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“Connected persons” cannot manage strata

13 January 2017

Real estate agents who sell a strata development off-the-plan, are often asked to manage the strata scheme after the building has been developed. Is this legal?

REINSW was recently posed this question by a Member who was advised by a solicitor that strata agents cannot be involved in these circumstances.

What does the law say?

Section 49 of the Strata Schemes Management Act 2015 (NSW) says that an owners corporation for a strata scheme may appoint a strata managing agent to manage the scheme.

However, the developer of the scheme, or a person connected with the developer, is not entitled to be appointed as the strata managing agent of the scheme until the expiry of 10 years from the date of registration of the strata plan.

What is a “connected person”?

Section 7 of the Strata Schemes Management Act 2015 (NSW) defines a “connected person”.

It states that a person (the ‘principal person’) is connected with another person if:

  • they are a relative (within the meaning of the Local Government Act 1993 (NSW)), or if the principal person is a corporation, is a relative of the holder of an executive position in the corporation
  • they are employed or engaged by the principal person, or is a business partner of the principal person
  • the principal person is a corporation, they hold an executive position in the corporation
  • they are the employer of the principal person 
  • they are employed or engaged by, or holds an executive position in a corporation that also employs or engages the principal person, or in which the principal person holds an executive position
  • they have any other connection or association with the principal person of a kind prescribed by the regulations.
However, the principal person is not connected with a member of an owners corporation, or the strata committee of an owners corporation, merely because of any dealing, contact or arrangement the member has with the principal person in the capacity of a member of the owners corporation or strata committee.

Under section 7, an "executive position" in a corporation means the position of director, manager or secretary of the corporation, or any other executive position of the corporation, however those positions are designated.

Can the selling agent manage the strata scheme?

REINSW’s Legal Counsel Nicole Unger explained: “If, post-development, a real estate agent was still employed or engaged by the developer and their term of arrangement or appointment had not ended then the agent would be connected with the developer and not permitted to be the strata managing agent.

“Section 7 requires the relationship to currently be in existence in order to be a “connected person”.

“For example, it does not matter if the agent has previously been employed or engaged as the selling agent if that arrangement or appointment has terminated.

“The agent could then go ahead and be the strata managing agent under a completely new and current arrangement."