10 tips for dealing with the changes to NSW strata laws: Property Law Update

By 2020, it is estimated that over half the population of NSW will either live or work in strata buildings.  In consideration of this trend, the NSW Government has introduced extensive (more than 90) reforms to the current strata laws.  The new legislation is expected to commence in the second half of 2016. In this article, Elizabeth McDonald, Principal of our property and planning group, provides her top tips for dealing with extensive reforms to the current strata laws in New South Wales.

The Strata Schemes Management Act 2015 (the Act) was originally expected to commence on 1 July 2016, however, the draft regulations have not yet been released so we now expect it to commence later in 2016.

These are our top 10 tips for understanding the changes.

1. Attendance and voting at meetings

The Act will finally introduce procedures allowing the owners’ corporation (OC) to conduct meetings through video and teleconferencing as well as social media.  Voting at these meetings will be able to take place in person, by proxy, through secret ballots and by postal or electronic voting.  We expect the use of modern forms of communication will facilitate an increase in participation at meetings.

2. New by-laws

The regulations, which are yet to be released, will prescribe new model by-laws that will implement a three-tiered works approval process, remove the automatic ban on pets, limit over-crowding and address smoke drift from balconies.  These new by-laws will automatically apply to all new strata schemes formed after the commencement of the Act.  The OC of existing schemes must review their by-laws within 12 months of commencement of the Act.

The NSW Civil and Administrative Tribunal (NCAT) may impose penalties of up to $1,100, for a first offence, where a person has committed a breach of the by-laws after being given notice by the OC.

3. Repairs to common property

There are changes to the OC’s strict duty to maintain and repair common property.  The OC will be able to defer carrying out repairs in circumstances where the OC has taken action against an owner or other person in relation to the damage.  In such circumstances, the OC can delay the repairs provided it does not affect the safety of the building, structure or common property.

If the OC breaches its obligation to maintain and repair the common property, a lot owner will have 2 years (from the time they become aware of the breach) to bring an action against the OC.  The owner may recover damages from the OC in circumstances where they suffer a reasonably foreseeable loss as a result of the breach.

4. Maintaining and repairing individual lots

The Act will make it easier for owners to carry out minor renovations to their lot (such as work that will not affect other residents or interfere with the structural, waterproofing or external appearance of the building) through the imposition of a three-tiered approval process.

The ‘first tier’ will remove the requirement for owners to seek OC approval for ‘cosmetic work’ such as installing picture hooks, floor coverings, internal painting and repair of minor cracks and holes in internal walls.  The ‘second tier’ relates to ‘minor renovations’ such as minor renovations to kitchens, replacement of internal cupboards, installation of wiring and timber flooring and requires a general resolution (50%) of the OC.  The ‘third tier’ relates to other works affecting common property, in which case a by-law and special resolution (75%) will be required.

5. Dispute resolution
  • Internal – The Act grants the OC broad powers to establish a voluntary process for resolving disputes between lot owners, the OC, the strata committee, the strata managing agent (SMA), the building manager and any other interested persons.
  • Mediation – If the parties are unable to resolve the dispute internally, they may apply for mediation. The Act prescribes a number of matters that may be subject to mediation including matters relating to the OC, covenants and other restrictions, SMAs and building managers, contributions and funds, the by-laws and the property.
  • NCAT – Under the Act, NCAT’s jurisdiction will be expanded to enable it to deal exclusively with strata related disputes, issue orders for the recovery of outstanding levies and register debts in the New South Wales Local Court. NCAT will also have the power to remove members of the executive committee and SMAs as well as force elections of office holders.
6. Capped terms for strata managing agents

The Act will preclude the automatic rollover of SMA contracts.  Strata management contracts will now be limited to a period of:

  • 12 months, in the first year of the strata scheme; or
  • 3 years, after the initial year of the strata scheme.

A SMA may, on written notice, extend the contract for a maximum period of 3 months after the end of the 3 year term if the OC does not take action to reappoint the SMA at the end of the term.  This can only be done if the OC has not advised the SMA in writing, at least 3 months before the end of the term, that the SMA will not be reappointed.

7. Disclosure requirements

At the OC’s annual general meeting, the SMA will be required to disclose:

  • any third party commissions or training services received or provided for in connection with the strata scheme for the previous 12 months;
  • any anticipated commissions or training over the coming 12 months;
  • any links to the developer of the scheme; and
  • any other financial interest in the scheme (other than their appointment as SMA).

SMAs could face fines of up to $2,200 per offence for any breach of the disclosure requirements.

8. Delegated functions

SMAs must maintain a record of all the functions of the OC exercised by them and the manner in which they are exercised.  Each year, SMAs must give a copy of the records for the last 12 months to the OC.

In circumstances where the OC delegates one of its functions or duties to a SMA and a breach of that function or duty by the OC would be considered an offence, then the SMA will be guilty of the offence instead of the OC.

9. Building defects

The Act now require developers to pay a building bond to the Secretary of the Department of Finance, Services and Innovation of 2% of the contracted building price in the form of a bank guarantee or bond to act as security for the costs of any rectification work.  Developers are also required to appoint, and pay for, an independent building inspector to inspect the work and compile a report.  An interim report must be prepared 15 to 18 months after completion of the work with a final report due 21 to 24 months after completion.

The OC may use the building bond to repair any defective building work identified in the final report with any excess being repaid to the developer.  We note that these new requirements do not apply to building work for which insurance is required under the Home Building Compensation Fund or to work that is not subject to the requirement only because the contract price does not exceed $20,000.

10. Car parking

The Act will allow the OC more control in relation to the strata car park.  The OC can enter into an agreement with Council in relation to the strata parking area which would permit Council to erect parking signs, authorise council parking inspectors to patrol the car park and issue fines for a breach of the car park rules. The agreement must comply with guidelines under the Local Government Act 1993 and must be approved by special resolution of the OC.

The Act also introduces a number of other changes relating to collective sale and renewal, levies and capital works funds and OC meeting procedures.  The regulations may also impose further changes.

The NSW Government has also introduced the Strata Schemes Development Act 2015 which provides for the creation, variation, termination and renewal of strata schemes as well as the way in which lots and common property in strata schemes may be dealt with.

This article is not legal advice.  It is intended to provide commentary and general information only.  Access to this article does not entitle you to rely on it as legal advice.  You should obtain formal legal advice specific to your own situation.  Please contact us if you require advice on matters covered by this article.