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New Strata Laws

Wednesday, 25th November 2015

New strata laws: what they could mean for you

The New South Wales government’s much heralded changes to the Strata Titles Act – the first significant overhaul since 1973 – are now a reality.

They took four years of planning and four Fair Trading ministers to reach parliament and will hopefully transform the development and management of the state’s strata schemes for the better.

According to the Department of Fair Trading, there are around 75,000 strata schemes in NSW representing $350 billion in assets. Approximately 2 million industry professionals, strata owners and residents in strata-titled townhouses and units have the potential to be affected by the changes to the current laws.

For Managing Agents, the new legislation will have a significant impact as it will put more pressure on them to perform and deliver a higher level of customer service when the legislation comes into effect (anticipated to be on 1 July 2016.) Historically managing agents have been on rolling contracts; some have been engaged with buildings for up to15 years.

The Department of Fair Trading responded to complaints from owners who consistently raised concerns about the difficulty of dismissing Managing Agents despite poor performance. The Strata Schemes Management Bill will limit the length of the appointment of a managing agent to 1 year for the first year and 3 years thereafter.

Now the contract with the Managing Agent must also be included in the meeting agenda of the Executive Committee once a year, and the Committee is required to assess the performance of the Agent. It is likely that as part of the process of considering the reappointment, Committees will put the contract out to tender. While price is clearly a factor, the trend we are seeing is the demand for a high level of customer service.

There is also potential for new players in the industry to win increased market share.

The recent industry consolidation of Managing Agents groups has seen the emergence of new, boutique players who are focused on customer service. The requirement for contracts to be reviewed annually will be a positive for these new entrants who are likely to be given the opportunity to pitch for strata management contracts which have been held for extended periods.

Included in the customer service requirements will be the need for expertise in sustainability. Strata-titled properties have been the ‘forgotten sector’ when it came to government programs and incentives but that is changing and owners and residents are demanding and getting more. They want to know about the state or local council programs that can provide energy auditing services, funding, rebates or other support.

We are seeing increasing number of Executive Committees expecting their Strata Managers to advise on “Green Strata” initiatives to reduce the use of electricity within their building and deliver a more sustainable footprint. This has the potential to be a factor in the awarding of contracts in the future.

There will also be more stringent standards of accountability for managing agents and they will be required to disclose all third party commissions. Historically Managing Agents have benefitted from the commissions received on the roll over of insurance policies, which have not had to be declared to an Owners Corporation.

Managing Agents are now likely to have to put insurance policies to tender, which could impact their commissions.

Nominal gifts and benefits, as well as, any links to the developer of the strata scheme will also have to be declared.

Strata Managers will be required to reform procedures around meetings, to modernise the management of strata schemes, introducing new ways to vote at meetings. Documents can be emailed, instead of being sent by physical delivery.

The Owners' Corporation may choose electronic means to conduct General Meetings, which could be via social media, video or teleconference. It is expected that the voter turnout in the General Meetings will improve and the need for proxy votes reduced. The practice of collecting proxy votes from passive owners to improve the position of a party may not be as effective as in the past.

The legislation also introduces flexible quorum arrangements. If no quorum is established, the chairperson will be able to declare that the people present constitute a quorum.

Under the reforms tabled in parliament developers will have to compensate owners if they have deliberately misled purchasers over levy estimates.

To help offset the costs of repairing defects as well as to ensure the burden of rectification is not unfairly imposed on new owners, the proposed reforms will see developers lodging a security bond equal to two per cent of the contract price of the building works.

If it is not paid out, the bond will be refunded no later than two years after the completion of building work or within 60 days of the final inspection report – whichever occurs first.

Measures have been introduced to prevent building defects going unnoticed until after statutory warranty periods are over. These include requiring developers or the strata scheme to arrange for building inspections between 12 to 18 months after completion of works.

The appointment of the inspector must be approved by the Owners Corporation who can refuse to approve the appointment on any grounds. There has to be complete transparency around the appointment of inspector to prove he has no connection with the developer. The developer is also responsible for all costs of obtaining an inspection and report.

As well building defects and rectification works must be included on the agenda for every general meeting of the Owners Corporation during the warranty period.

By Matthew Wrigley - Managing Director Perpetual Strata

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