Australia: Renewing the foundations: Reforms to strata laws in NSW

Last Updated: 22 December 2015
Article by Patricia Monemvasitis and Kim Leontiev

The NSW Parliament passed two Bills: the Strata Scheme Management Bill 2015 (SSMB) and the Strata Scheme Development Bill 2015 (SSMD), together forming the major reforms to Strata Laws in NSW. Those bills have as of 5 November 2015 received royal consent and are expected to commence in the middle of 2016.

In their combined effect, the bills represent a major shake up of the existing strata system since the original Strata Titles Act was made in 1973 with more than 90 proposed reforms being contained in the bills.

In this article, we look at a hand-picked selection of some of these reforms that may have significant implications on strata schemes in NSW across various aspects of the strata law.

  • Scheme Management Reforms
  • Property Management Reforms
  • New By-Laws
  • Collective Sale and Renewal Reforms
  • Dispute Resolution

As this summary demonstrates the new bills introduce a great number and diversity of reforms targeting many areas of strata management as part of a modernisation process. It is yet to be seen whether these laws will commence as planned in mid 2016. However, all those currently holding interest in or living in strata schemes are encouraged to take a closer look at the particular reforms to consider how they may be affected. Seeking advice and attending to arrangements now can mean a more harmonious transition within your strata scheme upon commencement of the adopted changes.

  1. Scheme Management Reforms

The reforms introduce several procedural changes to strata scheme management.

Voting procedures

Under the new scheme introduced by the reforms, the owners corporation will be able to hold votes at meetings by more modern methods such as electronically or by post as well as by secret ballot.

Quorum

The absence of a quorum at a meeting will no longer necessarily result in the meeting being postponed. Instead, after half an hour of waiting the chairperson will have the option to declare the persons present constitute a quorum (Section 17 SSMD). This reform eases the administrative hassle in large strata schemes where quorums may be difficult to attain.

Proxy Farming

Likewise, the problem of proxy farming is also addressed by the proposed changes. There will be an imposition of a limit on the number of proxy votes that can be held by one person. A total of only one proxy vote for schemes with less than 20 lots or 5% for schemes with more than 20 lots. This directly combats situations where one individual can put proxies together to control decisions made by the owners corporation. Further, a representative of tenants in a strata lot will be able to attend meetings of the owners corporation but will not be entitled to vote, unless they are a proxy holder, and may be excluded from the meeting during discussions of financial matters (see Section 21 SSMD).

Pre-meeting communications

Balancing the increased efficiency are a number of provisions seeking to enhance the thoroughness and accountability of a strata governance including: the requirement of a copy of the meeting agenda to be distributed to each holder of a lot at least seven days prior to the meeting, copies of the last financial statements to be attached to the notice of an annual general meeting, and the inclusion of considerations of building defects and rectification in the agenda of annual general meetings.

Increased financial reporting

The reforms also target the financial management of strata schemes with requirements for key financial information and summaries of financial statements to be prepared for each reporting period for the administrative fund and the sinking fund. Sinking funds are to be renamed the capital works fund. There will be a requirement for the capital works fund plan to be reviewed at least once every five years and the powers of NSW Civil & Administrative Tribunal (NCAT) will be expanded to allow the Tribunal to make orders that an owner, or other person, concerned pay unpaid contributions.

  1. Property Management Reforms

Maintenance and Upkeep

The reforms also seek to target some of the current difficulties with maintenance and upkeep of strata schemes by introducing clearer procedures and requirements. There will be an obligation on the owners corporation, to maintain, keep and repair common property (Section 106 SSMD). The scheme also provides that owners of a lot may recover sums from the owners corporation as damages for breach of statutory duty. Including for a reasonably foreseeable loss suffered by the owner as a result of a contravention by the owners corporation. An example might be a situation where the owners corporation being aware of the need to repair or maintain common property such as a rooftop or pipe, fail to maintain and repair which eventually leads to an event of flooding in an owner's lot. Any action however, must be taken by the owner of the lot within two years from the time that the loss became apparent.

Strata Lot Alterations

The reforms also seek to clarify the procedures for alterations to an owner's lot. A three-tier system will be introduced whereby cosmetic changes such as adding picture hooks or wallpaper will specifically not require approval. Minor renovations such as a change to the flooring will require an approval by 50% of those entitled to vote, whereas renovations affecting the external appearance or structural changes within a lot will require a special resolution approval (i.e. 75% of those entitled to vote).

Introduction of a Developer's Building Bond

The reforms also address some of the problems in recent times with building defects and the pursuit of builders for repair and compensation. The changes affect buildings more than three storeys in height. In particular, a building bond that will need to be maintained by the Developer to ensure their accountability for their work. The bond will be 2% of the contracted price of the building work deposited as a form of security to fix any defective work. Developers will also need to inform owners of the maintenance obligations by providing a schedule tabled at the first annual general meeting. "Developer" is defined in the SSMD as the "original owner of the strata scheme; or a person, other than the original owner, who is the owner of a development lot (a lot in a strata plan identified as a lot to be the subject of a strata plan of subdivision under the development scheme) within a strata plan."

Developers will also be required to engage independent building inspectors to carry out inspections and produce reports (paid for by the Developer) between 12 and 18 months after the completion of building. The implementation of these changes will enhance consumer protection in new buildings for defective work as well as helping to extend the life of the building.

Strata Agent Disclosure of Commission

Strata managing agents will also be subject to more restrictions such as a requirement to disclose any particulars of any third party commission that has been paid to the agent in the previous 12 months. The strata managing agent terms will be curtailed to a maximum period of three years and powers will be given to the NCAT to make orders to remove strata managing agents.

  1. New Model By-Laws

The reforms also create new model by-laws to deal with some of the recurring issues disputed under current by-laws. Most of the by-laws will be optional for the strata scheme.

New overcrowding by-law

A new limit on the number of persons that may reside in a lot would be introduced. The owners corporation could prescribe maximum numbers of occupants for a particular lot so long as the number of occupants prescribed is not less than a total of two adults per each bedroom of a residence. For example a limit to 2 occupants in a 1 bedroom apartment is valid, but a limit of 2 or even 3 occupants for a 2 bedroom apartment would not be valid as it falls below the 2 per room rule. This by-law reflects the issue of many apartments being overcrowded causing various risks to the strata and a greater wear and tear of common facilities and common property. Higher monetary penalties will also be payable for contravention of the overcrowding by-law.

Keeping of Pets

A new proposed by-law as to pets with the ban on pets making the default position of owners having to ask the Corporation for permission to keep pets which would then be considered on a case-by-case basis but with a restriction on unreasonable refusal of permission to keep the pet. It would, for example, be unreasonable to refuse permission for an owner having a cat which is to be kept entirely indoors. Likewise, certain pets such as guide dogs and other assistance animals will not be prohibited under the by-law and will be allowed as a default position.

Unauthorised Parking

Issues with parking will also be reformed with the involvement of local councils which the owners corporation may now approach in seeking assistance to manage unauthorised parking on common property such as disabled car spots, visitors' car spots or the blocking of an exit by a vehicle. A new section (Section 650A) of the Local Government Act 1993 (NSW) will allow Council to issue fines of up to 5 penalty units ($550) in respect of the unauthorised parking.

New Smoking By-Law - Smoke Drift

A specific provision about smoking within a lot will be introduced beyond the current prohibition on nuisances which has to date been relied on to restrict smoking where it affects another lot. Under the new by-laws, there will be a smoke drift provision. Allowing smoke to drift into another person's lot will be specifically prohibited and non-compliance by a resident can be actioned by the owners corporation. A letter of a notice can be sent following which the owners corporation can apply to NCAT to get an order for the resident to comply with the by-law.

Enforcement

To assist with the enforcement of the by-laws, there will be an increase in penalties which will be doubled from the current maximum of $550 for each offence to a new maximum of $1,100 per offence. With harsher penalties for repeat by-law offenders within 12 months of previous breach. Balancing this will be a provision that a by-law must not be harsh, unconscionable or oppressive.

While these reforms do provide a much needed response to the current recurring issues in internal strata management, it is yet to be seen how widely these by-laws will be adopted and the nature of their implementation in strata schemes.

  1. Collective Sale and Renewal Reforms

The reforms propose to lower the present threshold of unanimous support from all owners when it comes to the decision to terminate a strata scheme by collective sale. The reforms will set the threshold at 75% of owners (in other words, a special resolution). The lower threshold process for collective renewal and sale effectively empowers lot owners to realise the full potential of the strata building and pave the way for building renewal and upgrade. There is, of course, concern that the laws may unfairly affect minority owners particularly those that are vulnerable such as elderly, long term lot owners in a strata scheme. As such, the reforms do seek to provide checks and balances such as compensation for lot owners to at least the market value of their lot plus moving costs as set out in the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), a referral of renewal plans to the Land and Environment Court for final approval and for an order to effect the resolution passed by the owners corporation, and the establishment of a free NSW government funded advice and advocacy program to assist vulnerable owners. It is likely that these reforms will lead to a stimulated construction industry - augmenting new, more dense high rise development in accordance with the current population growth and housing trends.

  1. Dispute Resolution

Finally, the reforms will increase the NCAT's power to exclusively deal with the majority of strata disputes including offers to recover outstanding levies. In particular, the Tribunal will have a wider jurisdiction to deal with disputes between the owners corporation and owners, as well as certain types of security interests (mortgagees' covenant, chargees etc.) and instances of a failure of the owners corporation to exercise a function under another Act. NCAT will also be able to remove a person from a strata committee, or prohibit a strata committee from determining a matter and require it to be determined by the owners corporation. The owners corporation, however, will also be given the possibility of establishing a voluntary dispute resolution process which does allow for less involvement of NCAT where internal dispute processes prove effective.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Patricia Monemvasitis
Kim Leontiev
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.