The NSW Civil & Administrative Tribunal (NCAT) has the power under section 237 of the Strata Schemes Management Act 2015 (SSMA) to make orders for the appointment of a strata managing agent, and to then specify the functions that are to be exercised or those which should not be exercised.
In the usual course of events an owners corporation is responsible for the management of the strata scheme, and it exercises those functions by decisions made at general meetings. The owners corporation has a broad range of functions ranging from financial aspects to maintaining and repairing the common property. However, sometimes lot owners have concerns about whether the owners corporation is in fact functioning as it should and if something can be done about it.
What does compulsory strata management mean?
The SSMA does not use the term “compulsory management” however that is generally what an NCAT ordered appointment of a strata manager is known as. Simply put, it means that there is an order from NCAT that appoints a specific strata managing agent on the terms outlined in the order.
An NCAT order appointing a strata manager takes away the democratic right that lot owners would otherwise have (assuming they are financial) to make decisions about the management of their scheme at a general meeting and, subject to the terms of the order, gives the strata manager the right to make these decisions for the scheme. Put simply, a compulsory strata manager, depending on the terms of their appointment can determine and raise levy contributions, determine what work is required to maintain and repair the common property, appoint contractors and commence and conduct legal proceedings on behalf of the owners corporation.
It is often described by NCAT as being “draconian” as the management is forced onto the lot owners. It is not an order that is made lightly and is usually reserved for rare cases.
When can an order for compulsory management be made?
The NCAT can make an order for compulsory appointment under s 237 (3) where it is satisfied that:
(a) the scheme is not functioning (or functioning satisfactorily) or
(b) the owners corporation has failed to comply with an order made under the SSMA or
(c) the owners corporation has failed to perform one or more of its duties or
(d) it owes a judgement debt
The Tribunal has a discretion as to whether it makes such an order and that discretion has to be exercised on principles grounds: Foo v Frew [2023] NSWCATAP 303.
What does “not functioning or is not functioning satisfactorily” mean?
The owners corporation has the principal responsibility for the management of the scheme as set out under s 9 of the SSMA. This responsibility covers matter such as management and control of the common property, managing the finances, keeping accounts and records and other matters. It is these functions that the NCAT considers.
The principles in this area of the law are now well established. In Hoare v The Owners – Strata Plan No. 73905 [2018] NSWCATCD 45 at [199]-[200] it was said: –
(a) Such an appointment is a serious measure because it takes away the ability of an owners corporation to take care of its own affairs. It was tantamount to appointing an administrator for a period of time.
(b) By reference to Bischoff v Sahade [2015] NSWCATAP 135, the circumstances in which a scheme is not functioning (or not functioning satisfactorily) could include:
(i) where it does not maintain the common property (i.e. perform a required function)
(ii) where it confers a benefit on a lot owner that is not authorised (i.e. makes a decision for an improper purpose)
(iii) fails to make a decision to prevent a contravention by lot owners (and occupiers) of their obligations under the SSMA
(iv) where it raises levies and defends legal action (on the part of the owners corporation) that is not necessary or not in the interests of the owners corporation as a whole.
(c) There needs to be evidence that one or more of the circumstances in s 237 (a) – (d) occurred, and then there needs to be “appropriate discretionary reasons” for the making of the appointment
(d) Just because some lot owners do not agree with the decisions made, does not mean that the scheme is not functioning properly.
(e) In Maple v The Owners – Strata Plan no 8950 [2021] NSWATCD 108, it was pointed out that even where one of the matters in s 237 (a) – (d) has occurred there is also a need for the nature and duration of the actions / inactions and the level of dysfunction to justify the appointment of a compulsory strata manager.
(f) It is also relevant to consider if there has been a recent change involving compliance under the SSMA, and the nature and degree of non-compliance will be relevant.
In short, the cases suggest that there needs to be some serious form of dereliction in duty, rather than an isolated incident, as the goal of s 237 is to maintain the democratic system that the legislation establishes so that it is not enough if owners of lots just do not get along. Although, that can change if disputes become chronic, complex and litigious Moallem v CTTT [2013] NSWSC 1700.
Whilst it is a matter of degree, and there is also a temporal component, some of the potential indicators of a scheme not functioning (or not functioning satisfactorily) that may require further investigation could be:
- a failure (or inability) to pass resolutions to raise contributions;
- a continued failure to carry out required maintenance and repairs to common property;
- a long history of acrimony, deep seated discord and or violence in the scheme;
- where the general meeting is in deadlock so that the scheme cannot be managed in the usual democratic way;
- a pattern of strata managers terminating their appointment especially where the fact of such termination is an outward manifestation of deeper problems about the functioning of the scheme; and
- a pattern of improper decision making (i.e. decisions not made in accordance with the Act)
Who can apply for an order for compulsory management?
Section 237 (8) to the SSMA, sets out who can apply for such an order as follows: –
- A person who has the benefit of an order under the SSMA, requiring the owners corporation (or strata committee or an officer) to do something, that has not been complied with;
- anyone with an interest or estate in a lot in the scheme or if the scheme is a leasehold scheme, a lease of a lot, for instance a lot owner;
- an authority that has the benefit of a positive covenant requiring a duty of the owners corporation; or
- a judgment creditor to whom the owners corporation owes a judgement debt
What types of orders can be made?
If the discretion is enlivened, NCAT can appoint a strata managing agent to exercise all, or some functions, or even to exercise functions other than those specified of an owners corporation. Similar orders can be made with respect to the exercise of the functions of the chairperson, secretary, treasurer or strata committee. We also note that the appointment will be for a specified period of time that is usually less than two years.
Any further questions about strata or community titles law?
Call Kerin Benson Lawyers on 02 8706 7060 and speak to our or email allison@kerinbensonlawyers.com.au