SOURCE | NSW Government | Fair Trading
New strata laws will commence on 30 November 2016. This is the first major reform of strata laws since the Strata Titles Act was made in 1973. The new building defect bond scheme will start on 1 July 2017. Currently more than a quarter of NSW’s population lives in, owns or manages strata.
Many new requirements will not impact strata communities immediately. This includes allowing time for pre-appointed strata managing agents, building managers and executive committee members to continue in their roles once the law reforms start.
Some key changes include:
- strengthening the accountability of strata managers
- allowing owners to adopt modern technology to conduct meetings, vote, communicate and administer their scheme
- the need for owners to review by-laws (strata community rules) within 12 months, which can be customised to suit their lifestyle – such as whether to allow owners to keep a pet by giving notice to the owners corporation
- a process for the collective sale and renewal of a strata scheme
- a simpler, clearer process for dealing with disputes
- broadening tenant participation in meetings
- a new option to manage unauthorised parking through a commercial arrangement between a local council and a strata scheme
- a clearer and simpler three-tier renovations process, which waives approval for cosmetic renovations within the strata lot (for example, installing handrails for safety).
Use the following information to understand how the new strata laws will affect you.
Complying with the new laws
Strata schemes will have plenty of time to understand and adjust to new requirements after the reforms start.
Be aware that:
- decisions already made and financial contributions already levied under pre 30 November laws remain valid once new laws start.
- legal proceedings already underway will be dealt with under the former Act that was in place when proceedings began.
Managing the strata scheme
Previous appointments will be able to continue after the new laws as follows:
- if a strata managing agent is appointed before 30 November 2016, their term of appointment ends whichever is later:
- up to 3 years after their term commenced (on the day the term is due to end), or
- 6 months from the start of the new laws.
- contracts with caretakers and building managers in force before 30 November 2016 will remain in force after that date, until 10 years after the laws have commenced (unless the terms of the contract are for a shorter period, then that period will apply).
- the existing owners corporation continues to operate.
- the previous executive committee becomes the new ‘strata committee’. There is no need to appoint people to the strata committee until the next AGM.
Modern and flexible strata schemes
The reforms will allow a strata scheme to adopt social media, video and teleconference to hold meetings. Voting will be able to occur electronically and through secret ballots. It will also be possible to distribute papers by email.
The new laws will also give owners corporations more flexibility around when to hold their AGM.
Stronger accountability for strata managers and caretakers
Strata managing agents will have new requirements to disclose conflicts of interest, including financial interests. Strata managing agent agreements will be time limited to 1 year (in the first year of the strata scheme) and 3 years in following years, with possible 3-month extensions able to be granted.
If a strata managing agent or building manager/caretaker is not performing, owners will be able to apply to the Tribunal to vary or terminate the contract, or to be compensated.
Collective sale and renewal
This new process will allow owners to jointly end or wind up a strata scheme so the site can be sold or renewed.
The reforms will ensure that owners receive at least the market value of their lot, plus an extra amount for costs like those associated with moving.
Any plan for renewal will be referred to the Land and Environment Court for final consideration.
The Court will be able to reject a renewal plan if:
- it has not followed proper processes or been developed in ‘good faith’, or
- the amount to be paid to a dissenting owner was less than the compensation value of the lot, or
- the terms of settlement were not just and equitable in all the circumstances.
Fair Trading will establish a Strata Renewal Advice and Advocacy Program to provide free advice for vulnerable and elderly residents, including referrals to support services.
Similar collective sale and renewal models already operate in New Zealand, the majority of states of North America, and the United Kingdom.
Maintaining the building’s condition
The new building defect bond scheme will start on 1 July 2017. This start date will enable:
- strata buildings to be inspected for defects against the new Australian Standard, which will be introduced as the standard for inspections of group title buildings
- the necessary time for industry and stakeholders to prepare for this important change.
This reform introduces mandatory defect inspection reports and a building bond. The developer will also need to prepare a maintenance schedule, to be tabled at the first AGM of a new scheme to inform owners about their maintenance obligations.
These changes will increase builder and developer accountability, enable defects to be identified and fixed early, and prolong the life of the building.
How the process will work
The building bond will be for the construction of strata buildings over three stories high. Developers will be required to lodge a 2% bond for the final contract price of the building, as a form of security to fix any defective work.
Developers will need to pay to engage an independent building inspector to provide defect inspection reports. A first report is due between 15 and 18 months after the completion of the building. The final report must be provided between 21 months and no later than 2 years after the building work is completed.
The owners corporation must agree to the appointment. If there is no agreement or the developer ceases to trade after the building work is complete, Fair Trading will arrange for an inspector to be appointed. If the defects are not rectified, the building bond will be used to carry out the repairs. If there are no defects or they are rectified, the bond will be returned to the developer.
Current laws can make it difficult for owners to carry out minor renovations to their lot.
The reforms will provide clearer, common sense approvals for owner renovations. They will waive restrictions for cosmetic changes to lots such as inserting a picture hook.
Renovations with a lasting impact, such as installing floorboards, will still require approval but only a general resolution (50% of the vote). Renovations like those that affect the structure or external appearance of the building, or waterproofing, will still require a special resolution (75% of the vote).
Changes to proxy voting will prevent an individual controlling owners’ decisions by obtaining a majority of proxy votes (that is, voting rights delegated to them by other owners).
Proxy votes able to be held by one person will be limited to:
- one proxy vote only for schemes with less than 20 lots, or
- 5% for schemes with more than 20 lots.
Reforms will introduce a model by-law dealing with smoking that intrudes into the common property or another person’s lot. The reforms will also amend the model by-laws to make it easier to keep pets as opposed to automatically prohibiting pet ownership in a scheme. Model by-laws are suggested by-laws that an owners corporation can choose to adopt, or use to amend their current enforceable by-laws if they wish. Model by-laws do not remove a scheme’s ability to make its own rules about smoking and pets. The model by-laws are not the by-laws of a scheme unless they are formally adopted.
Reforms will allow schemes to take more action against the misuse of parking spaces and excess noise, as well as introduce increased fines for non-compliance.
The changes will introduce measures to help address overcrowding in strata schemes.
Tenants will have a right to attend owners corporation meetings, no matter how many of the lots are tenanted in their scheme. Tenants may vote only if they hold a proxy (giving them voting rights on a lot owner’s behalf). The owners corporation may vote to allow a tenant to speak on a particular matter. Tenants can be excluded from a meeting when financial matters are discussed.
If at least half the lots are tenanted, a tenant representative can be nominated as a non-voting member of the strata committee. The representative may still be excluded from meetings when financial issues are discussed, such as the collective sale or renewal process.
Levies and capital works funds
New laws will require developers to set realistic levies during the period between when the strata plan is registered, and the developer has sold at least one third of the unit entitlements in the scheme (the initial period) and for the subsequent year after.
Owners corporations will be able to more easily recover outstanding levies that are mainly used to pay for the scheme’s day-to-day expenses.
The reforms will expand the Tribunal’s power to exclusively deal with most strata disputes, including orders to recover outstanding levies.
As well as being able to register outstanding levies as a debt in the Local Court, owners corporations will be able to enter into payment plans with lot owners if they wish, for up to 12 months. This would allow a lot owner to make periodic payments of their debt to the owners corporation. If an outstanding debt is registered with the Local Court, it can order debt recovery (including garnishee orders on the lot owner and, for the first time – if necessary – any rent paid by a tenant to a real estate agent) to recover the debt.
The Tribunal’s expanded powers will help it ensure owners corporations can run more smoothly where there is dysfunction in a scheme. These include removing members of the executive committee and the strata managing agent and forcing elections of office holders.
Currently the only option for the Tribunal is to appoint another strata managing agent to replace one who isn’t performing. This may not be the best response to a number of these issues. It can be costly to a scheme and create disharmony for lot owners.
The Tribunal will also be able to limit the matters that committees can make decisions about, and require votes on certain matters.
Common property memorandum
Under the reforms, strata schemes will be able to adopt the Common property memorandum into their by-laws by special resolution.
The Common property memorandum sets out whether the owners corporation, or an owner of a lot, is responsible for the maintenance, repair or replacement of any part of the common property.
If adopted, the Common property memorandum can only be changed to exclude certain items as ‘common property’.
This includes items that are:
- not common property for that particular strata scheme, or
- part of a common property rights by-law or a by-law made under section 108 of the new Strata Schemes Management Act. If there is a conflict between the Common property memorandum and any such by-law, then the by-law applies.
For background on the consultation on the laws, and to download the Strata Acts and Regulations, refer to the Reform of strata laws page.
Media release – A New Era for Strata – Published 8 July 2016.
Please Note – The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.