Australia: Amendments to Community and Strata Titles legislation in South Australia

Property Update - Spring 2013
Last Updated: 3 November 2013
Article by John Kavanagh

On 12 April 2013 the Statutes Amendment (Community and Strata Titles) Act, 2012 (SA) was passed. The Act amends both the Community Titles Act, 1996 (SA) and the Strata Titles Act, 1988 (SA). It was partially commenced on 18 July 2013 with the remainder to commence on 28 October 2013.

This amending Act aims to provide further protection for consumers who buy into or own units in strata and community titled developments. The amendments impose greater pre-contractual and contractual disclosure obligations for body corporate management contracts, restrictions on the duration of those contracts, better disclosure of conflicts of interest and commissions and a penalty notice system for by-laws and articles breaches.

Key features of the reforms

Fiduciary Duty

One of the most significant amendments is that a developer must now not act in conflict of interest and make secret profits. This is consistent with the New South Wales Supreme Court decision of Community Association D.P. No. 2700180 v Arrow Asset Management Pty Ltd [2007] NSWCA 527 (30 May 2007). The amendment provides that a developer stands in a fiduciary relationship with the community corporation or proposed community corporation of the development.

In addition, during the developer control period, the developer must exercise reasonable skill, care and diligence and act in the best interests of the corporation when delegating powers to a body corporate manager or entering into a contract for services. Further, the Court has the power to amend or terminate any agreement or contract between a body corporate manager and a developer or associate of either if it involves a breach of fiduciary obligations or other obligations under the legislation.

Right to terminate contract with body corporate

Generally, a developer appoints the body corporate manager shortly after deposit of the plan. In some cases developers have sold management rights to a body corporate manager for long periods. To avoid situations like this, the new legislation provides that after an initial 12 months, owners have the ability to terminate a contract with a body corporate manager on 28 days' notice.

Compulsory insurance

Commercial body corporates will now be required to obtain professional indemnity insurance.

Body Corporate disclosure obligations

The amendments specify what must be included in a body corporate management contract. The contract must also be available for inspection by owners for five clear days before a vote is taken to appoint a body corporate manager. If requested, the body corporate also must provide unit owners or prospective owners with a copy of the professional indemnity insurance within three days.

Penalty for breach of by-laws

The Act raises the maximum penalty for a breach of a by-law from $500 to $2,000 for businesses.

Penalty notice system

A corporation will be able to issue a notice requiring a member or occupier to comply with a by-law within a specified time and warning that if this is not done, a penalty will be incurred. If the recipient does not comply, they will be issued a penalty notice. The recipient can either pay the penalty or apply to the Magistrates Court within 60 days for an order that a penalty is not payable. An unpaid penalty is recoverable by the corporation upon the sale of the owner's lot.

Access to information

All owners will be entitled to inspect records held by the body corporate within three business days of a written request. Further, the corporation will be required to send copies of the bank statements of each quarter to any owner who requests them. In the case of a community corporation, accounts of the previous financial year must be presented at each annual general meeting.

Duty of disclosure

A delegate of a community corporation who has a direct or indirect pecuniary interest in a matter in which they propose to perform delegated functions or powers, must disclose the nature of the interest, in writing, to the corporation. Failing to disclose may incur a maximum penalty of $15,000.

Special resolution

Special resolutions are required for decisions like changing the by-laws, giving permission for substantial alterations to the buildings or taking out insurance over and above that required by law. The amendments impact the two Acts because a special resolution will not pass if at least 25% of units vote against it. If there are three lots, the resolution will not pass if one lot owner does not agree.

Buyer protections

Deposits for 'off-the-plan' sales to be held on trust

Developers who sell 'off-the-plan' are now required to pay deposits into a solicitor, conveyancer or town agent trust account to be held until the plan is deposited and the lots created. This is intended to protect buyers as the developer cannot spend the deposit and leave the buyer exposed if the development does not proceed.

Right to Rescind

The Act provides that buyers have the right to end a contract of sale and recover the deposit if the developer has not lodged plans with the council within the agreed time limit. If there is no agreement regarding a time limit, a default limit of six months will apply. This is intended to discourage developers from marketing properties before the plans have been lodged with council and approval granted.

Appropriate Court

Applications to cancel or amend a strata or community plan are to be heard in the Environment, Resources and Development Court (ERD Court) rather than the District or Supreme Courts. This is because applications to the ERD Court are cheaper and the ERD Court is practised in dealing with applications of a planning nature.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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