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This is STRATA!
Substantive Law| What area(s) of law does this episode consider? | Strata law – the way in which strata schemes are managed and organised, and how disputes regarding strata schemes are adjudicated and resolved. |
| Why is this topic relevant? | Strata title is the fastest form of property ownership in Australia. A 2018 study showed that about 9% of the population live in strata title property.[1] It is predicted that over half of the new dwellings built in Australian metropolitan areas over the next few decades will be strata titled. As the use or prevalence of strata title grows, so too will our interest in strata law. |
| What legislation is considered in this episode?
| Strata Schemes Management Act 2015 (NSW) Section 9 of the Strata Schemes Management Act 2015 (NSW) – outlines the roles and duties of the owners corporation. Generally, the owners corporation is responsible for the management of the scheme, such as: managing control and use of the common property (s 9(2)(a)); managing the finances of the strata scheme (s 9(3)(a)); and maintaining and repairing the common property (s 9(3)(c)). Section 29 of the Strata Schemes Management Act 2015 (NSW) – Provides that the owners corporation is to appoint a strata committee, the members of which are to be elected at the first annual general meeting of the owners corporation. The general function of the strata committee is to assist the owners corporation in administering the day-to-day running of the strata scheme. Section 36 of the Strata Schemes Management Act 2015 (NSW) provides that a decision of the strata committee is taken to be a decision of the owners corporation. However, where there is a disagreement between the two, the decision of the owners corporation prevails. Section 49 of the Strata Schemes Management Act 2015 (NSW) – allows for the appointment of a strata managing agent. Section 52 of the Strata Schemes Management Act 2015 (NSW) – allows the owners corporation to delegate some or all of its function to the strata managing agent. Section 74 of the Strata Schemes Management Act 2015 (NSW) – requires the establishment of a capital works fund. Section 80 of the Strata Schemes Management Act 2015 (NSW) – requires the owners corporation to prepare a 10-year capital works fund plan. Section 52 of the Strata Schemes Management Act 2015 (NSW) – Under s 52 of the Act, the owners corporation may delegate some or all of its powers to a strata manager. Section 216 of the Strata Schemes Management Act 2015 (NSW) – provides that an owners corporation may establish a voluntary process for resolving disputes between any one or more of the owners of the lots in the scheme, other interested persons, the owners corporation, the strata committee, the strata managing agent and the building manager. Section 218 of the Strata Schemes Management Act 2015 (NSW) – provides for matters that may be subject to mediation. Section 227 of the Strata Schemes Management Act 2015 (NSW) – states that certain applications will not be accepted by the Tribunal without prior mediation. Section 237 of the Strata Schemes Management Act 2015 (NSW) – The Tribunal may make orders for the compulsory appointment of a strata managing agent where the owners corporation is not functioning satisfactorily, has failed to perform one or more of its duties under the Act etc. Section 260 of the Strata Schemes Management Act 2015 (NSW) – Section 260 of the Strata Schemes Management Act provides that a matter or thing done or omitted, in good faith, by an officer of an owners corporation or a member of a strata committee is free from personal liability. Part 2, section 4 of Schedule of the Strata Schemes Management Act 2015 (NSW) – Any owner, or person entitled to vote at an AGM of the owners corporation can put forward a motion to be included in the agenda for the next general meeting of the owners corporation. The motion must be set out in writing and given to the secretary of the owners corporation. It must state the name of the person making the motion and explain the motion in no more than 300 words. |
| What are the main points? | The Strata Scheme Management Act 2015 (NSW) is highly prescriptive legislation. In advising clients with strata disputes, the first key thing to establish is their rights and obligations under their particular strata scheme – rights can vary greatly from scheme to scheme under by-laws. Secondly, if a dispute escalates, it is important to remind the client that they will likely have to wear their own costs. The cost of the dispute should be weighed against their issue. |
| What are the practical takeaways? | Practical, engaged and active ownership is key. Having an active strata committee will not only help with the efficient resolution of disputes but assists with maximising a commercial return on the property. In the event of a dispute, clear communication, and understanding rights under the particular strata scheme is key. |
[1] University of New South Wales, ‘Australian National Strata Data 2018’ p 5.
| David Turner:
1:00 | Hello and welcome to Hearsay, a podcast about Australian laws and lawyers for the Australian legal profession, my name is David Turner. As always, this podcast is proudly supported by Assured Legal Solutions, a boutique commercial law firm making complex simple. Strata Title is the fastest growing form of property ownership in Australia. A recent report by the University of NSW predicted that over half the new dwellings built in Australian metropolitan areas over the next few decades will be strata titled and already about 3 million Australians live in strata title property, with the proportion of those living in strata property much higher in the Sydney metropolitan area. As our use of strata title property grows, so too will our interest in strata law. The laws about how strata communities govern themselves and how they resolve disputes with and between their members. To discuss strata law today, I am joined by Samantha Saw, lawyer, strata law specialist and partner at Speirs Ryan. Sam, thanks for joining us. |
| Samantha Saw: | Hi David. |
| DT: | Now let’s start with the very basics. From a legal perspective, what is a strata scheme? |
| SS:
2:00 | On a very basic level, a strata scheme is a titling structure, that comes under the Torrens title system, or titling structure where individuals own lots in a building and there are common parts of the building that all the lot owners own and are responsible for in common. And that’s generally referred to as common property. So, at its heart, it’s a group titling structure that actually originated throughout the world, in Australia, in Sydney! |
| DT: | Is that really true? Wow! |
| SS: | Yeah, the very first strata scheme in the world was in Sydney, in Burwood in 1961. |
| DT: | Wow, and so that’s then been picked up around the world? |
| SS: | And copied around the world, in other countries – in Canada, in New Zealand, in Singapore, in Dubai there’s heaps of other countries who’ve essentially copied Australia’s model of strata titling. |
| DT: | Wow! I mean that’s fascinating. Of course, the Torrens title system also originated here. It seems we just can’t help but be innovators in the titling world. |
| SS: | Common property law! Yep! |
| DT: | Is that building in Burwood, does it have a plaque to commemorate the first ever strata title or is it an unsung hero? |
| SS: | It’s an unsung hero. I think it’s a bit of an ugly duckling and, as much as people are happy to say that was the first one, they don’t want to point to it. |
| DT: 3:00 | Yeah, ok. Now a strata scheme as you said includes both the individual owners’ lots or units and also the common property. How does the strata scheme manage common property? |
| SS:
4:00
5:00 | So individual owners own lots in the strata scheme and purchase their lots just like you would purchase a stand-alone house on a Torrens title lot, but then as a by-product of that purchase, they also become members of the owner’s corporation. TIP: You might have also heard the owner’s corporation referred to as the body corporate which is what it used to be called under now superseded legislation. Each individual owner is a member of the owner’s corporation and the owner’s corporation, which is what it’s called in NSW and Victoria. In Queensland they call it the body corporate, and it’s responsible as a group for looking after the common property; the common areas of the building. So that’s generally augmented by rather proscriptive management legislation that operates for a strata scheme, that says how the strata scheme is meant to function and operate and what powers and responsibilities are attributed to the owner’s corporation or to their governing committee or to individual owners. So it’s actually quite a prescriptive function in how things work and compared to stand alone Torrens title. If you think about stand-alone Torrens title; you’ve got an issue with your neighbour’s tree growing over your fence. You’re not really that clear on whose responsibility it is, and there are a couple of different pieces of legislation that could work together, you know Dividing Fences and Trees Disputes Between Neighbours Act. In strata, it’s much clearer. You’ve got a Strata Schemes Management Act that essentially controls responsibilities and functions of everyone. |
| DT: | And so, in that kind of a dispute, is that the sort of thing that would fall within the realm of the strata committee’s responsibilities? |
| SS: 6:00 | Yeah, the strata committee is a governing committee that’s representative of all the owners who are the owner’s corporation. It’s generally a functional administrative role where, if you can appreciate, you might have 50 or 100 or 200 lot owners in a particular strata scheme; rather than have every decision have to be at a general meeting with all the owners, a strata committee is appointed annually at the AGM under the management act and they’re responsible for the day to day operations of the strata scheme, and they can make a number of decisions. They can also, at the time of their appointment, have their decision-making power limited by a majority of the owners, but generally the strata committee, that used to be called the executive committee, operate the day to day functioning of the strata scheme. There’s a number of decisions under the Management Act that can be made at a committee level. There are some things that have to go to a general meeting, which is a meeting of all the owners. |
| DT: 7:00 | Very similar to a private company. Where you have a board of directors who are responsible for the day to day and some things have to go to a general meeting. |
| SS:
8:00 | Yep except fortunately for strata committee members, they’re absolved under the act from personal liability for any decisions made in good faith. TIP: More specifically section 260 of the Strata Schemes Management Act provides that a matter or thing done or omitted, in good faith, for the purpose of executing the functions of the owner’s corporation, by an officer of an owner’s corporation or a member of a strata committee is free from personal liability. I guess that is done with the idea that they are different from a company, in the sense that these you know are lay people who are representative of a building that they just happen to be owning, so they may not have any particular skills that would be assumed for company directors, for example; and that’s often a big concern to a lot of strata committee members. You know, could I be held personally responsible for making this decision and there’s an express section in the act that absolves them from any personal liability for decisions made in good faith. |
| DT:
| That is a really interesting dynamic, that all of the strata committee members are volunteers. When you’re putting together a strata committee, because I understand that they are elected by the members of the strata scheme itself, do you have any tips on the kinds of skills sets that really lend themselves to a responsible, well operating strata committee? |
| SS:
9:00 | That’s a good question. Strata committees are elected and it’s an essential component of strata that a lot of lot owners and a lot of people fail to realise, that at the end of the day it’s a democracy and it’s a numbers game. So because of that and because it is a voting numbers game, you do often have issues with strata schemes where there is a small group that controls a large amount of the voting, you know whether it’s by proxy or company nominee that allows themselves to get re-elected in perpetuity to the strata committee and control the owner’s corporation like it’s their own little fiefdom. And that happens quite a lot, there’s a lot of competing personalities in strata. Tip: Under section 31 of the Act, the only eligibility requirement for election to the committee is that you own a unit in the scheme, are the nominee of a corporation that owns a unit in the scheme or you are nominated by the owner of a unit in the scheme who is not a member of the strata committee or is not seeking election as member of the strata committee. There’s no limit on how many consecutive terms a committee member can be elected. |
| DT: | Have you ever seen any really tyrannical fiefdoms in your time? |
| SS:
10:00
11:00 | Oh yes, yes indeed, and as is usually the case, when powers vested from people, they are not very happy, particularly when it’s an assumed power you know, that they’ve held for a long period of time, but in terms of strata committees themselves, on the proviso that it’s a democracy, that no one is really controlling the interest and people just get elected, the best people I think to stand for election are people who may have some experience in base level business skills, whether it would be operating their own business or working for another business, but most importantly people, who have the time to devote to it. It does take up a lot of time, even with a strata manager. Quite often strata schemes where the committee seems to run things really well are ones that maybe have a high proportion of retired downsized, you know, ex business people who all of a sudden have the time but also have the skills at hand to devote to it. But the other thing to remember with strata committees is your committee gets elected annually and it should be with a view to what tasks are at hand for your strata scheme over the coming year. For example, if your strata scheme is having to have a whole lot of building works done to rectify common property that has fallen into disrepair, it might be really worthwhile to get someone with some building background or an engineer on your strata committee for that year. |
| DT:
| Yeah that’s a really interesting insight. I would have assumed, I guess as a lay person to strata law, that you would be picking people with that general business experience, but it does make sense to have, again in the same way as a company, to have a director with the speciality in a particular area of focus for the coming year. |
| SS: 12:00 | I’ve had a strata scheme I was acting for recently who are looking at a collective sale this year, so they’ve got a real estate agent on their committee this year who has never been on before but who at least can add some expertise to the process. TIP: collective sale is a process under which all of the owners in a strata scheme – or 75% of owners, with the Land and Environment Court’s imprimatur – agree to sell the whole scheme, usually to a developer. The process is governed by the Strata Schemes Development Act 2015 – not to be confused with the Management Act that we’ve just been discussing. Exactly the same as if they are carrying out rectification works and engaging building contractors if they’ve got someone with that level of expertise. If they’re a strata scheme that may have to borrow funds for some purpose, then having someone with some accounting or finance background on your committee for the year can be invaluable. |
| DT: 13:00 | I imagine not having that expertise when there is a particularly extraordinary function for the committee to fulfil can be pretty disastrous as well. |
| SS:
14:00
15:00
| It can, it can, and some committees are not at all mindful of the benefit of having that expertise, they’re much more mindful of keeping certain personality groups intact and that’s just unfortunate but that’s the nature strata, that it is a mix of personalities in a democratic environment. What a lot of lot owners don’t realise is that any decision of the owner’s corporation overrides the decision of the strata committee. TIP: Under s 29 of the Act, the owner’s corporation is to appoint a strata committee, although this is not mandatory. The strata committee is elected at each annual AGM and administers the day-to-day running of the strata scheme. Under s 36 of the Act, a decision of the strata committee is taken to be a decision of the owner’s corporation. However, where there is a disagreement between the two, the decision of the owner’s corporation itself obviously prevails. So even if it is something that strata committee is allowed to make a decision on, any decision that the owner’s corporation that’s different from that, will override that. And what a lot of lot owners don’t also realise is that if they are a lot owner entitled to vote, they can put up a motion at any time that will go on the agenda for the next general meeting. So, if a lot owner doesn’t like decisions that the committee has been making and thinks that some of them could be overturned by the majority, there are ways that they can facilitate that happening. Within a sort of limited capacity as an individual but then you gain even more power under the Act if you’ve got a group of 25% or more of the owners, you can make a general meeting happen, you can put up motions that might override those decisions, so there are some ways committees acting inappropriately can be overridden by the majority and there are some angles in the Act to be able to remove committee members or the whole committee if they are acting inappropriately. |
| DT: | Wow. It sounds like the best strata committees result from active bodies of members who are participating in the management of their building. |
| SS:
16:00 | Absolutely. And lack of activity is a significant problem in strata schemes, you quite often have circumstances where owners’ corporations find it hard to get people to nominate for a committee and they get the same committee members nominating again and again. TIP: And once again – there are no term limits under the Strata Schemes Management Act. Because there’s a level of apathy and disinterest and sometimes they will even offer to pay their committees an honorarium just to fulfil that role because there’s such a level of disinterest. TIP: Section 46 of the Strata Schemes Management Act stipulates that an owner’s corporation may pay an officer of the owner’s corporation or a member of the strata committee an amount determined at an AGM in recognition of services performed by the person for the owner’s corporation in the period since the last annual general meeting. |
| DT: | So, who’s paying this honorarium? |
| SS: | It’s coming out of your levies! So, you’re paying for it. You’re paying for everyone else’s, including your apathy. But some strata schemes have to do it. |
| DT: 17:00 | Yeah well, I think a lot of people probably just see, until they actually need something from the strata committee, probably just see it as another outgoing, but that very much changes when you do need something, when there’s a structural issue that might affect your enjoyment of the common property. |
| SS:
18:00 | Technically, you don’t have to have a strata committee, but the cost of taking every single decision you make because there are a number of decisions any strata schemes have to make annually from a base level of reinsurance, to what’s called a capital works fund plan. TIP: A capital works fund is required under section 74 of the Strata Schemes Management Act 2015 (NSW). This is essentially a capital expenditure fund that’s used to pay for major works, such as replacing roofing, lifts, fencing as and when those issues arise. To make sure you’ve got money for any capital works that are coming up. Your roof needs replacing, or you know things like that. So there’s a fair amount of decisions that have to be made throughout the year and you could in theory not have a strata committee but then every decision would have to go to a general meeting of all owners on 21 days’ notice, where the strata manager is probably charging an extra $1,000 to hold an extraordinary GM. You know so it’s costly. It is much more effective to have a committee that runs all those day to day things. |
| DT: | Now what about the strata manager. You mentioned the strata manager’s role before, how can a strata committee manage its roles by delegating to the strata manager? What kind of things can they delegate and what can’t they? |
| SS:
19:00
20:00
| They can delegate a lot of things to the strata manager. There’s a section under the Act that permits a strata manager to be given, what’s called delegated authority. TIP: Section 49 provides for the appointment of a strata manager and under s 52 of the Act, the owner’s corporation may delegate some or almost all of its powers to that strata manager. The owner’s corporation can delegate to the strata manager, under the instrument that appoints them, however decisions to be decided by the owner’s corporation under the Act or determinations relating to the levying or payment of contributions by members cannot be delegated to the strata manager. So, they can sign things on behalf of the owner’s corporation, they can engage contractors on behalf of the owner’s corporation, they can renew insurance policies, they can do a whole lot of things. Practically speaking, most strata schemes have a strata manager or strata management company engaged who keep the books and records, who do agendas for strata meetings, who run general meetings and strata committee meetings, serve minutes and agendas on all the owners, who deal with complaints and issues and generally a strata manager with delegated authority is a bit of a conduit between the committee and the other owners. Some schemes particularly ones that have huge issues such as massive building defect issues, that sort of thing, you would be remiss to be operating without a strata manager. Just because they are aware of all the boxes that need to be ticked and the legislation is quite prescriptive in that sense. |
| DT: | It does sound like at every tier of responsibility in a strata scheme, having an active, kind of grassroots ownership is really critical in getting the right quality of person for the purposes of the strata scheme. |
| SS:
21:00 | Yep and I think it improves the environment for all, if you’ve got an engaged, active committee and a good strata manager, your building is going to be well maintained, you are probably going to pay less in levies, and you know going to be securing yourself for the future by having the funds available for issues that arise, and usually once all those things are in place you have a pretty harmonious living or working environment as well. |
| DT: | Yep you would probably have a more neighbourly community in the building I imagine. |
| SS:
22:00 | That’s a big thing nowadays, that whole community aspect and I think it is something that can be built on within strata. People are particularly in the current circumstances we find now; people are wanting more of a community within which to live and operate. Melbourne has come streets ahead of Sydney I’m sorry to say, in that aspect. They’ve had a number of strata developments where community engagement facilities have been introduced such as shared vegie patches, bike storage areas, no parking, areas for people to gather, community areas and they’ve been in high demand those apartment developments I think because their structure is fostering a sense of community. But there is nothing to stop existing strata schemes from doing that. |
| DT: | And I suppose having those schemes to promote neighbourliness and promote a good community can help resolve the other side of strata law that we are coming to talk about. This is your area and you receive a lot of enquiries; how many would you say are about strata disputes? TIP: We’re talking about, of course, disputes – between the strata scheme and one or more of its owners, as well as between owners themselves. |
| SS: 23:00 | Too many! Look strata law is interesting in the sense that there is a bit of transactional work and there’s a bit of advice work and there’s a bit of advocacy, so it sort of spans across…. |
| DT: | It does cover the whole way through… |
| SS:
| The whole way through, so it’s an interesting area as a lawyer because you are not stuck just doing transaction documents or only doing advocacy. But I’ve got to say the majority of the work that I get stems, sorry stems from disputes within strata schemes, that are normally disputes between a lot owner and an owner’s corporation. |
| DT: | Normally between an individual lot owner and the owner’s corporation as a whole. And what are the subjects of those disputes usually, between the lot owner and the owner’s corporation? |
| SS: 24:00
25:00
26:00 | Normally they’re based on something someone believes should have been done that hasn’t been done. So, a lot of them, I should explain that a bit better, centre around a lot owner believing an owner’s corporation has failed to repair and maintain common property, and their lot might be suffering some loss or damage such as water ingress as a result. That is a very common dispute and since the Strata Schemes Management Act changed a couple of years ago, at the end of 2017, that responsibility on an owner’s corporation to repair and maintain the common property has been a strict liability. TIP: Under s 106 of the Act, the owner’s corporation has a duty to maintain and repair property. S 106(5) allows a lot owner to recover any reasonably foreseeable loss as a result of any contravention of s 106 as damages for breach of statutory duty. And so now a lot owner can be entitled to damages, including loss of rent or damage to property for an owner’s corporation that fails to repair and maintain the common property. So that’s become a much bigger issue in terms of disputes because there’s a much clearer right of action. |
| DT: | And in your experience, are strata committees aware of the change to strict liability? |
| SS:
| Some are and some are belligerently ignorant of the change and don’t care. Some strata committees really do act like their own personal fiefdoms. I have had dispute matters where there’ve been orders for an owner’s corporation to do something and strata committee members have taken upon themselves to interpret those orders, in terms of limitations on what to do and we’ve had to go back and relitigate. |
| DT: | Wow, they really are a law unto themselves. |
| SS: 27:00 | A lot of people really think they are a law unto themselves. More strata committees are becoming aware of that strict liability issue. There’s often a disconnect between owners’ corporations wanting to keep their spending to a minimum and keep their levies to a minimum and the responsibility to repair and maintain the common property, and that’s where the disconnect comes in. |
| DT: | There’s a tension there isn’t there? |
| SS:
28:00
| There is a huge tension there because the committee doesn’t want everyone to be paying higher levies but at the same time you’ve got to keep the building in a good state of condition and repair, so again when the legislation changed at the end of 2017, something was developed, it was in place beforehand but more distinctively developed, called a ten year capital works fund plan. TIP: Section 80 of the Act requires the owner’s corporation to prepare a 10 year capital works fund plan. That is, a plan of all of the anticipated major expenditure to be met from the capital works fund within the next 10 years. Section 80(3) requires the plan to be reviewed every 5 years. That strata schemes have to do that have to be revised at least every 5 years and that’s what meant to show you as a strata scheme what you’ve got coming up in the future in terms of capital works, so that you can budget for it over a longer period of time so you don’t have to hit your owner’s corporation with a massive special levy to replace the roof. You can budget for it on part of this ten-year plan. So that’s a good thing provided that strata schemes actually get their ten-year capital works fund plan done and then stick to the levies that need to be raised to comply with that. |
| DT:
29:00 | You were talking at the beginning of the episode about how a dispute between lot owners in a strata scheme or between an individual lot owner and the strata corporation might be very different to a neighbourhood dispute between two owners of deposited plan property, for lack of a better term. How is that strata dispute resolved in a way that’s different to the other case? |
| SS:
30:00 | I think in the first case there’s certainty – there’s no uncertainty I should say as to what legislation applies or who’s rights are what – within a strata scheme there’s the Strata Schemes Management Act (SSMA) in NSW similar legislation around the country dictates who’s responsible for what. And that coupled with the Strata plan itself and any notations on the plan and the date that it was registered will if you get strata law advice give a clear answer on who’s responsible for certain things. Whether its external windows, whether its floor coverings that were there like tiles on a balcony when a strata plan is registered, whether its internal stairs. |
| DT: | So that can change? |
| SS: | That can change. |
| DT: | Wow I’d always thought that sort of stuff was common property? |
| SS: | Well it can change. |
| DT: | Yeah right. |
| SS:
31:00 | Depending on whether a lot owner changes something within their lot but also dependent on when the strata plan was registered. Before 1 July 1974 so the very early strata plans there were slightly different rules that applied as to what is lot property and what is common property and where you calculated the boundary of the property from. As well as that nowadays when strata plans, or since then, when strata plans are being drawn up there can be notations on the actual plan itself on the title that make a certain area lot owners’ responsibility or dictate a certain area as common property and then the third angle in addition to that, you can have by-laws that are registered that pass across responsibility, say a lot owner wants exclusive use of a courtyard at the back of their lot that no one else has access to anyway, they might get an exclusive use by-law so even though that area is technically the common property, they’ve got a dealing registered on the common property title that gives them exclusive rights to it. Along with those exclusive rights generally comes the responsibility to repair and maintain. |
| DT: | And when there is a dispute between strata scheme lot owners or the corporation, what’s the forum to resolve that dispute? Where do you go? |
| SS: | NCAT. |
| DT: | NCAT? |
| SS: 32:00
33:00 | You, most strata disputes you have to go mediation first, through fair trading, but again the legislation is really prescriptive. It tells you what type of disputes require prior mediation and what don’t. NCAT’s the first forum in the Consumer and Commercial division for strata disputes and the next level it goes to is the appeals panel of NCAT and then if not resolved onto the Supreme Court (of NSW). TIP: Part 12 of the Strata Schemes Management Act covers disputes and the powers of NCAT to resolve those disputes. Section 16 provides that an owner’s corporation may establish a voluntary process for resolving disputes between any one or more of the owners of the lots in the scheme, other interested persons, the owner’s corporation itself, the strata committee, the strata managing agent and the building manager. Section 218 of the Act provides for matters that may be subject to mediation under the Act and most matters under the Act are required to go to mediation first. Section 227(4) lists a number of matters which are not required to be mediated. Some of these include:
|
| DT: | When I was doing some research for this episode, I saw that most strata disputes resolve before they get to a formal tribunal. Is that your experience? Or do you find that it’s difficult to get lot owners and strata corporations to cooperate at a mediation? |
| SS:
34:00 | The difficulty with the Fair Trading mediation under the Strata Schemes Management Act (SSMA) is it’s confidential and it’s also non-binding unless you have it made into orders by NCAT and both parties consent to that and most people aren’t aware of that. So, quite often you have issues where people have mediated and come to a resolution, and then one party hasn’t stuck to whatever they were meant to do, and you have a client who comes along to you with a mediation agreement that’s been signed and this party hasn’t done what they were meant to do, but unless that had been made into NCAT orders, it’s confidential and non-binding. |
| DT: | That’s really surprising |
| SS: | Yeah, I know, there are little quirks like that in strata that you know you find that you need to know about these little minor aspects that can have a big effect. |
| DT: | In terms of strata disputes where you have to go to a Fair Trading mediation before you can take more formal steps, what are some examples of disputes where that step is necessary? |
| SS:
35:00 | So, most disputes under the SSMA will require mediation first. And that’s because a large amount of disputes are in relation to repair and maintenance of common property, or unauthorised works carried out by a lot owner for example, or just, there’s a general dispute resolution power under the Strata Schemes Management Act that NCAT has, so all of those general types of disputes have to have mediation prior. With the idea that you know you should be able to go some way to resolving it. But interestingly mediation as I said, is confidential, non-binding. It’s also not compulsory. I didn’t mention that before, so the party who applies for mediation, the other party can refuse mediation. |
| DT: | Oh, I see. |
| SS: | And then, it doesn’t reflect badly on any party to the proceedings, the matter then just skips straight to NCAT. |
| DT: | So, if the other party refuses to attend mediation you get a certificate confirming that you have made an attempt and then you… |
| SS: | And then you’re free to file your tribunal application. |
| DT: | I see. |
| SS:
36:00 | There are some matters that go straight to a tribunal application, without the need for mediation prior, and they’re expressly referenced in the Act, and they’re things like if you had to make an application for tribunal orders to inspect the records of the owner’s corporation because you weren’t being allowed to and you’ve got a right to as a lot owner. That’s an example. If you were making an application to change the unit entitlements in the strata scheme that doesn’t require prior mediation because it’s not really a dispute as such that’s going to be based more on valuation evidence from valuers as to whether the unit entitlements are right or wrong. |
| SS: | The main issue in strata that can lead to disputes is, and this is not very legalistic this is just a personal view, is from a lack of communication. |
| DT: | Yeah, do you have an example of when you’ve seen that? |
| SS:
37:00 | I had a client a while back who was wanting to put in air conditioning and the strata committee just kept saying no. There was no real communication and I mean this is just a tiny little thing, but she wanted to put in air conditioning she felt hardly done by, all these other lots in the strata scheme had air conditioning and she kept just getting this blanket no, no, no. So she was looking at bringing NCAT proceedings. She put up a resolution to a general meeting for a minor renovation which is what air conditioning is, got knocked back and so she was looking at taking proceedings, which would have cost her a ridiculous sum compared to the cost of the air conditioning. |
| DT: | Yeah, well, because you can’t recover your costs in NCAT either can you? |
| SS:
38:00
39:00 | Not really, it’s essentially a no costs jurisdiction. There is a section under the Civil and Administrative Tribunal Act, section 60 that allows you to claim costs in special circumstances but they have to really be where one party has just delayed or obstructed or not turned up or the opposing party’s case was baseless and without merit and even then it’s only a discretion. TIP: Some of those special circumstances include whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party, whether a party has been responsible for unreasonably prolonging the time it took to complete the proceedings, the relative strengths of the claims made by each of the parties including whether a party has made a claim that has no tenable basis, the nature and complexity of the proceedings and whether the proceedings were frivolous or vexatious. In this woman’s case with the air conditioning she was likely going to spend way in excess of the air conditioning on proceedings and we arranged a round table with the strata manager and two members of the strata committee that was totally on a without prejudice basis as a last ditch effort. It turned out it was really only a very little thing, that all of the other air conditioning that had been approved within the strata scheme was located within the air space of someone’s lot. |
| DT: | Right. |
| SS: | And she wanted to locate her condenser unit in a common property garden. |
| DT: | And that was it? |
| SS: | And the strata committee had an issue with that. Because of that. |
| DT: | And it didn’t say that? |
| SS: | But didn’t communicate it, so even then – everyone’s out of pocket for a few thousand dollars getting legal advice and having round table meetings when really it was just a simple matter of communication. |
| DT: | And so, as a solicitor advising either an owner or a committee is that your first port of call to be really frank and open about your position on a dispute before it goes anywhere? |
| SS: 40:00 | Absolutely, I don’t think, I mean everyone you know has to put on an adversarial hat at some stage and particularly in matters where it’s a deep seated long running dispute. You know and I’ve got one of those at the moment that’s a dispute that’s been running for four years plus and it’s concerning a lot of money and the relationship between the lot owners and the owner’s corporation has broken down to such an extent probably as a by-product of the legal proceedings over the last few years, that there would be no utility in communicating and putting your argument on the table. That is a rare exception in strata. In most cases, because you’re dealing with quite proscriptive management legislation and everyone’s responsibilities and obligations can be quite clearly determined, there shouldn’t be the type of issue that arises that wouldn’t warrant you being open in your communications and what you’re seeking from the other side. |
| DT: 41:00 | I suppose you’ve also got a big incentive to be collaborative when you’re dealing with these disputes. Because when it’s all said and done you have to live with the person next door. |
| SS:
42:00 | Exactly, exactly and that’s something we say to clients repeatedly. You’re going to have to keep living here or owning here and dealing with these other people, you know, they’re your neighbours, they’re your co-owners in the common property, so it’s in everyone’s best interests to find a way to resolve it. Some owner’s corporations, not all of them, not even the majority of them, but a few of them tend to not take that open and communicative response. Strata committees can sometimes ignore lot owner’s requests to communicate and discuss and wait for individual owners to bring action against them. And that’s because the likelihood of it costing the owner’s corporation anything is slim. Most people don’t realise that nearly all strata schemes have within their insurance policy that covers their building and workers’ compensation and public liability, they also have something called legal defence costs insurance. And that is an insurance policy for the owner’s corporation if a lot owner or someone external brings an action against them. So, it’s something to keep in mind for disputes for individual lot owners that if they’re going to run proceedings against an owner’s corporation it’s likely that their owner’s corporation will have legal defence costs insurance and they’ll pay a five hundred or thousand dollar excess and have fifty thousand dollars or more worth of legal costs available to them to defend it. And you know anyone who’s done any type of litigation work would know how and what an advantage that is to the party with deeper pockets. |
| DT: 43:00
| Absolutely, if you are a lot owner and you’re struggling to get what you think is your entitlement or what you need from a strata committee without going down that formal approach, what can you do to work with a strata committee to resolve that dispute? |
| SS:
44:00 | I would suggest first establishing that you are entitled to what you think you’re entitled to. So many disputes arise out of an incorrect presumption about what one party’s responsibilities are. So, for lot owners I would say the first thing would be to check and get some advice on whether what you’re agitating for a certain party to do or for the owner’s corporation to do is within your rights to do so. And it’s part of the owner’s corporation obligations to do this thing. Then I would always suggest going through your strata manager or a member of the committee and seeking some sort of non-formal way to mediate and potentially resolve the dispute before it becomes a dispute. It’s amazing in strata matters where I’ve gone to mediations how much is cleared up virtually by one party explaining their position and the other party explaining their position and then maybe a lawyer who’s involved to say, well this is the way the law stands, this is your responsibility and this is yours. |
| DT: | Yeah, it’s extraordinary how much it just isn’t said before that rather expensive point is reached. |
| SS:
45:00
46:00 | Yeah, it’s pretty basic when it comes down to it. So, there is a provision under the SSMA for a strata scheme that is dysfunctional in the manner to have a compulsory managing agent appointed – that’s section 237. The compulsory managing agent – and it’s quite a common application in disputes for lot owners in a strata scheme who think that their strata committee is not operating properly, the scheme is dysfunctional, there is someone vesting too much control, to make an application for a compulsory manager to be appointed and it’s a bit like I would imagine you know having a receiver or administrator appointed. If appointed, the compulsory strata manager steps into the shoes of the whole owner’s corporation for a period of 12 to 18 months and they can do everything. TIP: But for really serious management issues, lot owners can make an application that control of the strata scheme can be taken out of the hands of the strata committee altogether, by the appointment of a compulsory strata manager under section 237 of the Act. A compulsory strata manager appointed by tribunal order can have all the functions of the owner’s corporation or can be granted specific functions to rectify specific dysfunctions. |
| DT: | And how do they resolve the dysfunction? Because I imagine the dysfunctional committee that was appointed was appointed by a majority of the unit entitlement, and unless the unit entitlement changes that voting dynamic is going to be there at the end as well. |
| SS: | Well the strata committee is appointed just by general nomination and vote at the AGM each year and some decisions are made by the committee and some by the strata manager, by delegated authority, some by the owners. A dysfunctional strata scheme has to be, has to meet a relatively high bar. NCAT love calling it a draconian measure to impose and you see that in all the decisions. And it is expressed under the Act under section 237 examples of dysfunction. |
| DT: | Right. |
| SS: 47:00 | So, a failure of the finances, a failure to insure, a failure to comply with an order that’s made under the Act for the owner’s corporation to comply, they’re all elements of or examples of dysfunction. |
| DT: | Sam if one of our listeners were to have a client walk in the door tomorrow with a strata law dispute what would be your one tip to that listener? |
| SS:
48:00
| To get some advice on the specifics of strata law and specifically in relation to their strata scheme. Because I don’t think a lot of people are aware that rights and obligations can differ from scheme to scheme. So, that would be the first thing. And if it’s not your area of specialty go to someone who is, they can give you the answer quickly and cheaper than it’s going to be for you to. We all know this in practice you know, we have our areas of expertise, and it’s great to go to practitioners in other areas with questions. And normally, the questions can be answered pretty quickly or easily. So, I’d say that would be the first thing to establish. And the second thing to establish with a client is that if they want to go in all guns blazing and run a dispute, even if they’re successful they’re likely going to have to wear their own costs. And a reminder last of all that even if they are successful or if they’re not, they’re going to have to keep living, or working or owning with all of these other owners. And so that has to be weighed up. |
| DT: | There’s a lot of incentives to be neighbourly when it comes to strata disputes. |
| SS:
49:00 | There are indeed. And you know, some owners who are neighbourly and who get along can reap big benefits. I’ve done quite a few collective sales recently and that’s a really interesting landscape where lot owners in a strata scheme group together and enter into options to sell all their lots to a developer and they can really get excellent prices, you know, we’re talking sort of two thirds above what the suburb average is for a unit in that suburb. But it requires trust and cooperation. |
| DT: | Or you’d never achieve that without the cooperation between everyone, right? |
| SS: | That’s right, but that’s the other advantage of people being neighbourly you can sometimes have an event like this and generally it won’t be the owners who start it, it would be a developer who approaches them. And if you have got that neighbourly basis and a good relationship with each other, you can then see a way forward to entering into an agreement like that that can be quite lucrative. |
| DT: | Yeah it sounds like that kind of active community not only helps with resolving disputes but also with maximising the commercial return on owning a property in a strata scheme. |
| SS: | Yeah it does both. |
| DT: | Sam, thanks so much for joining us on hearsay. |
| SS: 50:00 | Thank you, thanks David. |
| DT: | You’ve been listening to Hearsay The Legal Podcast. I’d like to thank our guest Samantha Saw from Speirs Ryan for coming on the show. If you liked this substantive law episode about strata law, try out our episode about estate planning with Simon Bennett from Southern Waters Legal. Or for something different, listen to my interview with Dr George Beaton about economics for lawyers for a practice management and business skills point. Now if you’re an Australian legal practitioner, you can claim 1 continuing professional development point for listening to this episode. Whether an activity entitles you to claim a CPD unit is self-assessed, but we suggest that this episode constitutes an activity in the substantive law field. If you’ve claimed 5 CPD points for audio content already this CPD year, you may need to access our multimedia content to claim further points from listening to Hearsay. Visit htlp.com.au for more information on claiming and tracking your points on our platform. The Hearsay team is Tim Edmeades who produced this episode, Kirti Kumar who researched it, Araceli Robledo who manages our marketing, and me, David Turner, your interviewer. Hearsay is the brainchild by Nicola Cosgrove and Chris Cruikshank co-founders of Assured Legal Solutions – making complex simple. You can find all of our episode summaries, transcripts, quizzes and more at htlp.com.au. Thanks for listening and we’ll see you next time. |
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