NSW FACT SHEET 4: Compulsory Strata Management: How does it affect you and your scheme?

The NSW Civil & Administrative Tribunal (NCAT) has the power under section 162 of the Strata Schemes Management Act 1996 to appoint a compulsory strata managing agent to a strata scheme. This power is also contained in section 237 of the Strata Schemes Management Act 2015 which, but for part 11, will commence on 30 November 2016. The sections, which differ slightly, empower the NCAT the make an order that either all, or part, of the functions* of the owners corporation are delegated to a strata manager.

What does compulsory strata management mean?

The simple answer is that it means different things in different cases. For instance, NCAT may order that all the functions of the owners corporation are to given to the strata management agent or, it may order that only a certain power or function is given to the strata managing agent.

If all the powers of the owners corporation are granted to the strata managing agent meetings of the owners corporation are not necessary. Instead of you, as a lot owner, voting to decide matters the strata manager will exercise their delegated power. If they do so they can raise levies, pass resolutions on behalf of the owners corporation and pass by-laws pursuant to section 65A. A by-law could also be passed pursuant to section 52 by the compulsory strata manager with the prior written consent of the lot owner granted the exclusive use right or special privilege.

On the other hand if the strata manager were only granted the powers of the executive committee, they could call meetings, pay invoices (unless restricted by the owners corporation at general meeting from doing so) and conduct the day to day affairs of the owners corporation but could not pass any resolutions that are required by the Act to be passed at general meeting. This would include resolutions to pass by-laws, to accept an easement or to alter or amend the common property.

Who can apply for an order for compulsory management?

A wide variety of people can obtain an order to appoint a compulsory strata manager and it need not be a lot owner. They are:

  • 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;
  • anyone who has obtained an order under the 1996 or the 2015 Act that has not been complied with and that imposed a duty on the owners corporation, executive/strata committee or an officer of the owners corporation
  • 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

When can the NCAT make an order for compulsory management?

Both the 1996 and 2015 Acts provide that the NCAT may make an order only if satisfied that:

(a)  the management of a strata scheme is not functioning or is not functioning satisfactorily, or

(b)  an owners corporation has failed to comply with a requirement imposed on the owners corporation by an order made under the Act, or

(c)  an owners corporation has failed to perform one or more of its duties, or

(d)  an owners corporation owes a judgment debt.

What does “not functioning or is not functioning satisfactorily” mean?

CTTT (the predecessor to the NCAT) Member Moore in Coote v Sharpe, Wentzel & Owners Corporation Strata Plan 55434 stated that imposing a compulsory strata manager upon an owners corporation is a “draconian” measure as it “removes the democratic process which has been established” under the Act. As such, the reasons for a finding of dysfunction must be based on objective evidence. For this reason, these orders are not lightly granted.

Instances where an order for compulsory strata management has been made show that the following behaviour can be a sign of a failure to function when affects the management structure of the scheme:

–          a failure (or inability) to pass resolutions to raise contributions;

–          a continued failure to carry out required maintenance and repairs

–          a long history of acrimony, deep seated discord and or violence in the scheme;

–          the presence of a voting block, for instance, where divisions within the scheme see a 50/50 stand off meaning resolutions cannot be passed;

–          a pattern of strata managers terminating their appointment; and

–          a pattern of improper decisions making (i.e. decisions not made in accordance with the Act)

* The Dictionary to the Act defines “function” as “function includes a power, authority or duty.”

Any further questions about strata or community titles law?

Call Kerin Benson Lawyers on 02 8706 7060 or email allison@kerinbensonlawyers.com.au or enquiries@kerinbensonlawyers.com.au

When being unreasonable isn’t enough: NCAT’s discretion in the reallocation of unit entitlements

Section 183(1) of the Strata Schemes Management Act 1996 (NSW) (the Act) confers a discretion on NSW Civil and Administrative Tribunal to reallocate unit entitlements when the original allocation is found to be unreasonable. The recent case of Rita Sahade v The Owners Strata Plan No 62022 & Ors [2015] NSWCATCD 5 emphasises the discretionary nature of this power.

Background

 The case was originally brought by the applicant before the Consumer, Trader and Tenancy Tribunal in 2012. The Tribunal dismissed the application. The applicant appealed to the District Court, and its decision was then the subject of appeal to the Court of Appeal, who remitted the case back to the Tribunal in respect of the following issues:

  • Whether the original allocation of unit entitlements (UE) was unreasonable;
  • If so, whether the UE should be reallocated; and
  • If so, the appropriate allocation of UE.

Relevant Considerations

 In making its determination, the Tribunal identified several considerations relevant to the decision to alter UE:

  • Market value of the lots (noting this is a mandatory and primary consideration, though not the only consideration);
  • UE forms part of bundle of rights as part of realty and ownership of unit;
  • UE forms part of market value due to the degree of control and fees/responsibilities associated with UE;
  • Units are sold and bought on the basis of known rights (i.e. known UE);
  • UE forms basis for liabilities and payments; and
  • UE controls power of management of OC and determines quorum.

The Tribunal found that the original UE allocation was unreasonable based on market value yet decided not to exercise its discretion to alter UE on the basis that:

  • Control of the scheme would change fundamentally with an altered UE;
  • By purchasing the property with 40% of the schemes UE, it was clear to the applicant at the time of purchase that she wasn’t buying a controlling share;
  • It was likely to result in compulsory management and/or deadlock if one unit given such control – which was not the legislative intent of the Act; and
  • The unopposed evidence of original owner showed the original reason for UE allocation was to prevent one lot acting without the support of at least one other lot.

The Tribunal also reaffirmed that in such matters it is the applicant who bears the onus not only to demonstrate that there was unreasonableness in the original UE allocation, but also to persuade the Tribunal why it should order a reallocation of UE, with the Act conferring a discretion and not an obligation on the Tribunal to alter UE allocation.

For information about unit entitlements generally or responsibilities of lot owners in relation to their unit entitlements, please contact our office.

Allison Benson Angie Rennie
Legal Practitioner Director Lawyer
Ph: (02) 4032 7990 Ph: (02) 8706 7060
E: allison@kerinbensonlawyers.com.au angie@kerinbensonlawyers.com.au

Renovations in Strata & Community Title Lots: New Planning “One-Stop-Shop” Website to Fast Track Development Approvals

This is a caution that the new website https://hub.planning.nsw.gov.au/ for home owners wanting to renovate their properties launched by the Dept. Planning & Environment to fast track development approvals is not a one-stop-shop. Home owners in strata & community schemes should remember that they may need the approval of their owners corporation, building management committee or relevant association.

Why is this important to remember?

Strata Schemes

For owners of a strata property, if the work you intend to do affects the common property then, in addition to considering whether you need development approval for the work, you must have the approval of your owners corporation to conduct the work. As the owners corporation owns the common property you cannot alter the common property without its permission.

If your planned work is major renovation work, then any approval will by way of a motion passed at a general meeting for a by-law under either section 65A or 52 of the Strata Schemes Management Act 1996 (NSW) authorising the works. If a development consent is required then the owners corporation as the owner of the common property affected by the renovations will also have to consent to the development application.

If development consent is not required as your planned work is minor, such as installing new cupboards or new shelving along a common property wall, then model by-law 5 applies. This means you must request written approval from your executive committee prior to doing this work. If your scheme is not governed by the model by-laws check for an equivalent by-law.

You should also consider if there are any by-laws setting standards. Model by-law 17 provides that you must not maintain anything in a lot that is not in keeping with the appearance of the building. Installing a trellis may breach this by-law. If your strata scheme is only part of a building, you must also comply with any architectural guidelines in the strata management statement.

Community Associations

If you live in a community association you should keep in mind the architectural guidelines for your association. These guidelines will often provide for the approved shades of paint or material that must be used. For instance, installing an ochre coloured roof or a tin roof instead of a charcoal slate roof may breach your association’s architectural guidelines. You should also consider whether the work you are doing will affect any community property such as piping or cabling for services or even footpaths. These sort of mistakes are costly to remedy, can cause bad feelings in the community and are easy enough to avoid with a bit of prior research.

For further information, or for a quote on preparing any necessary by-law, please contact Kerin Benson Lawyers on 02 8706 7060.

Kerin Benson Lawyers

Author: Allison Benson

Office: Sydney & Newcastle

Email: allison@kerinbensonlawyers.com.au

Date: 13 March 2015

Case Note: Failure to Maintain Common Property – Was the Owners Corporation Responsible for the Unit Owner’s Losses?

For most of us our homes are our castles. Given the emotional and financial stresses associated with them it is understandable that when there is a problem such as water penetration, a unit owner wants someone else to be responsible for any financial loss caused. In a recent ACAT case we successfully defended a claim made against an owners corporation in just such a situation.

What happened?

Like many new developments, this particular building contained building defects. As part of the process of identifying the defects, investigating the cause and engaging in a collaborative repair process with the original builder, the owners corporation had arranged for several inspections of both common and lot property. During this process no one notified the owners corporation, its building manager or experts that the unit suffered from water penetration. Sometime later the unit was inundated with water and the owners corporation was notified. An inspection was promptly arranged however due to the lack of previous issues and the cause was believed to a failure to clear the drainage system of debris. Some months later, the unit again flooded as a result of which the tenant left. After testing the cause was found to be defective building.

The unit owner then sued the owners corporation for loss of rent, compensation for damage to property and cleaning costs. Under section 24 of the Unit Titles Management Act 2008 (ACT) there is a strict duty upon the owners corporation to maintain the common property. However, the unit owner’s ultimately asserted negligence. The key question was had the owners corporation acted reasonably in the circumstances and was it therefore responsible for the unit owners loss?

The decision

ACAT found that the owners corporation had acted reasonably in undertaking building defect inspections and that this was an unfortunate situation where no one was to blame for the unit owner’s losses. The unit owner’s claim was dismissed

Although this is an ACAT decision it is of interest to NSW based owners corporations. This is because the decision of the NSW Court of Appeal in The Owners Strata Plan 50726 v Thoo [2013] NSWCA 270 which concerned the ability (or inability as it was ultimately decided) of a lot owner to claim for damages, including loss of higher rent, left open the possibility of a claim against an owners corporation in negligence.

What should I do if my unit is affected by a common property issue?

  • Notify your strata manager and your building manager in writing if you believe your unit is affected by a building defect or a common property issue;
  • If you receive notifications of inspections by building experts you should make your unit available and advise the building expert of any suspected defects or areas of concern;
  • If you believe your unit is affected by common property building defect or maintenance issue, seek legal advice on your options.

Kerin Benson Lawyers

Author: Allison Benson

Email: allison@kerinbensonlawyers.com.au

Date: 14 October 2014

Attention to Detail: The Importance of Compliance when Issuing Creditor’s Statutory Demands

The recent cases of Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262 (Kisimul) and In the Matter of EGE Foods Australia Pty Ltd [2014] NSWSC 983 (EGE Foods) serve to emphasise the importance of compliance with legislative requirements when issuing and seeking to rely upon creditor’s statutory demands to wind up a company.

The Cases

In Kisimul, the petitioning creditor had failed to comply with s459E(3) of the Corporations Act 2001 (the Act) by failing to include a statement in the affidavits verifying two statutory demands that there was no genuine dispute about the debts owed by the debtor.

The creditor in EGE Foods had both failed to annex supporting documents to the statutory demand and to the affidavit verifying the statutory demand (though ultimately this was not found to be fatal to the creditor’s case) and had failed to comply with the requirements of the form prescribed by the Supreme Court (Corporations) Rules 1999 (NSW) by stating, in the affidavit verifying the statutory demand, that the debt was due and payable and that there was no genuine dispute as to the debt. The Court also discussed the issue of service, finding that ordinary pre-paid post encompassed registered post, and confirming the well-established precedent that the onus is on the debtor company to raise a doubt relating to the service of a statutory demand.

In both cases the statutory demands were set aside and the creditors not entitled to proceed with winding up proceedings against the debtor companies.

Reasons to Set Aside Statutory Demands

In Kisimul, the debtor company made an application pursuant to s459G of the Act to set aside the statutory demands on the basis that there was a genuine dispute in relation to the debts, that the debtor company had an offset claim, and for “some other reason” (being the lack of a proper affidavit) in accordance with s459J(1)(b) of the Act. The debtor company in EGE Foods had not made an application to set aside the statutory demand but the Court invoked its discretion under s467A of the Act to dismiss the winding up application that ensued.

In both cases, the Court found that whilst the absence of a properly completed affidavit did not of itself make the statutory demand defective, it prevented the creditor from relying upon the presumption of insolvency that automatically follows from non-compliance with a valid statutory demand. The creditors were thus prevented from winding up the debtor companies on the basis of non-compliance with the statutory demand.

To learn more about creditor’s statutory demands or legislative compliance with court documents, please contact either:

Allison Benson Angie Rennie
Legal Practitioner Director Lawyer
Ph: (02) 4032 7990 Ph: (02) 8706 7060
E: allison@kerinbensonlawyers.com.au E: angie@kerinbensonlawyers.com.au