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Client Update: Changes to NSW strata title law – greater obligations and opportunities

10 November 2015

In brief: Two new pieces of legislation relating to strata title law have been passed by both Houses of the NSW Parliament. Although the new legislation, which is expected to commence on 1 July 2016, will impose obligations on developers to provide inspection reports and building bonds it will also open up redevelopment or sale opportunities by introducing a strata renewal process. Partner Paul Lalich and Nicholas Cowie and Senior Associate Sharon Heffernan examine the key changes.

Background

In November 2013, the NSW Government released a position paper outlining a comprehensive set of reforms to NSW strata title laws. The proposed reforms targeted the key areas of governance, managing the built environment, budgets and levies, by-laws and managing disputes. The reforms have been encapsulated in the Strata Schemes Development Bill 2015 and the Strata Schemes Management Bill 2015.

Key changes

Strata renewal process

The legislation introduces a process for the collective sale or redevelopment of a strata scheme by a 75 per cent majority of lot holders.

The draft legislation does not impose an obsolescence or disrepair test: the renewal process can be commenced by any person giving a strata renewal proposal to the owners corporation. The strata committee must meet to consider the proposal and decide whether it warrants further consideration. If it does, a strata renewal committee will be established to prepare a strata renewal plan containing prescribed information such as the name of the purchaser, the sale price and the proposed completion date, in the case of a proposed collective sale, or the name of the developer, details of any required planning approvals and the terms of settlement for each owner in the case of a proposed redevelopment.

If a strata renewal plan is for a collective sale, the amount paid for the sale must be apportioned among the owners in the same proportions as the unit entitlements. If a strata renewal plan is for a redevelopment, the amount to be paid for the sale of a dissenting owner's lot must not be less than the compensation value (determined under the NSW Land Acquisition (Just Terms Compensation) Act 1991).

If the support of the owners of at least 75 per cent of the lots is obtained for a strata renewal plan, all owners must be notified and the Registrar-General will, on receipt of an application, make a recording on the folio for the common property showing that the scheme is the subject of a strata renewal plan. The owners corporation may then apply to the Land and Environment Court for an order to give effect to the plan, which provides an element of independent assessment to the process. The court may order mediation or conciliation and must be satisfied that the proceeds of sale apportioned to each lot is not less than the compensation value.

Inspection reports

In relation to all future strata developments (not just strata renewal developments), the developer must appoint an independent building inspector approved by the owners corporation to provide an interim report on the building work between 15 and 18 months after completion. The developer must arrange for the same building inspector (if available) to provide a final report on the building work between 21 months and two years after completion. The form of both interim reports and the matters to be identified in the reports will be prescribed by the regulations.

Building bonds

The developer of a strata scheme which includes residential building work in a multi-storey building (which is more than three storeys and has at least two separate dwellings) must lodge a building bond with the Secretary of the Department of Finance, Services and Innovation, equivalent to 2 per cent of the contract price for the building work before an occupation certificate is issued. The building bond is to secure funding for the cost of rectifying any defective building work identified in the final inspection report. The building bond must be claimed or realised within two years after the date of completion of the building work or within 60 days after the final report is given to the Secretary, whichever is the later.

Other notable changes

  • A developer is not entitled to vote on matters before the strata committee relating to building defects.
  • The original owner of the strata scheme must provide an initial maintenance schedule in relation to the common property. While there is no obligation on the owners corporation to comply with the initial maintenance schedule, it can be taken into consideration in proceedings to determine whether or not a building defect could have been avoided by taking specified action.
  • If a part of the building is subdivided by a strata plan and a registered building management statement is in place, the Registrar-General may waive the requirement for registration of a further strata management statement. All new building management statements and strata management statements must provide for the fair allocation of the costs of shared expenses relating to certain subdivided parts of the building.
  • A development lot may be subdivided into lots, or lots and common property, by the registration of a plan as a strata plan of subdivision.
  • The owners corporation may apply to the Tribunal for an order on the original owner to pay compensation if the Tribunal determines that the estimates and levies determined during the initial period were inadequate.
  • A proposed schedule of unit entitlements must be accompanied by a certificate of valuation given by a qualified valuer, certifying that the unit entitlements have been apportioned on a market value basis.
  • A limit on the term of strata management contracts to 12 months for an agent appointed at the first general meeting or three years for any other appointment.

Other changes will have an impact on the governance of owners corporations, the scope of minor works which can be carried out by owners without approval, the ability of owners corporations to recover unpaid levies, by-laws relating to smoke drift, pets and the number of occupiers of a lot, car parking on common property and the management of strata-related disputes.

For further information, please contact:

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