By Daniel Russell, partner of Chambers Russell Lawyers. Daniel is the consultant on CCH’s NSW Strata and Community Titles Law.
The New South Wales Government recently introduced a Strata Schemes Management Bill 2015 and Strata Schemes Development Bill 2015 into Parliament. We do not know the extent to which the final form of these bills will reflect the Government’s proposal, or whether the bills will be passed at all, however at the time of writing it seems highly likely that the bills will both be passed without amendment.
The Strata Schemes Development Bill 2015 largely re-enacts, in a consolidated form, the existing Strata Schemes (Freehold Development) Act 1973 and its leasehold equivalent.
However one important proposed reform, namely the proposal for collective sale and renewal of strata schemes, is contained in the Strata Schemes Development Bill 2015.
An outline of the collective sale and renewal provisions in the proposed legislation can be found here.
Strata Schemes Management Bill 2015
Whilst many provisions are carried over in the new proposed management act (albeit in new locations or in slightly amended forms) there are many important proposed changes to the existing arrangements. We have considered those changes in turn below.
Proposed regulations have not presently been made available.
References below to the “Tribunal” are to the New South Wales Civil and Administrative Tribunal.
The executive committee
The “executive committee” will be known as the “strata committee”.
Under proposed section 32, a strata managing agent or building manager for a strata scheme, a leasing agent for lots in a strata scheme, or a person with an undisclosed connection to the original owner of a strata scheme cannot be appointed or elected to the strata committee unless they are an owner in the strata scheme. Proposed section 32(2) provides that unfinancial owners are not eligible for election to the committee (but under proposed section 35(1) (a), they do not cease to be eligible to hold that office if they later become unfinancial).
Under proposed s 33, if at least half the lots in the scheme are tenanted, tenants may elect a non-voting member of the committee (who may be excluded during certain financial discussions).
Under proposed s 37, members of the strata committee will be obligated to carry out their functions for the benefit, so far as is practicable, of the owners corporation, and with due care and diligence. However officer bearers and members of strata committees and people acting under their direction will have no personal liability for anything done in good faith within the meaning of proposed section 255 (instead liability will attach to the owners corporation).
Proposed clause 10 of Schedule 2 permits the strata committee to decide that voting may occur other than in person (which the regulations may provide for).
Proposed clause 18 of Schedule 2 obliges members of the strata committee to disclose any pecuniary interest in a matter considered by the committee, and not vote on the matter or be present for deliberations on that matter unless permitted by the committee.
Various other provisions are proposed to be introduced regarding the procedure and conduct of executive committee meetings, including entitlements to vote (proposed Schedule 2).
If a member of the committee or an office bearer vacates office, the committee may replace them (in the case of a member of the committee under proposed section 35 (2)) and must replace them (in the case of an office bearer under proposed section 45).
A strata committee for a large scheme must have at least 3 members (proposed section 30 (2)).
Strata managers and building managers
Under proposed s 49(3), the developer of a strata scheme, or a person connected to the developer, will not be permitted to be appointed as the strata managing agent within 10 years from registration of the strata scheme. Under cl 14(3) of proposed Schedule 3, this provision will not apply to a strata managing agent appointed before the commencement of the section.
Under proposed section 50, the maximum term of a strata managing agent’s appointment is to be limited to:
- 12 months (for an agent appointed at the first annual general meeting); or
- 3 years in any other case (including any option term)
However the agreement may be allowed to roll-over on a month-to-month basis pending a decision as to reappointment (proposed s 50(4)).
The section will apply to all existing strata managing agency agreements, except that they will be permitted to run for at least 6 months after the commencement of the new Act (proposed cl 14 of Schedule 3).
Under proposed s 51, a general meeting resolution of the owners corporation will be required for a transfer of an agency agreement (currently s 27(3) permits transfer with “approval of the owners corporation” but does not specify the means by which such an approval may be given).
Under proposed s 57, it will be an offence for a strata managing agent to request or accept a gift or other benefit in connection with the provision of services as a strata managing agent (except their remuneration, commissions included in the terms of appointment of the agent or approved by the owners corporation, a training course or service, and anything below a threshold to be prescribed by the regulations).
Under proposed s 60, a strata managing agent must report to the annual general meeting on commissions received in the preceding 12 months and expected to be received in the following 12 months, and must disclose any variations to the owners corporation as soon as practicable after becoming aware of them. The Tribunal will be empowered to order a strata managing agent to pay over commissions to the owners corporation if they were not disclosed or not disclosed in good faith.
Caretakers are to now be known as building managers. The current requirement that a “caretaker” own or be entitled to exclusive possession of a lot or an area of common property in the strata scheme will not be carried over. This may have the effect of bringing some building management agreements under the regulation of the Act, including possibly imposing 10 year maximum terms that did not previously apply. A transitional provision provides that such agreements will run for 10 years from the date of the commencement of that provision (proposed cl 15(2) of Schedule 3).
Under proposed s 72 the Tribunal’s power to make orders regarding caretaker agreements (such as varying the terms or ordering compensation) will be extended to apply to strata managing agents as well.
Under proposed s 166, a strata managing agent must provide at least 3 quotes for each proposed kind of insurance to be taken out by the owners corporation and must provide written reasons to the owners corporation if less than 3 quotes are provided.
Financial management and insurance
The sinking fund will be known as the capital works fund.
Various changes are proposed to how and when certain money is to be paid into and out of the owners corporation’s funds, as well as the preparation and content of financial statements.
The requirement to obtain insurance valuations every 5 years has been omitted from the proposed legislation (current s 85), however it is possible that this or some other arrangement is intended to be included in the regulations.
Records and information
Under proposed s 177, records (including the strata roll) may be kept in a form determined by the owners corporation and under proposed s 184 access to records for inspection purposes may be provided electronically.
A lessor or sub-lessor of a lot must give their tenant a copy of the by-laws (and any applicable strata management statement) within 14 days after the tenant becomes entitled to possession of the lot. Any changes to those by-laws or that strata management statement must also be given to the tenant within 14 days after taking effect.
General meeting procedures
An unfinancial owner will be permitted to requisition a motion for inclusion on the agenda of the next general meeting (proposed cl 4 of Schedule 1).
Under proposed cl 6 of Schedule 1, the agenda for each annual general meeting must include an item to consider building defects and rectification, until the end of any applicable statutory warranty period under the Home Building Act 1989.
The notice of an annual general meeting must also include an item to consider a report on commissions of the strata managing agent (if there is one) under proposed cl 9 of Schedule 1.
The annual general meeting notice must also include an item to determine how to deal with overdue contributions (proposed cl 9 of Schedule 1).
The notice of the annual general meeting no longer needs to be accompanied by the last financial statements. Instead these must be provided on request (proposed cl 10 of Schedule 1).
Notice of a general meeting must also be given to tenants (proposed cl 11 of Schedule 1).
Under proposed cl 15 of Schedule 1, the developer or lessor of a strata scheme is not permitted to vote on matters relating to building defects or their rectification.
After half-an-hour without a quorum, the chairperson can declare that those present and entitled to vote constitute a quorum, without the need to adjourn the meeting, although the meeting can still be adjourned (proposed cl 17 of Schedule 1).
Tenants who have been notified of general meetings may attend them but may not vote (unless they are a proxy-holder) and may only speak if a resolution is passed approving it. The owners corporation may determine that tenants who are not proxy-holders are not entitled to be present when certain financial matters are discussed (proposed cl 21 of Schedule 1).
A person may not hold more than 1 proxy (if the scheme has 20 lots or fewer) or not more than 5% of the total number of lots in any other case (proposed cl 26 of Schedule 1).
In certain circumstances votes may be carried out by secret ballot (proposed cl 29 of Schedule 1) or other than in person, subject to the regulations (proposed cl 28 of Schedule 1).
Under proposed s 19(1) the secretary (in addition to the committee, as is currently the case) may call a general meeting at any time.
Recovery of unpaid contributions
Under proposed s 85, the owners corporation will be able to enter into payment plans for unpaid contributions (and the regulations may prescribe requirements for such payment plans). Payment plans may only last 12 months (but another may be entered) and must be approved by a general meeting.
The Tribunal will be given a limited power to review interest charged on unpaid contributions (proposed s 85(8)).
The power to recover unpaid contributions, interests and enforcement costs in a court of competent jurisdiction is retained (proposed s 86(2)) but the Tribunal is additionally granted a power to make those orders (proposed s 86(1)). In accordance with proposed s 225, it appears that any application regarding unpaid levies to the Tribunal would need to be prefaced by attempted mediation.
Under proposed s 86(4) and 86(5), an owners corporation must give a lot owner at least 21 days’ notice of proposed action to recover unpaid contributions, including details set out in those sections and as may be prescribed by the regulations.
Under proposed s 89, the Tribunal can order the original owner of the strata scheme to pay compensation to the owners corporation if the budgets prepared during the initial period were inadequate. The original owner will have a defence to a claim if they can show they used due care and diligence. A time limit of 3 years is provided running from the end of the initial period.
Proposed s 84 (2)(c) appears to intend to extend liability for unpaid enforcement costs to mortgagees in possession (which is currently not the case).
Proposed Schedule 4 would insert a new Part 8, Division 3, Subdivision 2A in the Civil Procedure Act 2005, providing a specific species of enforcement order for judgments for unpaid contributions, allowing for garnishee orders to be executed against rent owing to a landlord owner in an estate agent’s trust account.
Approval of legal action
Proposed s 103 deals with approval for obtaining legal services for which payment may be required. It requires a general meeting resolution, except where:
- The owners corporation or strata committee is of the opinion that urgent action is necessary to protect the interests of the owners corporation and the cost of the services does not exceed $10,000 (or another amount prescribed by the regulations).
- The legal services are to obtain advice prior to commencing legal action, are for the recovery of levies, or are of any other kind prescribed by the regulations.
The section provides that a non-compliance with the section does not invalidate the affected proceedings.
Only a costs disclosure for legal services that requires general meeting approval must be circulated under the new proposed s 105 (currently any costs disclosure for legal services needs to be circulated).
Duty of repair and maintenance
Under proposed s 106(4), if an owners corporation has taken action against an owner or other person in respect of damage to the common property, it may defer compliance with its duty to repair and maintain that common property until the completion of the action. This power does not apply if the failure to comply will affect the safety of any building, structure or common property in the strata scheme.
Proposed s 106(5) creates a statutory cause of action for lot owners to recover damages from the owners corporation for a breach of statutory duty. This proposal can be expected to revert the law to the position which applied prior to the Court of Appeal’s decision in The Owners Strata Plan 50276 v Thoo  NSWCA 270 (22 August 2013), where it was held that no such cause of action arose. The loss claimed must be “reasonably foreseeable”.
Proposed s 107 allows for the adoption, in the by-laws, of a “memorandum” prescribed by the regulation which can specify whether the owners corporation or an owner of a lot is responsible for the repair and maintenance of particular parts of the common property. The currently legal position with respect to the adoption of two such memorandums registered with Land and Property Information is uncertain.
The proposed legislation incorporates a new regime regarding approval of building works.
Proposed s 108 replicates the existing s 65A of the Strata Schemes Management Act 1996, and therefore requires a special resolution to first be passed before the owners corporation, or an owner of a lot, can add to, alter or erect a new structure on the common property. As with the current section, if the resolution purports to pass on the obligation for repair and maintenance of the affected common property to the lot owner, it is ineffective unless a by-law is made to that effect with the lot owner’s written consent.
Beyond this, two new categories of work are dealt with by proposed sections 109 (dealing with “cosmetic work”) and 110 (dealing with “minor renovations”).
Cosmetic work under proposed s 109 requires no approval from the owners corporation. The meaning of “cosmetic work” is defined, and certain exceptions are provided. Key exceptions include “minor renovations”, structural work, work involving plumbing and waterproofing, work that changes the external appearance of a lot, and work that requires consent under other legislation (for example, development consent). The by-laws can specify additional kinds of “cosmetic work”.
Under proposed s 110 minor renovations may be carried out with the approval of an ordinary resolution at general meeting. Some kinds of work are excluded from the definition of “minor renovations”, importantly including structural work, waterproofing work, work which changes the external appearance of a lot, and work that requires approval under other legislation (such as development consent).
Approval under proposed s 110 cannot be unreasonably withheld, and can be granted subject to reasonable conditions. The by-laws can add to the category of “minor renovations”, and can delegate the owners corporation’s functions under the section to the strata committee (meaning strata committee approval would be sufficient if the by-laws permitted it).
Importantly, there is no procedure under either proposed s 109 or 110 for the owners corporation to pass on its duty to repair and maintain common property. Proposed s 110 allows the imposition of reasonable conditions, but it is unclear whether this would extend to a condition requiring payment of the owners corporation’s costs expended to maintain the affected common property.
In practice the exclusions to both section 109 and 110, and the lack of a procedure to pass on the obligation for repair and maintenance of affected common property, is likely to result in the practice of owners corporations requiring exclusive use and special privilege by-laws (now to be “common property rights by-laws”) to be made for most renovations.
Confusingly, proposed s 111 (c) seems to provide for the owners corporation to authorise an owner of a lot to carry out out work on the common property either by special resolution (seemingly a parallel power to those in proposed sections 108, 109 and 110) or in a manner authorised by the by-laws. The question arises as to whether a by-law made under section 111 (c) can circumvent the requirements of sections 108, 109 and 110, or whether it must be consistent with them. The later view seems to be more likely, but no express provision is made to that effect.
Proposed section 112 now permits an owners corporation to additionally grant a licence to use common property to an occupier of a lot or any other person (as well as to owners of lots as is currently permitted).
If work done by or on behalf of an owner or occupier of a lot causes damage to the common property or another lot, the Tribunal will have a power to order that owner or occupier to repair that damage or pay an amount for those repairs and other costs (under proposed section 132).
Under proposed section 126 the Tribunal may make an order requiring the owners corporation to consent to “minor renovations” or other common property alterations affecting an owner’s lot, or repairs to common property directly affecting the owner’s lot. The Tribunal may also make an order approving of existing “minor renovations” or alterations to common property. The Tribunal, under proposed section 126 (5), may order than the lot owner is to bear the responsibility for ongoing maintenance of the work.
Additionally, under proposed section 127, the Tribunal may make an order declaring that certain work is cosmetic work for the purposes of proposed section 109, or minor renovation for the purposes of proposed section 110.
Under proposed section 139 a by-law must not be “harsh, unconscionable or oppressive”, in addition to the existing restrictions which are carried over. The Tribunal can declare a by-law invalid if it considers it to be “harsh, unconscionable or oppressive” under proposed section 150 (3) (but only on application of a person entitled to vote on the motion to make the by-law, or the lessor of a leasehold strata scheme).
The previous provision which prevented by-laws from restricting “guide or hearing dogs” has been amended to refer to “assistance animals” within the meaning of the Disability Discrimination Act 1992 of the Commonwealth. The by-laws may require a person to provide evidence that an animal is an assistance animal.
Proposed section 137 permits by-laws to be made that limit the number of occupants of a lot (but not to less than 2 adults per bedroom), but such a by-law has no effect to the extent to which it is inconsistent with any planning approval or other law applicable to the lot.
An existing owners corporation is to review its by-laws not later than 12 months after the commencement of section 134 (proposed clause 4 of Schedule 3).
Changes of by-laws must now be registered within 6 months from the date of the resolution to adopt them (proposed section 141 (4)) and the secretary of the owners corporation must keep “a consolidated up to date copy of the by-laws for the strata scheme” (proposed section 141 (3)). No form is apparently prescribed for this “consolidated up to date copy of the by-laws”. The question arises as to whether a simple copy of all the relevant dealings and/or an extract of the relevant model by-laws from the legislation would be sufficient.
Proposed Division 3 of Part 7 effectively replicates Division 4 of Part 5 of the current Strata Schemes Management Act 1996, concerning what are currently “exclusive use or special privilege” by-laws, to be known instead as “common property rights by-laws”.
Proposed section 143(1) clarifies that the written consent required is that of “each owner on whom the by-law confers rights or special privileges”.
Under proposed section 147 the civil penalty for breach of an owners corporation’s notice to comply with a by-law increases to a maximum 10 penalty units ($1,100) from 5 ($550).
In the case of a second breach within 12 months of a fine being imposed the Tribunal can impose a penalty of up to 20 penalty units ($2,200). This power did not previously exist.
In the case of a by-law limiting the number of occupants of a lot, the penalty is increased to a maximum 50 penalty units ($5,500) for the initial breach and up to 100 penalty units ($11,000) for a further breach within 12 months of an initial fine being issued.
Additionally, under proposed section 147 (5), the penalty is payable to the owners corporation (unless the Tribunal otherwise orders).
A savings provision in clause 4 (2) of proposed Schedule 3 allows by-laws that were valid immediately prior to the introduction of the proposed new Act to continue to be valid.
The proposed legislation includes an amendment of the Local Government Act 1993 to create “strata parking areas”.by agreement with the local Council approved by a special resolution. If created, a “strata parking area” would be subjected to parking restrictions and Council enforcement as provided for in the proposed section 650A of the Local Government Act 1993, as well as becoming a penalty notice offence under section 195 (1) (c) of the Road Transport Act 2013.
New proposed Part 11 makes provision with respect to building defects.
Proposed section 193 provides, in summary, that the part applies to the original construction of the strata scheme, and only to residential building work (or work on mixed use schemes that include residential uses). The part does not apply where there is insurance under the home building compensation fund (previously known as Home Warranty Insurance).
Importantly, a proposed transitional provision (proposed cl 16 of Schedule 3) provides that Part 11 will not apply to building work if the contract for carrying out that work was entered into before the commencement of that provision.
Building inspection reports
When the proposed part applies, the developer must appoint a building inspector not later than 12 months after the building work is completed (proposed section 194). The building inspector must be approved by the owners corporation (by general meeting resolution) and the owners corporation can refuse “on any grounds” (proposed section 196). The building inspection must not have been connected with the developer (proposed section 197) within the preceding 2 years. A building inspector must act impartially (proposed section 198). There is a procedure for appointment of a building inspector by the Secretary of the Department of Finance and Services where a developer fails to appoint such an inspector (proposed section 196).
The inspector must inspect and provide an interim report not earlier than 15 months and not later than 18 months after the completion of the building work (proposed section 199). Not later than 18 months after the work was completed, the developer must arrange for the building inspector to carry out a final inspection to provide a final report (proposed section 200).
The final report must be provided not earlier than 21 months and not later than 2 years after the completion of the work. The final report cannot contain new items that were not in the interim report (proposed section 201).
The developer is to bear the costs of the inspection reports (proposed section 204).
Any such reports must be considered by the Tribunal in a building claim under the Home Building Act 1989 and by a court in proceedings relating to the relevant building work (if it is brought to the attention of the Tribunal or court). The report is not binding on the Tribunal or court (proposed section 205).
The original builder (or their employees, agents or contractors) has a right under proposed section 206 to access parts of a strata property “for the purpose of, or in connection with” rectifying defects. In exercising that right the builder is not bound by the inspection report. If the original builder is unavailable, the developer can appoint a substitute.
This section differs in extraordinary respects from the state of the current law, and indeed the earlier exposure draft of the bill (which provided a more limited version of such rights, but under which the right of access expired at the time of the final inspection report). Section 206 (5) permits refusal of access with “reasonable excuse”, but an owners corporation cannot control access to lots (which, in most cases, will be the vector for the builder’s access to defective common property).
Proposed section 206 (3) grants a rectifying builder extraordinary rights of access to private residences at any time “that is reasonable in the circumstances”, meaning that an original builder (or a substitute appointed under proposed section 206 (7)) has greater rights of access to strata lots than the owners corporation, or even the owners of lots against their tenants.
In concert with the fact that the proposed section does not impose any form of duty or obligation on a rectifying builder regarding the quality of their attempted repair, or create any cause of action against that builder if their attempted rectification is faulty (or they damage property or injure persons in the process) the proposed section effectively presents as an extraordinary statutory sanction for builders who have failed to construct buildings properly in the first place to unilaterally implement attempted solutions of their own design, without any record of what was done or how, and absent any form of even basic accountability, leaving owners corporations and lot owners to subsequently “pick up the pieces” at potentially great expense.
An unreasonable refusal to provide access for repairs can disentitle an owners corporation to payment out of the proposed bond (discussed below).
A proposed amendment of the Home Building Act 1989 will provide an additional 90 days for proceedings for breach of a statutory warranty to be commenced after the end of the period within which the final inspection report on the building works is required, in respect of the shorter 2 year time limit in section 18E of that Act only (proposed item 4.10  in Schedule 4).
A building complaint cannot be made under the Home Building Act 1989 under a proposed section 48C (3) of that Act if there is action required in relation to the work under the proposed Part 11 of the new Strata Schemes Management Act 1996 (proposed item 4.10  in Schedule 4).
The developer of a strata scheme which proposed Part 11 applies to must give the NSW Government a bond of 2% of the contract price for the building work prior to the work being completed and an occupation certificate being issued (proposed section 207).
The bond can be paid to the owners corporation to meet the estimated costs of rectifying defects identified in the final inspection report (proposed section 209 (1) (a)) and can otherwise be paid out in certain other circumstances, such as to the developer where there are no defects.
An owners corporation must apply any bond amount paid to it to undertaking repairs to the defects or related costs with any excess to be repaid to the developer (proposed section 210).
The Tribunal is given a power to make orders for access, and payment of the bond (proposed section 211).
The Secretary of the Department of Finance and Services is to be given a power under proposed section 212 to vary the time that certain matters must be done under the Part, and has a review jurisdiction for certain reviewable decisions (to be defined by the regulations) under proposed section 213.
A building bond is payable regardless of whether the Home Building Act 1989 applies to the work or whether the developer is liable in respect of the work. The developer may seek to recover amounts of the bond from other liable persons. Although proposed Part 11 does not affect any other action or remedy in respect of the building work, a Court or Tribunal must take into account any payment made, any rectification work done, or any other action taken under Part 11 (proposed section 215).
The original owner must prepare an initial maintenance schedule for the strata scheme (covering matters prescribed by the regulations) under proposed section 115. It will not be binding on the owners corporation but may be considered in any proceedings as to whether a defect or damage could have been avoided by the taking of specified action.
A developer may not vote on matters relating to defects at a general meeting under proposed clause 15 of Schedule 1.
Proposed section 216 empower an owners corporation to establish a voluntary dispute resolution process for internal disputes, which operates without prejudice to any other rights or remedies. Otherwise the current strata mediation procedures are retained.
Under the proposed legislation the existing role of strata adjudicators is dissolved and instead all dispute resolution powers are granted to the Tribunal.
It remains to be seen what procedures the Tribunal would adopt for such matters, which are currently dealt with by Adjudicators predominantly “on the papers” only.
The general dispute resolution power (now to be found in proposed section 232) is expanded to also contemplate resolving disputes with caretakers and strata managers. A new provision makes clear that an application in another forum cannot be made whilst an application to the Tribunal is pending, and vice versa.
It appears from proposed section 232 (6) that the Tribunal’s power is intended to extent to ordering an owners corporation to consent to a development application (currently there is no equivalent jurisdiction).
The power to resolve disputes between contiguous strata schemes where the matter is not otherwise regulated no longer requires the consent of the respondent strata scheme (proposed section 233).
An order to appoint a compulsory strata managing agent now appears to be expressly capable of being varied or revoked (proposed section 237 (7)).
Under proposed section 238 the Tribunal would be empowered (on application or on its own motion) to remove people from the strata committee, prohibit a strata committee from deciding certain matters, or remove an office bearer.
Under proposed section 248 unpaid penalties imposed by the Tribunal for a contravention of an order under the Act may be recovered by the owners corporation as it they were unpaid levies.
The regulations may provide for a regime for disposal of abandoned goods in strata schemes under proposed section 125.
Current section 63 (4) of the Strata Schemes Management Act 1996 concerns the owners corporation doing work required to be done by a person to rectify a breach of a duty—such as the duty to not interfere with the structure of a lot—and recovering the costs. There is an apparent error in the existing section, which refers to work “required to be carried out” where there is no such requirement. This error has apparently been corrected in the equivalent proposed section 120 (3), which appears to operate independently of whether there is such an obligation.
Annual general meetings will need to be held once in each financial year (rather than within 1 month of the anniversary of the first annual general meeting (proposed section 18).
The proposed Act will allow electronic service of documents more easily and in more circumstances.
The definition of “special resolution” seems to make clear that the threshold is not more than 25% of the votes actually cast being cast against the resolution (there is currently some ambiguity as to how abstentions are to be counted).
Any existing proceedings under the current legislation are to be determined under that current legislation (proposed clause 7 of Schedule 3).
Certain incapable persons will be able to appoint agents to receive notices and other documents under the Act (proposed section 155).
Under clause 6(c) of proposed Schedule 1, the agenda for the Annual General Meeting must contain an item to consider the Annual Fire Safety Statement (if one is required).