Australia: New laws to affect strata and community schemes in 2016

Legislation that will significantly affect strata and community title in NSW and developers will be in effect in mid-2016. On 28 October 2015, nearly two years since the NSW Department of Fair Trading released its position paper on reforms to strata and community title legislation, the NSW Parliament passed the Strata Scheme Management Bill 2015 (SSMB) and Strata Scheme Development Bill 2015 (SSDB).

Collective sale and renewal

One of the SSDB's more significant changes is to the provisions governing collective sale and renewal of strata schemes, otherwise known under the Bill as "strata renewal plans". Previously, developers required unanimous consent of all lot owners to effect a collective sale or renewal of a strata scheme.

However, under Part 10 of the SSDB, developers who put forward a strata renewal plan (being a collective sale or renewal plan) will only require the support of at least 75% of lot owners within the strata scheme, with each lot considered one vote (i.e. for a strata scheme of 100 lots, 75 lots must vote in favour of the strata renewal plan).

Upon obtaining the required level of support for a strata renewal plan, the owner's corporation may then lodge an application with the Land and Environment Court to give effect to the strata renewal plan. When considering the application, the Court is to take into account whether the process under Part 10 of the SSDB has been followed, that is:

  • whether the developer has acted in good faith
  • in the case of a plan for redevelopment, the amount to be paid to unit owners, with particular attention on the amount paid to dissenting owners, or
  • in the case of a plan for collective sale, the proposed distribution of proceeds to each lot owner.

It is only when the Court grants the order that a strata renewal plan may be registered, thereby allowing the developer to carry out the terms of the plan.

For more information on part 10 of the SSDB, please read our article " Changes to collective sale and redevelopment of strata schemes in effect from mid-2016".

Building defects

A developer of a high-rise strata building (over three stories high) will be required to provide a "building bond" in the form of a bank guarantee or bond, for an amount equal to 2% of the contract price for any building work. The building bond is required to be given by the developer before an occupation certificate is issued.

"Building work" is defined broadly in the SSMB to mean any work involved in the construction, alteration, addition, repairing, renovation, decoration or protective treatment of a residential building, provided that the building work was carried out for the purposes of, or contemporaneously with, the registration of a strata plan or a strata plan for the subdivision of a development lot.

The building bond is payable to the Secretary of Finance, Services and Innovation (Secretary) and will be used by the owners corporation to meet the cost of rectifying defective building work as identified by the inspector's final report (see below). "Defective building work" is defined as any building work that constitutes a breach of the statutory warranties contained in Part 2C of the Home Building Act 1989 (NSW).

The building bond is to be claimed or realised two years after completion of the building work or 60 days after the inspector's final report. Presumably, if the building bond is not claimed within this period, the building bond will be released back to the developer.

Surprisingly, while the SSDB speaks of the builder being responsible for the defective building, it is explicitly stated the builder is not bound by the inspector's report detailing the defective building work. It follows that, where the builder refuses to rectify the defects, the owners corporation may seek to hire another builder to fix the defects using the building bond to meet these costs.

Inspectors

Within 12 months of completing the "building work", a developer must appoint an inspector who will report on the work. To be appointed, the inspector must:

  • be approved by resolution of the owners corporation
  • belong to a class of persons prescribed by the regulations, and
  • has not been involved, connected with any person, or have a pecuniary interest in, the design or construction of any of the building work to be reported on for the past two years.

The cost of the inspector will be covered by the developer. The developer's building bond cannot be used to cover the inspector's costs.

Interim building report

Once appointed, the inspector must provide an interim report identifying any defective building work, and if reasonably practical, the cause of the defective building work, within 15 to 18 months after the building work's completion. The regulations note the form of the interim building report and the kind of defective building work to be reported on.

Final building report

Within 18 months of completing the building work, the developer must arrange for the same inspector to prepare the final building report (or if the original inspector is not available, an inspector appointed by the Secretary).

The final report must be provided within 21 to 24 months after the building work's completion and:

  • be in the form prescribed by the regulations
  • identify defective building work noted in the interim building report that has not been rectified
  • identify defective building work arising from rectification of previously identified building work, and
  • specify how any remaining defective building work should be rectified.

It should be noted that the final building report cannot contain matters relating to defective building work that wasn't identified in the interim report (other than defects emerging from the rectification of such works).

Initial levy contributions

Within three years of the initial period, the Civil and Administrative Tribunal may—upon application from the owners corporation—order the original owner of a strata scheme to pay compensation to the owners corporation, if the Tribunal is satisfied that the original owner:

  • determined levies and estimates for the initial period that were inadequate to meet the actual or expected expenditures of the owners corporation, and
  • the original owner did not use due care and diligence in determining the estimates and levies.

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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