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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What can I do with my strata property?

Unfortunately not all owners within a strata scheme are aware of their rights and obligations regarding strata ownership, which can lead to problems with other lot owners, the strata manager, and the owners corporation.

What does strata ownership involve?

Strata title refers to the type of ownership for individual townhouses, units, villas, and even commercial warehouses, within a complex.

Not only do the individual owners have the right to occupy and enjoy their particular lot, but they also have an interest in the other areas within the complex (such as the driveways, gardens and utilities areas) – referred to as the common property.  Every lot owner shares the ownership of the common property.

UnitsOwning a strata property is not the same as owning a freestanding house – your use and enjoyment of the property is regulated by legislation and also any by-laws that specifically apply to your strata complex.

  • You own your unit or apartment as well as sharing ownership and responsibility for the common property.
  • As an owner, you are automatically a member of the “owners corporation” which has responsibility for the common property.
  • You have to contribute to the cost of running the building by paying levies, usually on a quarterly basis.
  • You also have to pay money into a sinking fund, for future long term expenses such as painting the building or updating the garden areas.

It is important to note that the external walls, windows, doors, the floor (including floor tiles) and the roof do not usually belong to the lot owner, but are considered common property, which means that the repair and maintenance of these areas (and the cost of doing so) usually falls to the owners corporation.

This means that the lot owners own the inside space of the unit, but not the main structure of the building.

So what can I do and not do within the strata complex?  

There will be certain restrictions regarding your use and enjoyment of your strata property, as set out in the by-laws for the strata scheme.  Typical by-laws will specify rules regarding:

  • the keeping of animals – some strata schemes expressly forbid any animals being kept on the property.
  • parking on the common property – there will usually be designated spaces for visitors, however parking will be forbidden on any other part of the common property.
  • keeping noise to a minimum, to maintain peace and enjoyment for your neighbours.
  • drying washing on the balcony.
  • changing the “appearance” of your lot – to ensure that the overall look of the property remains consistent, you may be prevented from installing brightly coloured blinds in your windows.

If I want to do something to my property, do I need to obtain permission?

In addition to the strata scheme’s by-laws, there are a number of other responsibilities set out in the strata legislation (see sections 116 and 117 of the Strata Schemes Management Act 1996):

  • you must not interfere with any support or shelter provided by your lot for another lot or the common property;
  • you must give the owners corporation at least 14 days’ written notice before altering the structure of your lot.  The notice must describe the alterations;
  • The owners corporation can stop alterations to a lot if it interferes with the common property or any support to the rest of the building;
  • you must not interfere with the passage or provision of water, sewerage, drainage, gas or other similar services;
  • you must not use your enjoy your lot in such a way which might cause a nuisance or hazard to another resident;
  • you must not use or enjoy the common property in a way that may interfere unreasonably with another resident’s use and enjoyment of common property or their lot.

What if a lot owner has changed part of the common property without permission?

If a lot owner wishes to make a change or alteration to something in their lot which forms part of the common property (such as windows), then it must obtain permission of the owners corporation.  Usually the owners corporation will review the proposed works, and authorise them with certain conditions being imposed, such as ensuring that the new windows are within the overall look of the entire complex, and that the repair, maintenance and future replacement of the windows are the responsibility of the particular lot owner.

If a lot owner has not obtained prior approval of the owners corporation, perhaps because they were unaware of their obligation to do so, then the owners corporation should take immediate steps to inform the lot owner of their responsibility, and ask that they formally request permission for the works.

If the lot owner refuses to do so, and is unwilling to talk any further about the issue, then there are 2 options available:

  1. the owners corporation can serve a Notice to Comply with a By-Law on the person who is breaching it (section 45).  If that person continues to breach the by-law, then the owners corporation may apply to the New South Wales Civil and Administrative Tribunal (NCAT)Consumer & Commercial Division – for a penalty of up to $550 to be imposed on them (section 203).
  2. The owners corporation, an owner or resident can apply for mediation through Fair Trading.  If no settlement is reached, or if a party does not comply with the settlement agreement, then one side can apply for an order by an Adjudicator or the NCAT (which will be a public hearing, just like a normal court case).  If you are unhappy with the Adjudicator’s decision, then you can appeal to the NCAT.

NCAT has the power to make the following types of orders:

  • an order that a party pay a sum of money to the other party – if this is not complied with, then the order can become a judgment of the Local Court and enforced through the Sheriff’s Office;
  • an order for a lot owner to get consent for repairs to common property;
  • an order appointing a strata managing agent;
  • an order about levy contributions;
  • an order about keeping of animals.

If you require advice or assistance regarding a strata issue, contact our office on 9526 3444 or email Melissa Lammers – mlammers@shirelegal.com.au.

I am buying a unit. What does the term “strata” mean?

QuestionStrata title is a form of ownership used for multi-housing developments, such as:

  • units
  • townhouses
  • villas
  • detached dwellings within a defined area.

The strata plan divides the building(s) and the associated land into:

  • individual lots (owned by the various lot owners); and
  • common property.

Lots typically consist of the airspace within the walls, floor and ceiling of the particular unit or townhouse – that is, the lot owner really only owns the right to occupy that space, and doesn’t necessarily own the actual walls, floor and ceiling of the building.

Common property is the part of the land and building in the strata plan which does not form part of any unit, and which is shared between the lot owners (e.g. stairways, passages, driveways and visitors’ carparking).  It also includes the actual structure of the building, which is not owned by any particular lot owner.

Other terms you need to know:

Owners Corporation

The Owners Corporation (previously referred to as the body corporate) comprises the registered owners of all of the units in the strata plan. An owners corporation and its committee has powers and responsibilities to administer the building and care for such things as the land around the building, entrance, stairways and paths.  The Owners Corporation also makes decisions regarding repair and renovation of the building as required, the cost of which is covered by the strata levies that have been paid by the lot owners (see next point).

Strata levies

Strata levies are the fees paid by each lot owner to the Owners Corporation (usually quarterly) to contribute to the general upkeep and maintenance of the building and the common property. There are 3 types of strata levies:

  • administrative fund (for day-to-day running expenses such as gardening and cleaning)
  • sinking fund (for long term repairs and maintenance such as carpet replacement)
  • special levies (if there aren’t enough funds in the admin or sinking funds for essential expenses)

The levies are determined each year by the Owners Corporation, with reference to the strata scheme’s budget. The amount of levies payable by each lot owner is determined by the “unit entitlements”. Basically, the larger the lot, the greater the portion of levies that it needs to contribute to.

Unit entitlements

Unit entitlements specify the proportion of strata costs that a particular lot needs to contribute towards the strata scheme.  For example, a top floor penthouse would have a larger unit entitlement (and therefore strata levies) than a ground floor bedsit.  The unit entitlements are determined when the strata scheme is first registered, and are generally based on the understood value of the individual lots.  If this is not the case, then the NSW Civil and Administrative Tribunal has the power to amend the unit entitlements (see case note below).

Why would I need a lawyer after I have bought a strata property?

Change of By-Law – If you wish to undertake any improvements to your property (such as upgrading the kitchen or bathroom, installing a skylight, replacing the screen door with a security door and so on), then you would need to approach the Owners Corporation at first instance to seek permission to do so.  You will then be asked to submit a proposed “Change of By-Law”, setting out the details of the proposed work and also setting out your rights and obligations regarding the proposed work.  Shire Legal can assist you with this.

Strata dispute – You may be involved in a dispute with the Owners Corporation if you have sought approval for proposed works, but for whatever reason, it has not been granted.

Below are some examples of recent cases heard before the NSW Civil & Administrative Tribunal (Strata Division):

More case studies are available on the Fair Trading website.

For more information …

Strata laws are administered and regulated by Fair Trading NSW.  There is a wealth of information available on the Fair Trading website, such as:

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.