States play catch-up with strata law proposals

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Anyone keeping even just half an eye on events in StrataLand for the past week or so would be forgiven for thinking our state bodies – Better Regulation in NSW and Consumer Affairs in Victoria – were playing “anything you can do I can do better”.

Just days before Victoria’s new strata laws came into effect on December 1, NSW released its proposed changes to its own strata laws based on its five-yearly review.

And, to be fair, if NSW’s policy wonks were looking to top their counterparts’ efforts in Melbourne, they’ve had almost a year to crib over their shoulders.

So when Victoria announces that proxy votes will be limited to one per 20 lots in a scheme for each holder, NSW – which already has that anti-proxy farming regulation – declared its plans to include powers of attorney and company nominees in the totals too.

Companies and individuals have been using PoAs and nominees to by-pass the proxy limits and exercise more control over their strata schemes than they should enjoy.

Victoria also announced a raft of regulations and restrictions for strata managers and NSW says “been there, done that” and signals a plan to do the same for building facilities managers.

There is one significant difference, however, in this game of strata tit for tat; the Victorian changes are already law, the NSW changes are just proposals.

There are 139 propositions in total in the NSW review (details in this story) but don’t expect them all to land with a thud on your strata managers’ desks any time soon.

As we discuss in this week’s Flat Chat Wrap podcast, some of them are basically plans, ideas and intentions, many of which, admittedly, will require little more than a few fact sheets and some funding – they certainly won’t need legislative change.

But there are others which which will require new laws to be written debated and approved by parliament, if for no other reason that because there are existing laws in place that would have to be changed.

The proposal to make the removal of committee members possible by a simple majority rather than a special resolution, springs to mind. Changing the notice required for general meetings from seven day to 14 is another.   

But these are all, to some extent, speculative and theoretical. The Victorian laws are real and in effect right now.

So we have extracted the main points from Consumer Affairs Victoria’s own fact sheets for reproduction here.

We have covered the sections of Owners Corporation (aka strata) Managers and developers separately in this story, for reasons that are alarmingly obvious when you read it.

As for the rest, here are the CAV notes unedited and without comment.  You can decide for yourself whether this is trail-blazing legislation or merely tail-gating NSW laws … or vice versa.

Victoria’s new strata laws

Changes to the governance of owners corporations (OCs)

Water rights

Any water on the common property (excluding a waterway or bore) is considered part of the common property and may be collected and used by the OC.

Common property

A lot owner must not repair, alter or maintain the common property, or a service in or relating to a lot that is for the benefit of more than one lot.

This does not apply if a lot owner has been expressly authorised by the OC to carry out the repairs and maintenance as an agent of the owners corporation.

Membership size of committees

A committee of an OC must have between three and seven members, although it can resolve by ordinary resolution to have  between seven and 12 members.

The chairperson or secretary must give notice in writing of the ballot to each member of the committee. Notices can be given electronically.

Expanding the duties of members of committees and sub-committees

A member of a committee or sub-committee must act honestly and in good faith, exercise due care and diligence and act in the interests of the OC. They must not make improper use of their position to gain an advantage (directly or indirectly) for themselves or any other person.

Supporting an OC’s duty to repair and maintain common property

An OC may authorise someone to enter a lot or building on a lot to carry out repairs, maintenance or other works. VCAT can make an order requiring a lot occupier to grant entry to the common property to someone authorised by an OC to carry out those works.

Disposal of abandoned goods on common property

An OC may dispose of goods abandoned on the common property.

A notice of the OC’s intention must be in writing and include:

  • the plan number and address of the OC
  • a description of the goods
  • an address where the goods may be collected
  • a statement stating when the goods will be disposed of unless they are collected, and
  • a statement that the OC will retain funds from the sale of disposed items to cover its costs.

The OC can notify the owner of the goods, if known, of its intention to dispose of them, in person, by leaving notice at the premises, or by post to the person’s last known address.

Before disposing of the goods, an OC may move them to a safe place if they block reasonable access to a lot or the common property, and it has made a reasonable attempt to alert the person who abandoned the goods of its intention to dispose of them.

An OC must not dispose of the goods if the owner and the OC are in dispute over them, and the OC has made an application to VCAT in relation to the dispute.

An OC that disposes of abandoned goods is not liable for them.

Availability of records

If someone who is entitled to inspect records asks to see them, the OC must provide a copy, for a reasonable fee.

Availability of register

A lot owner must not authorise a representative (such as a commercial agent) to request a copy of the register (or any part of it) for a commercial purpose, without prior consent from the OC.

Power to commence legal proceedings

There are changes to an OC’s ability to initiate legal actions by applying different voting thresholds for actions in different courts. If a matter is within the civil jurisdictional limit of the Magistrates’ Court, an OC only requires an ordinary resolution to commence legal proceedings.

Changes to decision-making in owners corporations

Improving decision-making in OCs (in particular inactive OCs)

If a matter voted on at a general meeting requires a special resolution, but does meet those requirements, it is taken to be passed as an interim special resolution, if there is a quorum and there are no votes against the matter.

An OC manager may pass an interim resolution at a general meeting if no lot owner is present (whether in person or by proxy).

The manager must not pass an interim resolution that:

  • affects their contract of appointment
  • involves an amount greater than 10 per cent of the OC’s annual budget for the current or previous year.

An OC may, by ordinary resolution, exclude or alter the power of the manager to make an interim resolution.

New voting clarifications and ‘proxy farming’ restrictions

Any votes cast in a ballot must be based on one vote for each lot for ordinary resolutions and one vote for each unit of lot entitlement for special and unanimous resolutions.

Voting can take place by a show of hands, a prescribed manner or as otherwise resolved at the meeting. However, if a lot owner requires that a poll be taken before or after the vote is taken for an ordinary resolution, then the vote is based on one vote for each unit of lot entitlement.  This does not apply to special or unanimous resolutions.

An ordinary resolution is passed if a simple majority of votes cast at the meeting are in favour of the resolution. If there is a deadlock, a Chairperson who is a lot owner or authorised to vote on behalf of a lot owner as a proxy, has a casting vote. The vote will be deemed not to have passed if the Chairperson does not exercise that right.

There is also a new restriction on proxy voting. A person must not vote as a proxy on a resolution at a meeting on behalf of more than one lot owner if there are 20 or less occupiable lots; or on behalf of more than 5 per cent of the lot owners if there are more than 20 occupiable lots.

These restrictions do not apply if the lot owners for whom the person is authorised to vote are members of the person’s family, or if other exceptions prescribed in the OC Regulations 2018 apply.

Changes to the financial administration of OCs

Reduce insurance and other inequities between lot owners

OCs may separately levy lot owners for:

  • an excess amount, or increased premium, resulting from or attributable to an insurance claim (if the claim was caused by a culpable or wilful act or negligence of a lot owner, a lessee, or their guest)
  • damage caused to the common property by a lot owner or lessee, if:
    • it is not covered by insurance
    • the cost is less than the excess amount, if the claim solely relates to an owner’s lot.

Fees levied must be based on lot entitlement. The OC may determine the times for payment.

VCAT will be able, on application, to make an order requiring a lot owner to pay the OC’s reasonable costs for recovering an unpaid amount from the lot owner (pre-litigation costs).

Changes to an owners corporation’s ability to make rules

Owners corporations (OCs) will have new powers to make rules on the following matters.

If an OC does not make a rule covering these new items, then the model rule contained in Schedule 2 of the OC Regulations 2018 will apply. The model rules will be updated to reflect these new powers.

1.  Smoke drift

OCs will be able to develop a model rule that regulates or prohibits the drifting of tobacco smoke from a lot to the common property, or any other lot in multi-level buildings.

2.  Fire safety advice

OCs will be able to develop a model rule that requires advice to be given to occupiers about fire safety advice and emergency preparedness plans. For example, if a lot is occupied by renters, it would be the lot owner’s responsibility to inform the lot occupiers of fire safety procedures. 

3.  Payment of fees

OCs will be able to make rules about lot owners paying fees by instalments if they are in financial difficulty.

4.  Sustainability Items

OCs may make rules about renovations or alterations affecting the external appearance of a lot, to:

  • protect the quiet enjoyment of all other lots and the common property during those works
  • protect the structural integrity of any building on the plan of subdivision from those works
  • ensure the market value of any other lot does not decrease as a result of those works.

However, an OC must not make rules that unreasonably prohibit the installation of sustainability items on the exterior of a lot. A sustainability item is anything that eliminates or reduces reliance on non-sustainable energy sources. It includes solar hot water systems, solar energy panels and a roof with colours providing a particular solar absorption value.

Other changes relating to OC rules

Lot occupiers must ensure guests comply with OC rules

If a guest of the lot occupier breaches the rules, both the occupier of the lot and the guest are jointly and severally liable for any penalty or compensation payable as a result.

The lot occupier is not liable for a guest’s breach if they provide the guest with a copy of the OC rules.

Increase in penalty for breaches of rules

If VCAT determines that a person has failed to comply with an OC rule that imposes an obligation that is binding on the person, VCAT may make an order imposing a civil penalty not exceeding $1,100 to be paid to the OC.

Rules are of no effect if inconsistent with law

Rules are to be of no effect if the rule is oppressive to, unfairly prejudicial to or unfairly discriminates against, a lot owner or an occupier of a lot.

New five-tier system for owners corporations

The concept of a prescribed owners corporation (OC) – that is, one that levies fees of more than $200,000 in a financial year, or consists of more than 100 lots – is being replaced with a new tiered OC system.

Under the new tiered system, larger OCs will be subject to more stringent regulations than smaller OCs.

What are the five tiers?

TierDefinition
1More than 100 occupiable lots (and not a services only OC)
251 to 100 occupiable lots (and not a services only OC)
310 to 50 occupiable lots (and not a services only OC)
43 to 9 occupiable lots (and not a services only OC)
52 lot subdivision or a services only OC

How will the tier system work?

The tiered system will establish different requirements for committees, financial reporting and maintenances plans, depending on the size and nature of the OC.

Committees

Tier 1, 2 and 3 OCs must elect a committee at the annual general meeting. Tier 4 and 5 owners corporations may choose to elect a committee.

OC committees must have at least three but not more than seven members, unless the OC resolves to increase the committee to a maximum of 12 members, through an ordinary resolution.

Members of committees and sub-committees also have new duties to:

  • act honestly and in good faith
  • exercise due care and diligence
  • act in the interests of the owners corporation when performing their function
  • not make improper use of their position to gain a direct or indirect advantage for themselves or anyone else.

OC manager

Tier 1 OCs must appoint a manager, unless it opts out by special resolution.

Tier 2, 3, 4 and 5 OCs may choose to have a manager, but it is not compulsory.

Financial statements

Tier 1, 2 and 3 OCs must prepare annual financial statements in accordance with the Australian Accounting Standards, and present them at its annual general meeting.

Tier 4 OCs must prepare annual financial statements for any financial year in which it levies annual fees.

Annual financial statements prepared under this section may be either general purpose financial reports or special purpose financial reports as defined by the Australian Accounting Standards Board.

Audits of financial statements

At the end of each financial year:

  • tier 1 OCs must have their financial statements audited by a registered or authorised auditor, or an accredited accountant.
  • tier 2 OCs must have their financial statements reviewed by an independent person who is a member of CPA Australia, the Institute of Public Accountants or Chartered Accountants Australia and New Zealand.

Tier 3, 4 and 5 OCs may choose to have their financial statements audited by either method.

A written report of the audit or review must be provided to the OC. A review or audit cannot be conducted by someone with a direct or indirect personal or financial interest in the OC.

Maintenance plans and funds

Tier 1 and tier 2 OCs must now prepare and approve a maintenance plan.

Tier 1 OCs will have 12 months after the commencement of the Act to prepare and approve a plan, while tier 2 OCs will have 24 months.

Tier 3,4 and 5 OCs may choose to prepare and approve a maintenance plan, but it’s not compulsory.

Maintenance plans can be amended by the OC by an ordinary resolution.

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