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A look at some of the significant reforms in the new Strata Title laws for New South Wales

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12 Nov 2015

The Strata Schemes Development Bill 2015 and the Strata Schemes Management Bill 2015 have been passed by both houses of Parliament, and received the Royal Assent on 5 November 2015.  Most of the laws are expected to come into force on 1 July 2016.

There has not been a major review of strata legislation in NSW since 1996.  As these new laws contain more than 90 reforms, their effect will be wide-ranging.  Currently, 25% of the population of greater Sydney live in strata title properties, and this is expected to grow to 50% by 2040.  There are approximately 75,000 registered strata title schemes in NSW, with 100 more being registered every month.   Whilst the vast majority of these are residential schemes, there are over 7,000 schemes zoned for business use, and more than 3,000 zoned for other purposes such as industrial and tourism.   

Significant matters in the new legislation include:

The Development Bill - approval by only 75% of owners required to sell or renew a strata block

The Strata Schemes Development Bill 2015 replaces the former strata schemes freehold and leasehold development Acts, dealing with the subdivision of land into cubic spaces, registration, disposition and renewal of strata schemes.  

The most significant reform is a new process to facilitate the collective sale or renewal of strata schemes, on the basis that approval by 100 percent of owners should not be required so long as the process is “flexible, transparent and fair”.  Since renewal includes the sale or complete renovation of an ageing building, it is apparent that these provisions will be subject to close scrutiny by the public, in particular strata owners.  

The bill provides a procedure for strata renewal plans to be formulated and then voted on, with approval by only 75% of owners required to pass them.  This is strict, hence small strata plans with only 2 or 3 lots will still require unanimous approval for renewal plans.  The process is rather involved, and recognises the concern that strata owners with a direct or indirect financial interest in renewal of a strata property must declare their interest. 

Once the required level of approval is obtained, strata owners must apply for an order of the Land and Environment Court to give effect to the renewal plan, and there is provision for dissent by owners, registered mortgagees or covenant chargees, with at least part of the costs of such dissent payable by the owners corporation. 

The NSW Government has stated that it expects, in cases where e.g. the strata block is sold in its entirety, that unit owners will receive at least the market value of their unit plus an amount for disturbance, solatium and any special value.  The court must also consider the circumstances of each owner and whether the deal is fair, just and equitable in all the circumstances. 

NSW Fair Trading is to establish a Strata Renewal Advice and Advocacy Program to provide practical information and assistance to all owners, but particularly to older or otherwise more vulnerable owners.

The management bill – electronic voting, pets, smoke-drift, proxy limitations and 3-years restrictions on agency agreements

The Strata Schemes Management Bill 2015 will replace the Strata Schemes Management Act 1996.  The reforms introduced by it will include:

  • Allowance for strata communities and managing agents to approve the use of new technologies such as Skype, teleconferencing or electronic voting. This extends even to voting at general meetings of the owners corporation. 

  • Measures to reduce “proxy farming” by limiting the number of proxies that can be held by one person to no more than 5% of the total lots (or one proxy, if the total lots are 20 or less). Contracts of sale will be prohibited from requiring the new owner to provide a proxy or vote in a particular way.  The NSW government envisages that the use of new technologies will mean that there is less requirement to rely on proxies.

  • New model by-laws including “pet-friendly” provisions – A scheme may make its own by-laws but may not unreasonably refuse the keeping of an animal, nor prevent a resident from keeping an assistance animal. By-laws will also address the issue of “smoke-drift” noting that it may be classified as a nuisance or hazard if it prevents another resident from the use or enjoyment of their lot. 

  • Measures to promote free and fair re-negotiation of strata management agreements. Agreements with strata managing agents will be limited to 3 years’ duration (12 months for the first such agreement in the life of the strata plan).  A strata committee may extend (roll over) the agent’s appointment at the end of a 3 year period by successive periods of 3 months, whilst it makes a decision whether or not to re-appoint the agent.  Such roll overs may not extend beyond the next annual general meeting of the owners corporation in any event.  There are also safeguards for agents – for example, if the strata committee rolls over, it must give the agent at least 1 month’s notice of a decision not to reappoint the strata managing agent or not to further extend the appointment.  In addition, if an agent is appointed for a period of three years, and the strata committee does not give the agent notice that it will not be reappointed within 3 months of expiry of the three years, then the agent may exercise an option to extend the agency for a further 3 months.  

There are many more reforms made in both bills, and the above only outlines some of the more significant reforms.  NSW has around 75,000 strata schemes worth $350 billion in assets. The reforms will affect some 2 million industry professionals, strata owners, and residents in strata-titled townhouses and units, and we encourage further discussion and analysis by those affected.