Strata managers who are also developers should not be prohibited from managing a strata scheme in which they hold a beneficial interest.
Section 49(3) of the Strata Schemes Management Act 2015 (NSW) sets out that the developer of a strata scheme (or a person associated with the developer) cannot be appointed as the strata manager for the scheme until the end of 10 years after the date of registration of the strata plan.
“The provision was introduced to address concerns relating to the administration of building warranties under the Home Building Act 1989 (NSW),” Gary Adamson, Managing Director of Strata Management Services NSW and Chair of the REINSW Strata Management Chapter, said. “But the restriction placed on appointment is at odds with the building warranty period itself. Why is a strata manager prohibited from managing their own development for 10 years, when the building warranty period is only six years?”
Gary also pointed out that section 49(3) fails to account for a range of common situations.
“For example, a strata manager may develop a building for investment purposes, retaining all the lots for their superannuation or a family trust,” he said. “It’s our view that section 49(3) unnecessarily precludes the beneficial owner, being the strata manager, from managing the strata scheme – a job they are certainly qualified to carry out. An accountant is allowed to manage the financial affairs for their own company. Why shouldn’t a strata manager be allowed to manage their own strata building?
“As another example, a strata manager may develop a building in conjunction with associated parties, such as family members, and then retain some lots and sell others to those family members. Those associated parties may want the strata manager to manage the building, but they are legally prevented from doing so, as the strata manager is also the developer. This should be possible, however section 49(3) does not allow for it.”
REINSW believes that section 49(3) should be amended so that it achieves its regulatory purpose without unfairly preventing a strata manager managing a building they have developed.
“REINSW has made a number of recommendations regarding section 49(3),” Gary said.
“First, the section should be amended so that the restriction period does not exceed the building warranty period of six years under the Home Building Act . This will ensure that the Strata Schemes Management Act is not at odds with the Home Building Act .
“Our second recommendation relates to those cases where a strata manager retains beneficial ownership of all lots in a building they have developed. We believe the restriction period on appointment as the building’s strata manager should commence 10 years from the date of expiration of the initial period, rather than 10 years from the registration of the strata plan. Of course, if our first recommendation is accepted, that restriction period would be six years.”
“Finally, we’ve also recommended that section 49 be amended to include an exemption allowing a strata manager who has developed the building to manage the strata scheme, despite retaining a beneficial interest, where there is unanimous consent by the Owners Corporation.
“By adopting these recommendations, the NSW Government will ensure that section 49(3) continues to adhere to its initial regulatory purpose, while also accounting for practicalities in the market.”
If you would like to provide feedback about any aspect of the strata management framework, please email your comments to firstname.lastname@example.org.
For answers to your strata management questions, please contact the REINSW Helpline by calling (02) 9264 2343 or emailing email@example.com.