Strata Schemes: Reform on the Horizon

It was recently announced that the law governing Strata schemes in NSW is to undergo significant reform. This announcement comes after a prolonged period of dissatisfaction with the legal regime governing strata schemes, with many believing that there are significant changes required in order to bring strata schemes into the 21^st century. With over a quarter of NSW’s population currently living under a strata regime, the proposed reforms will be of interest to a significant number of the population.

At Szabo & Associates, we are often sought out to provide guidance on the complicated legal rules that apply to people living in strata schemes. In this blog post, we revisit the law that currently applies to strata schemes in NSW, and highlight areas where proposed reforms are likely to have an impact.

What is a strata scheme?

There are certain defining features of strata schemes, which make them distinct from traditional housing arrangements:

1. You will be the owner of your own particular unit or apartment within the scheme, but you will also share ownership and responsibility for maintaining what is known as ‘common property’ within the scheme:
2. You will be obliged to pay money into what is known as a ‘sinking fund’ and an administrative fund. This sinking fund is essentially a specific fund that is designed to deal with long term expenses that come with living in a property, e.g. re-painting of the outside of the building or maintaining/replacing the guttering. The administrative fund is used for the ‘day to day’ budgetary requirements of the owners corporation: and,
3. You will have certain restrictions placed on your lifestyle, that tend to depend on the scheme in question, but commonly govern your ability to keep pets, where you can park and your freedom to carry out certain renovation works to your property.

Why the call for reform of strata scheme rules?

As mentioned earlier, the main reason that has been offered to justify the proposed reforms is that the current regime is not in keeping with 21^st century standards. A number of the changes that are being considered in relation to strata regimes aim to make living in these schemes easier, allowing for some flexibility where there has previously been very limited scope for those living in schemes to manage their own unit. Furthermore, the NSW administration hopes that the introduction of certain measures will allow those living in strata schemes to have their interests more accurately reflected in decisions affecting the strata scheme as a whole.

What are the proposed changes?

The draft Strata Scheme Development Bill 2015 and Strata Scheme Management Bill 2015 were subject to public consultation, following their release in early July 2015. The consultation process has now closed, and all submissions are currently being considered. The major changes that are set down within the proposed reforms are set out below:

1. Upgrading communication channels

A common criticism of the current regime is that it fails to incorporate modern technology in terms of communicating matters pertaining to strata schemes. Under the proposed changes, strata schemes would be able to use all modern forms of communication:

• All voting in strata schemes would be able to take place by post, electronically or through secret ballots;
• Paperwork would be able to be circulated to interested parties by email; and
• Meetings relating to the strata scheme would be able to make use of social media and video conferencing etc., allowing greater flexibility and accessibility in decision-making.

Maintaining building standards

Views have previously been expressed that the strata regime in its current form is not adequate to deal with sub-standard building work in respect of strata buildings. Under the respective bills, mandatory defect inspection reports would be introduced along with a building bond. Furthermore, the proposed changes would also see the introduction of a process for the identification and management of defects in a building at the earliest opportunity. Taken together, it is hoped that these changes will encourage builders and developers to be proactive in addressing defects, and make the policing of sub-standard activities much easier for those living in strata schemes.

Dispute resolution

It has been pointed out that in instances where there is disagreement, the resolution of disputes in relation to strata schemes can be difficult. A common criticism of the current regime is that there is little scope to address dysfunctional relations in a scheme. Under the new regime, the NSW Civil and Administrative Tribunal will have its powers to exclusively handle strata disputes expanded, permitting it to make orders to recover outstanding levies due in strata schemes.

Furthermore, the Tribunal will be empowered to take direct action in respect of dysfunctional schemes: it will be able to remove members from the executive committee of the scheme, and force the election of office holders.

Ensuring transparency and accountability in strata regimes

There have been concerns that the current regime does not provide the necessary framework to guard against conflicts of interest. Under the proposed changes, there would be time limits imposed on strata managing agent agreements – one year in the first year, and three years in the following years. It is hoped that this arrangement will ensure that all financial matters pertaining to the strata scheme will be handled with the requisite degree of transparency.

The law governing strata regimes is quite distinct from that which applies to traditional residential property. The proposed reforms, if implemented, aim to make a significant contribution to those living in strata schemes: allowing disputes to be handled more effectively and allowing for the administration of strata schemes to be conducted more efficiently.

If you are concerned about these proposals, or are perhaps interested to know more about the current law governing Strata schemes, contact the team at Szabo & Associates. Our lawyers have developed specialist expertise of advising on this highly technical area of the law. We work in partnership with our clients to provide them with clear, accessible legal advice to reflect their circumstances. Speak to our team today and find out how we can help you.