Insights

In brief - Management of strata schemes to become more efficient

The NSW parliament's approval of major strata reforms will, among other things, impact how strata schemes are managed. Owners and tenants will be affected by these reforms, which include new rules around voting, proxy farming and representation at meetings, as well as new model by-laws on pet keeping and smoking, and extended powers for tribunals in the strata dispute resolution processes.

Reforms aim to improve and modernise management of strata schemes

On 28 October 2015, the NSW parliament approved major reforms to the state's strata title laws. Both the Strata Schemes Management Bill and Strata Schemes Development Bill, which now have passed through both the Legislative Assembly and the Legislative Council, contain around 90 changes to the current laws. The new laws are expected to come into effect in July 2016.
 
This is the third of three articles addressing the amendments that have been made and the potential impact of those changes. This article examines how the reforms will impact owners and tenants and the management of strata schemes through addressing issues including proxy farming, new model by-laws and dispute resolution.
 
The recent reforms to strata laws attempt to improve and modernise the way strata schemes are managed.
 
The main objects of the Strata Schemes Management Bill 2015 include providing for:

  • the management of strata schemes
  • the resolution of disputes arising from strata schemes

Bringing governance into the electronic age

Meetings now will be able to be held electronically, by Skype, teleconferencing and passing paper resolutions. Furthermore, data and records may be stored in any form determined by the owners' corporation, which includes allowing records to be stored, delivered, received and inspected electronically. Records and documents passing between a strata manager, the strata committee and lot owners can take electronic form and be delivered electronically.

Proxy farming to be limited

Many owners raised concerns about the practice of proxy farming in strata schemes; where individuals give their proxy to another owner, authorising them to represent them at the meeting. This meant that by obtaining a majority of votes using the proxy system, one or two individuals could potentially control the decisions made by the owners' corporation.
 
The strata reform will limit the number of proxy votes able to be held by an individual for schemes with less than 20 lots to one proxy vote, or 5% for schemes with more than 20 lots.

Tenants' participation improved but no voting rights

Under the reforms, if tenants occupy the majority of the lots in a building, they can elect a representative to attend meetings of the strata committee and speak on their behalf. A tenant representative can be excluded from a meeting of the strata committee if a number of matters, including financial statements and levying of contributions, are to be discussed. A tenant representative cannot vote on any decisions affecting the strata scheme.
 
Tenants will also be able to attend meetings of the owners' corporation, unless the owners' corporation votes to exclude them when certain nominated issues, such as financial statements, are being discussed or voted on. However, a tenant will not be entitled to speak at a meeting unless authorised by a vote of the owners' corporation.

Quorums to be facilitated at owners' corporation general meetings

Lack of interest in participating in the management of the scheme has frequently led to an inability to obtain a quorum and results in the application of a complicated time-wasting procedure for the passage of legislation-mandated resolutions. Proxies were the traditional way in which those who did take an interest in management of their complex achieved a quorum.

As proxy farming reforms would prevent this, the new laws will achieve a quorum by making it permissible for the chair to adjourn an inquorate meeting for seven days, or declare a quorum for a general meeting without regard to the number of eligible voters in attendance half an hour after the relevant business is called on for discussion.

Scheme management to allow for personal, electronic and postal votes and secret ballots

Previously, owners could only vote in person or by mail. Under the reforms, voting will be able to occur through personal voting, electronic voting, postal votes or secret ballot. A secret ballot, if determined by the strata committee, or by at least 25% of the eligible voters, will allow owners to vote according to their conscience without their decision being known or being influenced by other voters.
 
Furthermore, the reforms give the strata committee greater flexibility to determine when their annual general meeting is held. An owners' corporation will simply be required to hold an annual general meeting once in each financial year. The reforms will accommodate meeting attendance through social media, video and teleconference. Email will also be an acceptable way to distribute papers for meetings.

Strata committee members must declare conflicts of interest

Acts of the strata committee are taken to be acts of the owners' corporation unless there is a disagreement between the resolutions of a general meeting and the strata committee when the owners' corporation prevails. The strata committee is prevented from making determinations that require a special or unanimous resolution or one which is of a type that the owners have determined should not be decided by the strata committee. There is a maximum of nine strata committee members, while large schemes will be required to have a minimum of three.
 
The first and subsequent annual general meetings of owners will directly elect the officers of the strata committee. Those who have a financial interest in a scheme will be ineligible to be a member of the strata committee unless the person is a lot owner. Ineligible people include real estate agents, building managers and "connected persons".
 
The Strata Schemes Management Act 1996 imposes a duty on members of the strata committee to carry out their functions without favour and to the benefit of all owners, and act with due care and diligence. Furthermore, a strata committee member with a pecuniary interest in a resolution or who may have a conflict of interest must disclose that conflict and will be excluded from any vote. Failure to disclose a conflict will be a criminal offence.

Strata managing agents face new disclosure and accountability requirements

The Act implements a new disclosure and accountability regime in terms of commissions. At every annual general meeting, the managing agent will have to disclose the amount of, and services provided in respect of commissions received by, the agent during the previous 12 months from entities contracting with the owners' corporation. Similarly, they must estimate the amount to be received in the following 12 months. Strata managing agents must not request or accept gifts or other benefits in connection with the provision of any strata managing services.
 
Automatic "roll-overs" of a strata managing agent's contract are prohibited and terms for such contracts are limited to three years, including an option to renew. A strata managing agent and a building manager are required to disclose any direct or indirect pecuniary interest in the scheme, and they are also ineligible if they are "connected persons".

By-law reforms address visitor parking, noise and short-term letting

Reforms will allow schemes to take more action against the misuse of visitor parking spaces, noise and short-term letting, as well as introduce increased fines for non-compliance. The reforms will also help better manage issues in strata. The new Act has doubled the maximum penalty from $550, to $1,100 for each offence, and if the tribunal believes a person has broken a by-law within 12 months of the tribunal issuing a fine for breaching the same by-law, the tribunal will have the power to issue a fine of up to $2,200 for each offence.

Approval for owner renovations to be streamlined

A three-tiered approval process for owner renovations will apply for:

  • cosmetic changes (like installing a picture hook), the owner will not need to seek approval
  • minor renovations (such as installing timber floors), only general resolution is required (50% of those entitled to vote)
  • renovations that change the external appearance of a lot or are likely to affect waterproofing or structural changes, special resolution approval will be needed before the work could begin (75% of those entitled to vote)

By-laws will help to prevent overcrowding

The reforms allow owners' corporations to make a by-law limiting the number of people who can reside in a lot, so that strata schemes are better able to manage overcrowding. They must allow a maximum of two adults per bedroom. Schemes wanting to impose such a limit will be able to introduce a by-law by passing a special resolution.
 
If any owner or tenant breaches the by-law after the notice has been issued, the owners' corporation will be able to apply to the tribunal and impose penalties of up to $5,500 for the first offence and $11,000 for each and every subsequent offence detected within 12 months of the imposition of the earlier penalty.

Model by-laws address pet-keeping and smoking  

The strata reforms will remove any reference to a ban on pets in the model by-laws. The reforms will not remove a scheme's ability to make its own rules about pets, and reasonable conditions may be placed on keeping pets. If the model by-laws are adopted, the request to keep a pet could not be unreasonably refused.
 
The reforms include a model by-law that would ban a resident from allowing smoke to drift into another person's lot. Under the reforms, smoking is considered to be a nuisance or hazard, and therefore if a resident allows it to interfere with another person enjoying his or her lot or common property, that resident can be taken to the tribunal.

Tribunal's powers to be extended to allow better dispute management

The strata reforms will expand the jurisdiction of the tribunal to deal exclusively with most strata disputes, including orders to recover outstanding levies. The outstanding debts will then be registered with the local court and debt recovery could then commence. This includes garnishee orders on a lot owner's income and on rent paid by a tenant to a real estate agent. These will be able to be used to recover outstanding levies.
 
The tribunal's expanded powers will help it to ensure that owners' corporations can run more efficiently where there is dysfunction in a scheme. These include removing members of the executive committee and the strata managing agent, and forcing elections of office holders. The tribunal will also be able to limit the matters that committees can make decisions about and require votes on certain matters.

Strata reforms aim to improve management of schemes

The changes made by the Strata Law Reform are significant. There are many new approaches to strata management that the legal profession, strata committees, strata managing agents, caretakers/managers and lot owners will need to absorb. Through these reforms it is likely that there will be more efficient management of schemes and improved resolution of disputes arising from management schemes.
 
Read the first article in this series: NSW parliament passes new laws on developing and building in strata.
 
Read the second article in this series: NSW strata reforms: collective sale and renewal process timeline.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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