; and
(ii) an amount equal to the total consideration that would accrue to the dissenting owner under the plan in relation to the redevelopment and the ownerâ€™s lot if that owner has given a support notice for the plan.
(e) if the plan is for a redevelopment â€“ terms of the settlement under the plan, as those terms apply to any dissenting owner, are just and equitable in all the circumstances; and
(f) any other matters prescribed by regulation.
56. The Court may on its own initiative vary the strata renewal plan and make an order giving effect to the varied plan if satisfied of the matters set out above.
57. However the Court cannot vary the strata renewal plan unless:
(a) the variation is of a minor nature that would not affect the plan in any substantial plan; and
(b) written agreement to the variation has been given by the owner of each lot in relation to which a support notice for the plan has been given.
58. The Court must not make order giving effect to the strata renewal plan if the Court is not satisfied about the matters referred to above.
Court order and directions
59. If the Court makes an order giving effect to a strata renewal plan for a strata scheme, the order may include directions about any of the following matters:
(a) termination of the scheme;
(b) the winding up of the Owners’ Corporation of the scheme;
(c) discharge of the liabilities of the Owners ‘Corporation;
(d) the persons liable to contribute amounts required for the discharge of the liability of the Owners’ Corporation and the proportionate liability of the person;
(e) the distribution of the assets of the Owners’ Corporation of the proportionate entitlement of each person under the distribution;
(f) any other matters prescribed by regulation.
60. The Owners’ Corporation must lodge the order for registration within 7 days after it is made.
61. The Registrar General must record the order on the folio of the common property for each of the lots in the strata scheme.
Effect of order relating to collective sale
62. The owners of each lot in the strata scheme must sell the ownerâ€™s lot in accordance with the strata scheme renewal plan and the orders.
63. The strata scheme is terminated on:
(a) the day on which the dealings effecting the transfer of all lots and common property are registered;
(b) if the order specifies a later date, that later date.
64. On termination of the strata scheme:
(a) the Owners’ Corporation is dissolved;
(b) the rights and liabilities of the Owners’ Corporation vested in the purchaser, unless orders specify otherwise;
(c) any legal proceedings may be completed;
(d) the purchaser must give the Registrar-General notice of the termination scheme;
(e) on receipt of the notice the Registrar-General must cancel the folios of the lots in the common property and create a folio for the land in the form of a parcel.
Effect of order relating to redevelopment
65. Each dissenting owner of a lot in the strata scheme must sell the ownerâ€™s lot in accordance with the strata renewal plan and order.
66. The strata scheme is terminated on the date the order is made.
67. On the termination of the strata scheme:
(a) the Owners’ Corporation is dissolved;
(b) the rights and liabilities of the Owners’ Corporation vested in the developer or the former owners in accordance with the strata scheme,
strata renewal plan and the order;
(c) land in the form of parcels vests in the former owners as tenants in common in shares proportional to the unit title of their former lots,
unless the strata renewal plan otherwise provides;
(d) any legal proceedings begun by or against the Owners’ Corporation may be completed by or against the developer;
(e) the developer must give the Registrar General notice of the termination in the approved form.
68. On receiving the notice the Registrar-General must:
(a) cancel the folio for the lots and common property in the strata scheme;
(b) create a folio for the land in the form of parcels;
(c) record in the register the matters the Registrar-General considers appropriate to give effect to the order.
69. Unless the orders otherwise provide, a lease of a dissenting ownerâ€™s lot in the strata scheme is terminated on the day stated in the strata
renewal plan for giving vacant possession of the lot to the developer. The termination of a lease of a lot does not affect a right or remedy a person
may have under the lease.
Limitation on submitting strata renewal proposal
70. If a strata renewal proposal or a strata renewal plan for a strata renewal proposal lapses, a person cannot give the proposal, or another strata
renewal proposal that is substantially similar to the proposal to an Owners’ Corporation within 12 months of the day of the proposal or plan lapses.
E. Revised meeting procedures
71. The current law and regulations in relation to General Meetings require that:
(a) the service of notices and documents in relation to the General Mettings to/from the Owners’ Corporation must be effected by post or in person
to the recipients unless the Owners’ Corporation adopts a by-law allowing for alternative means of service (e.g. s118 â€“ s120 of the SSMA 1996); and
(b) The votes in the General Meetings may only be cast by participants who are physically present in the meeting (cl 17 â€“ 18, Schedule 2 of the SSMA 1996).
72. The proposed Management Bill will make the below changes in relation to meeting procedures:
(a) The address for serving a notice or other documents may be an email address or a facsimile number (s256 of the SSMB);
(b) The Owners’ Corporation may, by resolution, determines the means of conducting a General Meetings and voting in a General Meetings (cl 17, Schedule 1 of the Management Bill);
(c) The meaning of being present in a meeting may be determined by the Owners’ Corporation by resolution (section 4 of the Management Bill); and
(d) The voting for the General Meeting may be carried out by secret ballot (cl 29, Schedule 1 of the Management Bill);
Impacts on developers
73. The Owners’ Corporation may, by resolution, adopt electronic means of conducting General Meetings such as via social media, video or teleconference.
It is expected that the voter turnout in the General Meetings will improve and the need for proxy is also reduced for General Meetings.
74. The practice of collecting proxy votes from passive owners in order to inflate the position of a party may not be as effective as before the reform.
F. Proxy voting
75. Proxy voting is where voting power may be delegated to other members of the same body to vote. The Strata Schemes Management Act 1996 (under schedule 2)
currently allows proxy votes to be accrued without restriction by individual owners at Owners’ Corporation meetings.
76. The Act outlines requirements and provisions regarding meetings of the Owners’ Corporation and includes the stipulation of proxy voting. Outlines of voting
and proxy voting include:
(a) Persons entitled to vote at general meetings;
(b) Proxies who are duly appointed;
(c) Forms and documents required for proxy voting;
(d) Who holds the proxy vote;
(e) When and period the proxy is effective; and
(f) Limitations placed on its exercise.
77. The amount of proxy votes an individual can hold at a general meeting has no specific maximum. This has caused contention and has led to concerns
and contentions of â€˜proxy farming.â€™
78. Proxy farming is when an individual or minority group harvest votes from individual owners who do not attend general meetings. This gives a majority
to the proxy farmer over those who attend the general meetings too. For example, the proposal stipulates the following:
(a) Limit on number of proxies that may be held
(b) The total number of proxies that may be held by a person (other than proxies held by the person as the joint owner of a lot) voting on a resolution are as follows:
(i) if the strata scheme has 20 lots or less, one,
(ii) if the strata scheme has more than 20 lots, a number that is equal to not more than 5% of the total number of lots.
79. The new reforms and proposals seek to restrict the practice of proxy farming by implementing measures that will reduce the number of proxy votes able to be held.
Impact and Ramification of granted proposal
80. Will have a flow-on effect on the notion of a â€˜quorumâ€™ whereby meetings will be attended by more individual owners. This will ensure that the democratic
approach realised in general meetings is fulfilled.
81. Furthermore a majority vote on important issues has conduit to take effect, eliminating the contention of one person hoarding votes to appease their own agenda.
G. By-laws for strata schemes
82. Recommendations have been made to reform the current strata law so as to better manage issues that arise in strata living such as overcrowding, pets, parking, and smoke drift.
83. The proposed bill serves two functions with respect to by-laws:
(a) The proposed bill confirms the current positions below:
(i) by-laws can only be made to matters which relate to the â€œmanagement, administration, control, use or enjoymentâ€ of the lots or the common property and lots of a strata scheme;
(ii) the by-laws may limit the number of persons who may reside in a lot to avoid issues of overcrowding which may impact on the amenity of residents living in a strata scheme.
However schemes must still allow for no fewer than two adults per bedroom and introduce stricter and heavier monetary penalties for violation of by-law; and
(iii) a by-law must not be harsh, unconscionable or oppressive.
(b) proposes as follows:
(i) Simplified Approval Process for Owner Renovations
Current position versus proposed position
84. Current legislation makes it particularly difficult for owners to make minor renovations to their lot, as it requires 100% approval of the ownerâ€™s corporation.
In the proposed amendments, renovations will come under a three-tier approval process as follows:
(a) the owner is not required to seek approval for cosmetic changes, as the by-laws can stipulate any additional work deemed to be â€˜cosmeticâ€™.
(b) only general resolution approval (50% of those entitled to vote) is necessary for minor renovations.
(c) special resolution approval (75% of those entitled to vote) is required for renovations which alter the outside appearance of a lot or are likely
to affect waterproofing or structural modifications.
Improved parking control
85. Current law allows Owners’ Corporations to address unauthorised parking through by-law enforcement, signage and barriers and, where necessary, contacting
the police if trespassing occurs. In this circumstance, a strata managing agent or an ownerâ€™s corporation may serve a notice (if passed and approved by the Owners’
Corporation) on the owner or occupier of a lot requiring the occupier to immediately abide by the specified by-law.
86. The proposed reforms will enable Owners’ Corporations, or an association in a community scheme, to enter into agreements with the Local Council to control
unauthorised parking on common property by erecting parking signs in conjunction with parking enforcement services, which would deem it an offence to park contrary
to signs or marked parking spaces. An agreement for a strata parking area or a community scheme parking area, which confers functions on Local Council in relation
to a strata parking area, must comply with guidelines under the Local Government Act 1993 and must be approved by special resolution of the Owners’ Corporation or
Noise and short-term letting
87. Current schemes enforce by-laws regarding excess noise and poor behaviour of short-term residents by permitting Owners’ Corporations to seek an order in the NSW Civil
and Administrative Tribunal (â€œTribunalâ€). At present, a Tribunal can only enforce monetary penalties for breach of a by-law if a â€˜notice to complyâ€™ has been served on the owner
or occupier in the first instance. This requirement will remain for the initial breach. Pursuant to current strata law, residents who contravene a by-law are subject to a maximum
fine of $550.00 per offence.
88. The proposed reforms will make it easier for ownerâ€™s corporations, particularly long term residents, to enforce by-laws, impose limits and provide heavier penalties
available to the Tribunal to act as a deterrent for disruptive behaviour. The proposed changes empower the ownerâ€™s corporation to prosecute offenders if a second violation of
the same by-law arises within 12 months after the Tribunal has imposed a penalty. In this circumstance, a â€˜notice to complyâ€™ is not required and the ownerâ€™s corporation can
immediately apply to the Tribunal for a penalty. The proposed reforms also increase the maximum penalty to $1,100.00 per offence.
89. At present, in certain circumstances, individuals can be compelled to choose between their pet and living in a strata building due to prohibitions concerning
pet ownership in a strata scheme.
90. The proposed reforms will not remove a schemeâ€™s capacity to make its own rules regarding pets, but the regulations will prescribe â€œmodel by-lawsâ€ for pet ownership
that may be adopted as the by-laws for a strata scheme. These by-laws will be introduced to make it less difficult for people to keep pets, if it does not reasonably interfere
with the use or enjoyment of another lot or common property. However, such by-laws cannot exclude or restrict guide, hearing and assistance dogs but amendments will be made to
further expand the category of guide dogs.
91. Notwithstanding this, the Tribunal may, on application by the owner or occupier, order a person to cause an animal to be removed if the animal is contravening established
by-laws, or is causing a nuisance or hazard to the owner or occupier of another lot.
Stricter enforcement on nuisance or harmful smoke
92. Current strata legislation prevents occupiers from creating a hazard or nuisance which can unreasonably interfere with another personâ€™s use and enjoyment of
their lot or common property.
93. At present, individuals have the power to take smoking residents to the Tribunal for redress if their behaviour causes a nuisance or hazard for owners,
occupiers and other persons. Such mechanisms will remain in the new Act but are strengthened further by specifically noting â€œsmoke driftâ€ as a nuisance or hazard and
introducing a model by-law which directly deals with smoke drift.
Impacts on developers
94. Generally speaking, the reforms and potential model by-laws create stricter penalties for contravention of by-laws, which in turn, will create greater
opportunities for Owners’ Corporations to manage their lot and/or common property. Developers must be aware of the stringent requirements of by-laws affecting
Owners’ Corporations to determine what is, and is not, permissible.
H. Tenantsâ€™ participation in meetings
95. Under the legislative framework, tenants do not have to participate in Strata Committee and Owners’ Corporation meetings and they do not have the right
to vote. However, if the owner is willing, they can give the tenant a proxy vote to vote on their behalf.
96. The Strata Scheme Reform proposes to change the way meetings are conducted. One major change is by opening the doors and allowing tenants
to participate in meetings.
97. The reform states that if tenants reside in more than half of the lots in a particular building, a representative can be elected to represent them at
the Strata Committee and Owners’ Corporation meetings. Nonetheless, they are still not granted the right to vote. Further, at Owners’ Corporation meetings,
tenant representative cannot speak unless the board votes to grant them this right.
98. The tenant representative on a strata committee is, in that capacity:
(a) not entitled to vote or put motions or nominate a person for office; and
(b) not entitled to act as an officer of the Owners’ Corporation; and
(c) cannot be counted to form a quorum of the committee.
99. The strata committee, at any meeting may determine that the tenant representative is not entitled to be present when the following matters are
being discussed or determined:
(a) financial statements and auditorâ€™s reports;
(b) levying contributions;
(c) recovery of unpaid contributions;
(d) a strata renewal proposal; and
(e) any other financial matter specified by the strata committee.
100. However, the Strata Committee may still exclude the representative from participating in the meeting should sensitive matters be on the agenda.
For example, matters in relation to financial statements and contribution levies.
Impact on developers
101. In this particular case, the reform will benefit developers in a subtle and less direct way.
102. By allowing tenants to attend Strata Committee and Owners’ Corporation meetings, the committee and owners are able to understand the current
situation of the tenants living in the Strata Schemes. It gives a voice to these tenants to air what they appreciate about the particular residence
or perhaps areas in which the Committee/Owners’ Corporation can aim to improve.
103. With a more pleasant environment, there would be a lower turnover rate of tenants, something invaluable to investors. Through this reform,
developers can now be more confident to develop new strata schemes in an environment with a guaranteed pool of happy investors. Conversely, it may
result in tenants more easily identifying building defects in property at general meetings that otherwise might not have been raised.
I. Maintaining the buildingâ€™s conditions
104. Maintenance of the condition of buildings in strata schemes is currently legislated by the Strata Schemes Management Act 1996. Under the Act
sections 62 to 65 provide for the maintenance, repair, alteration and use of the property. The current legislation does not however expressly address
dealing with building defects.
105. Authority on this area comes from the building contract, the Home Building Act 1989 and guarantees under the Australian Consumer Law. The established warranty
timeframes include a 2 year statutory warranty covering all defects (for all building contracts entered into after 1 February 2012) and 6 year warranty for â€˜majorâ€™ defects
from the date the building work was completed. These periods commence from the date the occupation certificate is issued.
106. The proposed Act includes additional sections to more clearly deal with building maintenance. Significantly, the proposed Act stipulates that a non-binding
maintenance schedule must be prepared by developers and be presented at the first annual general meeting.
107. As noted above in this paper, there are also now obligations on developers to rectify defects (see Part 11 of the Management Bill).
Impact on developers
108. The proposed Act, if passed imposes a greater onus on developers, who are made more directly accountable for their work post completion
J. Owner renovations
109. The Strata Schemes Management Act 1996, Act provides for the maintenance, repair, alteration and use of the property. Section 65A stipulates
an Owners’ Corporation or owner may add to, alter or erect a new structure to the common property only if a special resolution has been passed at a general meeting.
110. The proposed Act provides for owners renovations. Minor cosmetic work does not require authorisation by the Owners’ Corporation.
111. Minor renovations involving fixtures and creating a lasting affect would still require approval by only a general resolution which requires 50% of the vote.
112. Comparably renovations impacting the appearance or structure of the building still require a special resolution by the Owners’ Corporation accumulating
75% of the vote or authorisation by a by-law.
Impact on developers if passed
113. Although the proposed Act would allow restrictions for minor changes to lots to be waived and create clearer authorisation for owner renovations,
there is no direct impact on developers.
K. Managing agents â€“ qualifications to appointment
What is it?
114. Under the current law there are no specific provisions for managing agents receiving commissions, benefits or gifts from third parties.
115. There are also no limits on management contracts after the initial period, and automatic roll-over clauses are allowed.
What is it changing?
116. Under the Bill:
(a) Managing agents will need to disclose commissions at AGMs and seek approval to continue receiving them;
(b) Managing agents will also be prohibited from receiving benefits or gifts; and
(c) Management contracts will be limited to a maximum term of three years, with no automatic roll over clauses allowed.
117. The changes and additions under the Bill will be as follows:
(a) the term of appointment of a strata managing agent is to be limited to a maximum of 12 months for an agent appointed at the first
annual general meeting or 3 years for any other appointment, with any reappointment also limited to maximum terms of 3 years (proposed section 50);
(b) a strata managing agent may transfer his or her functions as an agent if the transfer is approved by a resolution of the Owners’ Corporation
at a general meeting (proposed section 51);
(c) it will be an offence for a strata managing agent to request or accept a gift or other benefit for himself or herself or another person
in connection with the provision of services as an agent, other than a monetary commission included in the agentâ€™s terms of appointment or otherwise
approved by the Owners’ Corporation (proposed section 57); and
(d) a strata managing agent must report at an annual general meeting monetary commissions received from third parties in the previous 12 months as well
as commissions and an estimate of commissions expected in the following 12 months. The agent must also disclose to the strata committee of the Owners’ Corporation
variations from the commissions disclosed, as soon as practicable after becoming aware of the variation (proposed section 60).
118. With respect to commissions, benefits or gifts from third parties, practitioners in this area of the law have commented as follows:
(a) transparency is desirable, but this proposed reform has the potential to impact on community schemes, in terms of increased costs and potentially
inferior attention to insurance issues; and
(b) the disclosure requirements to be imposed should be linked to the process of negotiating the agency agreement.
119. With respect to the term of management contracts, commentators have expressed the view that the proposal is not supported. Particularly given,
the provision in the Property, Stock and Business Agents Act 2002 for a right of termination of three monthsâ€™ notice following expiry of the initial term.
120. The proposed strata law reform will have wide reaching effect on all stakeholders.
121. Whilst there may be more certainty for owners and Owners’ Corporations, this is likely to come at a premium as developers and all other
stakeholders are likely to build this cost into feasibility analyses when acquiring or constructing residential developments in New South Wales.
If you require any assistance with preparing submissions on the proposed strata law reform or require further information about the present strata laws, call Madison Marcus on 02 8022 1222.
Contact the authors:
Denis Hall | Partner, Real Estate Transactions
Direct Line: +612 9762 0424
Mark Yum | Senior Associate, Construction and Infrastructure
Direct Line: +612 9762 0417