Appointing a compulsory strata manager

Section 162 of the Strata Schemes Management Act 1996 (NSW) provides that a Fair Trading Strata Schemes Adjudicator can order for the compulsory appointment of a strata managing agent to exercise all of the functions of an owners corporation, or only specified functions, as well as the functions of the other officeholders (that is, the chairperson, secretary, treasurer or executive committee).

Why would a compulsory strata manager be appointed?

The Adjudicator has the power to make such an order if it is satisfied that “the management structure of a strata scheme … is not functioning or is not functioning satisfactorily” (section 162(3)) or if the owners corporation has not performed its duties (section 162(3A)).

Who can ask for a compulsory strata manager to be appointed?

  • any person who has obtained an order requiring the owners corporation or other officeholder to comply with a duty, and it has not been complied with; or
  • a person having an interest in a strata scheme (e.g. a lot owner); or
  • someone having the benefit of a positive covenant that imposes a duty on the owners corporation; or
  • a judgment creditor who is owed money by the owners corporation (section 162(7)).

Property law

“The basis for such allegations does not appear to have been made out on any reasonable basis by the evidence which has been advanced”

Shire Legal recently assisted a lot owner within a 3 lot commercial strata scheme in response to an application for a compulsory strata manager to be appointed.

Up until last year, all 3 lots were owned by our client’s family, and the strata scheme was self-managed.  Once the front lot was sold, a strata manager was appointed.

Shortly after, our client had an altercation with the other lot owner and police were called.  Other incidents took place between our client and the other lot owner.

Against that set of background facts and circumstances, the other lot owner applied to Fair Trading for a compulsory strata manager to be appointed, on the grounds that the strata scheme was not functioning satisfactorily.

The grounds on which the other lot owner’s application was based on were:

  • there was significant hostility and bad feeling between our client and the other lot owner; and
  • the other lot owner was unable to maintain a functional relationship or to communicate effectively with our client.

A technical difficulty that the other lot owner encountered was that his application referred to our client as “the Majority Owner”, and references to the alleged behaviour by our client was not clarified as behaviour by our client in his capacity as a lot owner, or as a member of the executive committee.

Significant points made by the Adjudicator in its decision were:

  • it is the applicant who bears the obligation of demonstrating, on the balance of probabilities, that the facts alleged should be accepted as being more probable than not as the basis for findings to be made by the Adjudicator;
  • the Adjudicator cannot make such findings where the persons alleged to be in breach of the Management Act are not identified with precision as to their identity, or whether they act in their independent capacities, or as officers of the Owners Corporation.
  • the mere allegation of conduct which alleged amounted to a breach of a by-law was no basis for concluding that the management structure of the strata scheme is not functioning at least satisfactorily.
  • the breach of the Management Act by our client (in not providing enough notice for an AGM) were “procedural in nature” and that “any defect, irregularity or deficiency has caused no substantial injustice to be suffered by any interested person”.

In finding that it would not be in the best interests of the owners corporation to compulsorily appoint a strata manager, the Adjudicator noted:

“… the impediment to the satisfactory functioning of the management structure of the strata scheme that is able to be found on this evidence is the conduct exhibited by [the other lot owner] himself.”

Finally, the Adjudicator stated:

“It is clear that [appointing a compulsory strata manager] is very invasive to the management of a strata scheme; is analogous to the appointment of a provisional liquidator to the affairs and undertaking of a corporation; and is similarly a drastic step take only on comfortable satisfaction upon the balance of probabilities by evidence which demonstrates that the exercise of the discretion so to order is properly to occur.”

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Contact Shire Legal on 95263444 if you have a question about the management of a strata scheme.

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