February 2005

Changes to the Strata Scheme Management Act: Important changes to strata management laws commenced on 7 February 2005

Important changes to strata schemes management laws both for residential and commercial properties commenced on 7 February 2005 with the commencement of the Strata Schemes Management Amendment Act 2004. The changes were introduced largely to reflect the growing complexity involved in administering strata buildings in recent years as medium and high density living becomes such a predominant part of urban life. The changes will have implications for strata managers, developers and those who either live or work in properties that are governed by a strata scheme. The following is a 'snapshot' of some of the more significant changes which have been made.

Large Strata Schemes

One of the most significant changes to the legislation is the introduction of special rules for the operation of Large Strata Schemes ? defined as those with 100 lots or more. It became apparent that there was a need for a mechanism to be put in place where larger schemes which may have annual budgets of several million dollars, should be treated differently from smaller schemes. The changes include:

  • Mandatory annual auditing of accounts and financial statements. These audits must be conducted by a member of CPA Australia, or a member of the Institute of Chartered Accountants in Australia.
  • At least 2 quotes to be obtained in relation to proposed expenditure in respect of any one item or matter that exceeds an amount prescribed by the regulations (currently $25,000), unless expenditure is undertaken for emergency purposes.
  • Limit on spending by executive committees of larger schemes to no more than 10% above the budget on specific items, unless expenditure is undertaken for emergency purposes.
  • Personal notice at least 72 hours before a meeting is to be given to all owners about upcoming executive committee meetings. Within 7 days after a meeting of a large strata scheme the decisions from those meetings must also be given to each owner.
  • Proxies to be lodged at least 24 hours before any meetings.

Sinking funds

All schemes established from 7 February 2005 are required to prepare a 10 year sinking fund plan. These changes require owner's corporations to have a structured approach to sinking fund reserves so that they consider the capital expenditure that will arise over the following 10 years and plan the sinking fund budget accordingly.

\"The changes will have implications for strata managers, developers and those who either live or work in properties that are governed by a strata scheme\".

The owners corporation may engage expert assistance in preparing the sinking fund plan, however, the initial plan has to be finalised by the end of the 2nd annual general meeting. The requirement for the 10 year sinking fund plan is for the life of the scheme.

In addition:

  • The Plan has to be reviewed regularly (at least every 5 years); and
  • Mandatory item on agenda of first annual general meeting is to discuss the preparation of the sinking fund plan.

Alteration of Common Property & Licences to use Common Property

The Act now clarifies that an owners corporation has the necessary power to add to, alter or erect new structures on common property or allow others to do so.

Records of Owners Corporations

All records of the Owners Corporation must be kept for 5 years.

Commencement of Legal Action

The changes now provide that legal action is to be approved by a general meeting and all lot owners are to be given the estimated costs and be given the opportunity to vote on the matter.

Strata Managing Agents

  • Transfer of management - A strata managing agent will not be able to transfer the management of a strata scheme to another strata management business without obtaining the approval of the owners corporation concerned. If a managing agent sells his or her business to another agent, any continuing right to manage a particular strata scheme will be subject to the agreement of the owners corporation involved.
  • Appointment of managing agents by adjudication process has been streamlined giving a wider range of circumstances when such appointments can be made.
  • The Act now clearly sets out which functions may only be delegated to the owners corporation or the strata managing agent.

Executive Committees

  • Mandatory items on AGM Agenda ? The agenda for each AGM must include an item to decide if any matter or type of matter is to be determined only by the owners corporation in general meeting and in the case of an owners corporation which needs to prepare a 10-year sinking fund plan then an item to prepare or review a plan relating to the sinking fund.
  • Owners Corporation prevails ? In the event of disagreement between the owners corporation and the executive committee, the decision of the owners corporation prevails.
  • Executive Co mmmittee dismissal ? The owners corporation has power to dismiss all the members of an executive committee.

Fire Safety Inspections

Due to the critical importance of fire safety in a building the following amendments have been made to remove uncertainty over who is responsible for providing access to a building by local government and fire authorities:

  • Access to be provided by Owner's Corporation - The owners corporation is responsible to ensure access is provided to the common property and if specified to some or all of the individual lots in the strata scheme. The penalty for non-compliance is up to $2200.
  • Adjudicator can order access - Where there is a dispute about access, the owners corporation may apply to an Adjudicator for an order against the person in question. The Adjudicator has the power to order that access be provided for a fire safety inspection.

Documents to be provided by developers

As a result of the amendments, developers of strata buildings are required to hand over the following documents at the first annual general meeting of the owners corporation:

  • All development consents;
  • Complying development certificates and related endorsed plans;
  • 'As built' drawings;
  • Compliance certificates as defined in Environmental Planning & Assessment Act 1979;
  • Fire safety certificates;
  • Warranties obtained or received by the owner or lessor and relating to the parcel or any building, plant or equipment on the parcel;
  • Occupation Certificates;
  • Sewerage line diagrams;
  • Maintenance & service manuals; and
  • Depreciation schedules.

The penalties for not complying have also been made more severe as the maximum penalty has been increased from $1,100 to $11,000.

s.108 ? Inspection of Owners Corporation Records & Section 109 Certificates

The amendments provide that the owner of a lot is no longer required to provide a written authority for a person to inspect the records of the owners corporation or to obtain a s.109 certificate from the owners corporation.

Further information on the Scheme can be found at the website of the NSW Department of Fair Trading - www.fairtrading.nsw.gov.au