What are the special rules for 2 lot strata schemes?

The main piece of legislation regarding the management of strata schemes is the Strata Schemes Management Act 1996 (NSW).  Time and time again, clients ask us about the particular rules for 2 lot strata schemes, and in particular, whether there needs to be an owners corporation and strata levies.

QuestionBecause of the nature of 2 lot strata schemes (in particular, where each lot consists of a detached freestanding building), there are specific rules that apply to 2 lot strata schemes, as follows:

1. The Executive Committee is automatically made up of:

  • the owner of each Lot that has only one owner;
  • one co-owner of each Lot that is owned by co-owners; and
  • the company nominee of each Lot owned by a corporation (Schedule 3, clause 1).

2. A quorum for a meeting of a 2 lot strata scheme with two owners is always two people who are entitled to vote (Schedule 2, Clause 12(3)).

3. A 2 lot strata scheme must have an Administrative Fund (section 66) (and therefore, periodical levies to be paid by the lot owners into a bank account in the name of the Owners Corporation).  The administrative fund covers the costs of insurances and other recurrent expenses, as well as general upkeep of the property (section 75).

4. The 2 lot strata scheme will not require a sinking fund (section 69) OR building insurance under a damage policy (section 83) if:

  • the property consists of 2 detached buildings,
  • there are no additional buildings on the property, and
  • if the owners pass a unanimous resolution for the Owners Corporation not to have a sinking fund and/or not to have building insurance for both buildings.

In that case, each lot owner can take out normal household insurance for their particular lot.  Although the lot owners still need to be aware that the Owners Corporation must still take out in its name additional insurance such as workers compensation insurance, voluntary workers insurance and public liability insurance (section 87).

5. Finally, there is no requirement for an audit of accounts and financial standards to be carried out in accordance with the Australian Auditing Standards (section 107).

Despite this, it is our experience that a vast majority of 2 lot strata schemes do not strictly comply with the Act.  Generally an informal agreement is reached between the 2 lot owners regarding the payment of insurance – which tends to be the only shared cost between the lot owners – without establishing an owners corporation, opening a separate bank account, holding meetings etc.

If you have any questions regarding a 2 lot strata scheme, contact Melissa Lammers.

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