Australia: Strata reform in New South Wales

Last Updated: 9 March 2016
Article by Roger Mattar

The NSW Government has recently undertaken an overhaul of the state's strata regime, effecting widespread change and reform in the industry. The Strata Schemes Management Act 2015 and the Strata Schemes Development Act 2015, which contains over 90 reforms, was expected to commence on 1 July 2016 however this may now be postponed. With over two million people living and working in strata, the Minister for Innovation and Better Regulation Victor Dominello said the new laws will "cater for the needs of 21st century strata living... [and] modernise collective decision making processes, increase protections against unresolved building defects and improve outdated regulation impacting on renovations." The key reforms for individuals living and working in strata regimes are outlined below.

  1. Strata Renewal Reforms

The key reform to strata renewal lowers the threshold of unanimous support required when deciding whether to terminate a strata scheme by collective sale. The reforms set the threshold at 75% approval by lot owners while introducing measures to ensure the protection of the elderly and vulnerable owner-occupiers of strata units. The laws ensure that owners receive compensation for at least the market value of their lot plus an extra amount to cover moving costs as set out in the Land Acquisition (Just Terms compensation) Act 1991 and all renewal plans must be referred to the Land and Environment court for final approval. The NSW Government is also providing a free hotline to provide advice to residents and an advocacy service for vulnerable residents.

  1. Building Management Reforms

Common Property

The owner's corporation are under the same obligation to maintain, keep and repair common property (s 106 SSMD). However an owner of a lot may now seek damages from the owner's corporation for breach of that statutory duty, provided action is taken within two years of becoming aware of the loss.

Owner Renovations

A three tiered system will be introduced in regards to owner renovations, with 'cosmetic work' such as adding wallpaper or laying carpet requiring no approval from the owner's corporation. 'Minor renovations' such as a changes to the flooring will require approval by ordinary resolution (50% of those entitled to vote) while renovations affecting the external appearance of a lot or structural changes will require a special resolution (75% of those entitled to vote).

Developer's building bond

A building bond has been introduced to ensure developers are accountable for their work. The bond will be equal to 2% of the contract price of the building work and will be used as a form of security to rectify any defects in the building. This bond will generally be released back to the developer within 2 years following completion and the finalisation of a report by an independent building inspector. An occupation certificate will not be issued until the bond is provided.

Note that this requirement does not apply to buildings less than three storeys in height, building work which was contracted into before the commencement of the Act or for building work which requires insurance as per Pt 6 of the Home Building Insurance.

  1. Scheme Management Reforms

Administration of Strata Scheme

The voting procedure will be modernised, with members able to vote through the post, electronically or through secret ballots. Proxy voting has also been addressed, with a limit imposed on the number of proxy votes that can be held by one person. In schemes with less than 20 lots, owners may hold one proxy vote and in schemes with over 20 lots, proxies may take up to 5% of the total number of lots.

Increased Financial Reporting

Key financial information and summaries of the financial statements for the administrative and sinking fund are to be prepared for each period. The sinking fund will also be renamed the 'capital works fund', with a mandate for the fund plan to be reviewed at least once every five years. The NSW Civil & Administrative Tribunal (NCAT) will also have the ability to compel owners, or other relevant persons, to pay unpaid contributions.

  1. New Model By-Laws

New model by-laws have been introduced to combat recurring issues disputed within strata schemes. These include reforms such as introducing a smoke drift provision to prohibit smoke drifting onto another person's lot and by-laws to reduce overcrowding by limiting occupancy to no more than two adults per bedroom.

  1. Dispute Resolution

Finally, NCAT will be vested with the power to exclusively deal with most strata disputes, including orders to recover outstanding debts. They will further be permitted to remove members of the executive committee and force election of office holders, while having a wider jurisdiction to deal with disputes involving the owner's corporation and owners.

An owner's corporation is also authorised to establish a voluntary internal dispute resolution which allows for less involvement by NCAT.

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.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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Roger Mattar
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