The state’s major overhaul of the strata laws will finally commence on 30 November 2016 with the introduction of the Strata Schemes Management Act 2015 (the Act), the Strata Schemes Management Regulation 2016 (the Regulations), and the Strata Schemes Development Act 2015 (Development Act).
The new provisions aim to address the common issues that have plagued our strata system since its last major reform in 1973. It is expected to address the growing needs of 21st century strata living and modernise the regulations impacting on renovations, decisions on collective sale and renewal of strata schemes and increasing protections against unresolved building defects.
Strata Managers and each owners corporation will be expected to implement the new changes on commencement of the relevant provisions. McCabes will be presenting a seminar on these changes on Thursday, 27 October 2016 – register your interest here.
The 5 key changes are as follows:
Strata Renewal (Part 10 of the Development Act)
Previously, a strata scheme could only be terminated by the Supreme Court or by an application to the Registrar General, which required the consent of each owner, tenant and registered mortgagee.
Obtaining a unanimous resolution of the owners corporation, and signatures of each tenant and registered mortgagee was a difficult process, particularly in circumstances where competing individual interests almost ensured that a termination of the scheme would never eventuate, even to the advantage of the owners.
Owners no longer require unanimous support to end a strata scheme for the building to be sold or redeveloped.
Under the Development Act, only 75% of the votes by the owners in favour of the collective sale is required to effect the form of compulsory acquisition. The new provisions require all owners to receive compensation based on just terms to cover the market value of their lot including losses caused by the disturbance (as set out in the Land Acquisition (Just Terms) Compensation Act 1991).
The Development Act requires strict compliance, transparency, and consideration for dissenting, elderly and vulnerable owners and will always require the final approval by the Land and Environment Court.
It is expected that the new provisions will encourage and stimulate new strata housing developments.
Cosmetic / Minor Changes (sections 109, 110 and 111 of the Act)
To address the unnecessary red tape of pre-approvals and meetings in order to carry out minor renovations and cosmetic changes to their lots, the new provisions under sections 109, 110 and 111 of the Act aim to simplify the process by adopting a common-sense approach. The following 3 tiered regime will now apply:
- Tier 1: Lot owners do not require approval of the owners corporation for “cosmetic work”, including but not limited to, installing or replacing hooks, nails or screws for hanging paintings, painting, laying carpet, installing or replacing built-in-robes and internal blinds and curtains.
- Tier 2: Lot owners require approval of the owners corporation by ordinary resolution (50% of votes) at a general meeting for “minor renovations”, including but not limited to kitchen renovations, installing or replacing wood or other hardwood floors, wiring, cabling or power or access points, and work involving reconfiguring walls.
- Tier 3: Lot owners require approval of the owners corporation by special resolution (75% of votes) or as authorised by the by-laws for any other works that are anything other than “cosmetic works” or “minor renovations” such as structural changes, waterproofing and plumbing works or works that change the external appearance of a lot.
Registration of By-Laws – Time Limits (section 141 of the Act)
Previously an amendment, repeal, or new by-law had no effect unless the relevant by-law was registered within 2 years after the resolution was passed. This time limit is now reduced to 6 months.
The shorter timeframe aims to ensure that the owners corporation (or the strata manager) act quickly in registering the by-law so that proposed purchasers are not caught out unaware of old unregistered by-laws.
Strata managers should also act promptly to do everything reasonably necessary to register an approved by-law within the prescribed time to avoid any possible claim against the strata manager that may arise where the by-law is not registered within that time.
Tenant Participation (Schedule 1, clause 21 and section 33 of the Act)
Tenant participation in meetings is a major step in dealing with the realities of strata living.
While a tenant is now entitled to attend an owners corporation meeting, they have no right to vote unless they are the holder of a duly appointed proxy (in the form required by the Regulations). A tenant is not entitled to address a meeting unless authorised to do so by a special resolution of the owners corporation (being 75% of the votes).
Any tenant (other than a tenant with a proxy) may be excluded from a meeting when financial matters are discussed or determined.
If at least 50% of the lots in a strata scheme are tenanted, a tenant representative may be appointed to the strata committee (previously known as the executive committee). The tenant representative is not entitled to vote on decisions of the committee or to put a motion or nominate a person for office, and cannot be counted for the purposes of determining a quorum of the committee.
Despite the changes, tenants will still be excluded from major decisions concerning the strata scheme.
Building Bond for Defects (Part 11, Division 3 of the Act)
To ensure that developers are held accountable for their building work, the developer must give the Secretary of the Department of Finance, Services and Innovation a “Building Bond” (2% of the contract price for the building work) to secure funding for the payment of the costs of rectifying defective building work identified in a final report, before an occupation certificate can be issued.
The Building Bond only applies to the construction of strata buildings over 3 storeys high (any less requires the usual insurance under the Home Building Compensation Fund).
The new mechanism for a Building Bond requires the developer and the owners corporation to agree on the appointment of a building inspector to provide an interim report (after completion of the work) identifying any defective building work and its cause.
The developer must then (at its cost) arrange a final report not earlier than 21 months and not later than 2 years after completion of the building work.
If the defective building work is not rectified, the owners corporation can use the Building Bond to meet the costs of rectifying defective building work identified in the final report.
The new building defect bond scheme is not due to commence until 1 July 2017 to allow strata buildings to be inspected for defects against the new Australian Standards and the necessity for key industry and stakeholders to adequately prepare for the mandatory changes.
While the new provisions dealing with defective building work may be burdensome on some developers, the changes aim to increase accountability, enable defects to be identified and rectified early, reduce disputes and costs, and prolong the life of the building.
The long overdue reforms are set to revolutionise modern day strata living, but only through the passage of time will we see its true benefits.