A new era for strata

September/October 2016 edition

Reforms to benefit the more than two million people in NSW who own, rent or manage strata schemes will come into effect from 30 November 2016.


It’s taken five years, three false starts and 3000 public and professional submissions, but strata reforms are now set to kick off. The reforms encompass more than 90 changes.

Here’s a snapshot of the main changes.
New terminology

The reforms will see some changes in common terminology. The Executive Committee of the Owners’ Corporation will now be known as the Strata Committee, and the sinking fund has been renamed the “capital works fund”.

Why the changes? According to the NSW Government, these new terms better reflect the function and purpose of each in the day-to-day running of the strata scheme.

Strata managing agents

Under the new laws, strata managers will be subject to a range of new requirements aimed at improving accountability and lifting standards.

  • Term limits – The new legislation restricts the terms for which strata managers can be appointed. Strata management agreements will be limited to no more than one year in the first year of the strata scheme. Subsequent terms can be for up to three years, with the possibility for three-month extensions to allow owners corporations greater flexibility when deciding upon reappointment.

  • Disclosure – Where a strata manager has received commissions in connection with the strata scheme, including insurance commissions, they must disclose them. If they don’t, NCAT will be able to order that any commission accepted be paid to the owners’ corporation. Strata managers will also be required to disclose any conflicts of interest, including any connection they have with the developer and any financial interest they have in the strata scheme.

  • Non-performance – NCAT will now have greater powers to make orders and remove strata managers where they are not performing to an acceptable standard. At present, owners corporations must wait until an AGM to vary or terminate an agreement.

 

Flexible meeting options

Some important reforms will modernise the way strata schemes conduct meetings and communicate with owners.

  • AGM – The reforms give the Strata Committee more flexibility about when to hold their Annual General Meeting. They’ll simply be required to hold an AGM once in each financial year. Currently, an AGM must be held every year within 11-13 months after the date of the last AGM

  • Communication – Strata schemes will also now be able to adopt modern methods of communication – such as social media, video and teleconference – to hold meetings and be able to distribute meeting papers via email.

 

Voting

Changes to voting methods and procedures will ensure that more owners will be able to participate in discussion and decision-making about their strata scheme.

  • New ways to vote – Under the current laws, owners can vote in person or by mail. Moving forward, voting will be able to occur in person, by mail, electronically or by secret ballot if determined by the Strata Committee or by at least a quarter of the eligible voters. A secret ballot will allow owners to vote according to their conscience without their decision being known or able to be influenced by others.

  • Proxy voting – During the consultation process for the new laws, concerns were raised about ‘proxy farming’, which to date has effectively allowed one or two owners to control decisions by obtaining a majority of votes. This will no longer be the case, with changes to proxy voting that will prevent proxy farming from occurring. Now, the number of proxy votes able to be held by one person will be limited to one proxy vote for schemes with less than 20 lots or five per cent for schemes with more than 20 lots.

 

Collective sale and renewal

The aim of the collective sale and renewal reforms is to deliver urban renewal and boost housing supply. Moving forward, the new process will allow owners to jointly end or wind up a strata scheme so the site can be sold or renewed, empowering them to realise the full potential of their strata building.

Under the reforms, 75 per cent of owners can agree to end their strata scheme, and the process ensures that owners receive at least the market value of their lot, plus an extra amount for the costs associated with moving.

Importantly, the new process involves checks and balances. Final consideration for any plan for renewal will fall to the NSW Land and Environment Court and NSW Fair Trading will establish a Strata Renewal Advice and Advocacy Program to provide free advice for vulnerable or elderly residents.

Owner renovations

Currently, it’s difficult for owners to carry out renovations to their lot. The new laws provide a streamlined approval process for owner renovations.

  • Cosmetic changes – Owners will not need to seek approval from the owners corporation for cosmetic changes (such as inserting a picture hook).

  • Minor renovations – Renovations with a lasting impact (such as installing floorboards) will require approval by general resolution (50 per cent of the vote).

  • Major renovations – Renovations affecting the structure or external appearance of the building require approval by special resolution (75 per cent of the vote).

 

By-laws

Reforms to model by-laws will help better manage common issues that arise in strata schemes.

  • Overcrowding – Owners corporations can make a by-law limiting the number of people who can reside in a lot (but must still allow no fewer than two adults per bedroom).

  • Pets – The reforms amend model by-laws to make it easier for owners corporations to allow for the keeping of pets, as opposed to automatically prohibiting pet ownership in a strata scheme.

  • Parking – Owners corporations will have more options to control unauthorised parking on common property and will be able to enter into an agreement with the local council to manage unauthorised parking.

  • Smoking – Smoking can now be considered to be a nuisance or hazard. The reforms include a model by-law that allows for banning a resident from allowing smoke to drift into another person’s lot or into the common property, from their own lot.

 

Tenant participation
Tenants will now have the right to attend owners corporation meetings, irrespective of how many lots are tenanted in the strata scheme. A tenant will only be able to vote at a meeting if they hold a proxy giving them voting rights on a lot owner’s behalf and they can be excluded from the meeting when financial matters are discussed.

If at least half the lots are tenanted, a tenant representative can be nominated as a non-voting member of the Strata Committee, and they can be excluded from financial discussions.

Dispute resolutions
The reforms expand the NSW Civil and Administrative Tribunal’s power to exclusively deal with most strata disputes, including orders to recover outstanding levies.

The Tribunal’s expanded powers will help owners corporations to run more smoothly where there is dysfunction in a strata scheme. These include removing members of the Strata Committee and strata manager and forcing elections of office holders.

Maintaining a building’s condition
While the rest of the reforms will start on 30 November 2016, the new Building Defect Bond Scheme won’t begin until 1 July 2017 to ensure builders, developers and the strata community have enough time to prepare for the changes and comply with the requirements.

The new scheme is aimed at enabling defects to be identified and fixed early to prolong the life of the building. Developers will be required to lodge a two per cent bond for the final contract price of the building, which will be a form of security to fix any defective work. They’ll also need to engage an independent building inspector to provide a defect inspection report.

Some of the information in this article is drawn from fairtrading.nsw.gov.au

 

The timeline for reform

Dec 2011 to Feb 2012

Global Access Partners conducts online consultation and presents report to NSW Government.

Sep to Nov 2012

NSW Government publishes its Making NSW No 1 Again – Shaping Future Communities discussion paper and invites public consultation. REINSW lodges a submission in response.

2013

Series of roundtable meetings held by the NSW Government with industry and strata experts. REINSW works closely with the government to shape the direction of the legislation.

Nov 2013

NSW Government releases its Community Schemes Law Reform position paper, outlining the proposed reforms. REINSW lodges a submission in response.

Jul to Aug 2015

NSW Government releases two consultation draft Bills – the Strata Schemes Development Bill 2015 and the Strata Schemes Management Bill 2015 – for public consultation. REINSW lodges a submission in response.

Oct 2015

Strata Schemes Management Act 2015 and the Strata Schemes Development Act 2015 are passed by the NSW Parliament.

Apr to May 2016

NSW Government releases the consultation drafts of the Strata Schemes Management Regulation 2016 and the Strata Schemes Development Regulation 2016. REINSW lodges a submission in response.

30 Nov 2016

New strata laws commence operation (other than the Building Defect Bond Scheme reforms, which commence on 1 July 2017).

To view each of REINSW’s strata reform submissions, go to reinsw.com.au/submissions

Looking for more information about the strata reforms? Go to fairtrading.nsw.gov.au for more information about the reforms.

REINSW Helpline

Call (02) 9264 2343 or email helpline@reinsw.com.au for answers to your questions.