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  • #66228
    CountryBumpkin
    Flatchatter

      We’re Lot owners in Stage 2 of a 7 stage development in regional NSW – so far four individual units (Stages 1 and 2) have been completed, strata sub-divided and occupied out of a total of 12 units to be built.

      I have a couple of questions. Firstly, I’m interested in [an earlier comment] “Until the owner has sold more than 50 percent of the units, the voting power of their unit entitlement is reduced to one third of the actual figure.” – which legislation specifies this, and exactly where can I find it in that legislation?

      Secondly, the developer has put in the Strata Development Contract (Form 8) that undeveloped lots (presumably aka Developments Lots) don’t have to contribute to Owners’ Corporation (OC) expenses, so they aren’t being billed for OC levies. However, despite apparently being exempt from levies, they still exercise a vote in proportion to the undeveloped lots’ unit entitlements (UE) (362/1000) which when combined with the fact that their son owns one of the four completed Lots with a unit entitlement of 297 means they have a majority of UE’s and therefore enough to give them a majority vote on the OC and (surprise, surprise) fill the Strata Committee positions of Chair and Secretary. So, if you’re the developer and don’t financially contribute to the OC, do you still get to vote and/or fill Executive positions?

      The anomalies (and questions) roll on – if you do the maths on the UEs, you’ll probably twig that they are way out of proportion. However, I’ll leave questions around this to another post, as I’m aware of the remedies available (albeit at significant cost) through NCAT.

      • This topic was modified 1 year, 3 months ago by .
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    • #66231
      Jimmy-T
      Keymaster

        I have a couple of questions. Firstly, I’m interested in your comment above “Until the owner has sold more than 50 percent of the units, the voting power of their unit entitlement is reduced to one third of the actual figure.” – which legislation specifies this, and exactly where can I find it in that legislation?

        Strata Schemes Management Act 2015 No 50 – NSW Legislation

        Schedule 1, Part 3
        14   Decisions at meetings

        (1) Simple majority vote to generally apply

        A motion put to a meeting, or an election of officers of the owners corporation or members of the strata committee, is to be decided according to a majority in number of the votes cast for and against the motion with each person having one vote for each lot in respect of which the person is entitled to vote.

        (2) Vote of original owner who owns more than half of lots to be reduced

        For the purposes of determining an election for officers of the owners corporation or members of the strata committee or appointing a strata managing agent (other than in the case of a poll), if the total unit entitlement of lots of the original owner is not less than half of the aggregate unit entitlement, the value of the vote in respect of the lots held by the original owner is taken to be reduced by two-thirds (ignoring any fraction).

        (3) Value of votes to apply for poll

        If a poll is demanded by a person present and entitled to vote on a motion or for the election of officers of the owners corporation or members of the strata committee at the meeting, the motion is to be decided according to the value of the votes cast for and against the motion and the value of a vote cast by a person entitled to vote in respect of a lot is equal to the unit entitlement of that lot. However, the value of the vote of an original owner is to be calculated in the same way as for a special resolution.

        The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
        • This reply was modified 1 year, 3 months ago by .
        #66232
        CountryBumpkin
        Flatchatter
        Chat-starter

          Hi Jimmy,

          I’ve answered the first part of my post re the legislation that says “Until the owner has sold more than 50 percent of the units, the voting power of their unit entitlement is reduced to one third of the actual figure.” I found it in Schedule 1, Part 3 (14.2) of the Act.

          Which leaves my more important question – can a developer vote using their Development Lot unit entitlements even if they have exempted themselves from paying any Strata Contributions through a clause in the Strata Development Contract?

          #66240
          Jimmy-T
          Keymaster

            This from our friends at Bannermans Lawyers:

            The legislation allows for the variation of liability for common property expenses under section 78 of the Strata Schemes Development Act 2015.

            It does not however provide for any variation in voting rights. Therefore voting is calculated in the usual manner, including the developers lot and unit entitlement. The usual restrictions on voting by the developer apply.

            Your biggest problem may be that your developer has someone working for them who knows every sneaky twist and turn in the legislation. However, that conveniently massaged Unit Entitlements figure could come back to bite them on the bum when they come to sell the unit – provided any prospective purchaser knows about it.

            As for costs at NCAT, if they lose the owners corp must raise a special levy for costs of actions taken or defending their position, which excludes the person they have defended or taken the action against.  Make sure your other owners have signed up for the case so they can be excluded too.  Also, if they have chosen to defend a case when they know they have no chance of winning, or have obstructed the case in any way, they can have costs awarded against them.

            Make sure they are aware of this before they get to NCAT – perhaps during the mediation process.

            The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
            #66331
            CountryBumpkin
            Flatchatter
            Chat-starter

              Thanks Jimmy (and Bannermans).

              As I hinted at in my original post, there have been other shenanigans regarding unit entitlements, no doubt following advice from the developers’ legal experts (who happen to include their daughter, a conveyancer).

              The story goes like this (and remember, it’s a staged development, with total unit entitlements (UEs) of 1000 across 13 eventual dwellings):

              On completion of Stage 1, consisting of 2 dwellings (Unit 1 which is owned by the developers’ sons and Unit 2 owned by to an unrelated young couple), the Strata was registered, with Unit 1 allocated 297 UEs and Unit 2 allocated 282 UEs and the remainder of the UEs (421/1000) allocated to the undeveloped Lots (owned by the developers). This apportionment of UEs was of course in accord with a valuation done at the time by a registered valuer as required by the Strata Schemes Development Act.

              This allocation of UEs for Stage 1 had two important consequences – it triggered the need to hold the first AGM (under clause 14 of the Strata Schemes Management Act) and it also meant that as the developer had now sold more that 50% of the UEs their vote now counted in full, so when combined with their sons’ votes they had a total of 718 UEs. While not quite enough to force through Special Resolutions, it was certainly a sizeable majority.

              At the first AGM, presumably in anticipation of the imminent creation of the next two Lots (Units 3 & 4) following the subdivision of the development lot forming Stage 2 of the development, the developers proposed and passed a resolution to create a By-law which purported to re-allocate UEs based on a new valuation of “estimated” UEs once the development was fully completed. This sought to dramatically alter the UEs so that Unit 1 had its UEs reduced from 297 to 89, Unit 2 reduced from 282 to 80, and the soon-to-be-created Units 3 and 4 would see an increase in their UEs from 30 and 29 respectively to 80 each. The remnant undeveloped Lots would now have UEs totalling 671/1000. This By-law was then duly registered with the Registrar General by the Strata Manager (who, by the way, is an Associate Director with a Strata Management company in Sydney with a significant portfolio of properties in urban and regional NSW).

              A truly cunning plan – this re-allocation would give the developers (and their sons) a total of 760 units out of 1000, so enough to pass Special Resolutions and also block anything that the owners of Units 2, 3 and 4 might propose that the developers didn’t like. Coupled with the fact (see my original post) that the developers had excused themselves of having to pay any strata levies on undeveloped Lots, this meant that the developers and their family now only paid around 25% of total levies collected while obtaining total control.

              Only problem with this plan was that I came on the scene shortly after the AGM as the purchaser of Unit 3, and became concerned when I noticed that my first levy notice was based on 80 UEs and not the 30 UEs shown on my Certificate of Title at the time of purchase. I questioned the Strata Manager about the discrepancy, who initially responded by sending me a copy of the new By-law and saying “At the general meeting (the) bylaw (was) approved….to do with the entitlements adjustments. The bylaw is needed due to Land titles being unable to register the new entitlements until the whole of the site is complete and the final subdivision has occurred….Once the full subdivision is completed then the entitlements will be updated on the title.”

              I’ve been around Strata (as an owner and Committee Member in another building) long enough to be suspicious of this answer, and further research all but confirmed that it was highly unlikely that a By-law could change UEs even on an interim basis. I therefore asked the Strata Manager to provide me with authoritative legal advice to support his assertion. After a few days he forwarded me a letter on the letterhead of a Law firm that alleged that all was above-board and that the re-allocation of UEs was to restore fairness in the UEs, and that “the effect of the By Law adjusts the unit entitlements for the whole of the development, from that shown on the title deed”. However, this letter was signed by the developers’ conveyancer daughter, which raised a red flag.

              I stood my digs, questioning the letter and suggesting I would get independent legal advice (from Bannerman’s of course), the cost of which I would expect to be reimbursed should I prove to be correct. After 10 days and a bit of further pushing I finally received a further response from the developers’ Law firm (this time signed by a real lawyer) through the Strata Manager, telling me that “the developer and…majority lot owner, have instructed us to now proceed to make an application to NCAT, on their behalf, for an order to amend the Unit Entitlements, as per the updated valuation. We also understand that once the Order is granted, and the same registered with the NSW Department of Land Property, under the Strata Scheme Management Act 2015 the Owners Corporation, can then adjust the levies accordingly to reflect the amended unit entitlements”.

              The lawyer’s letter then goes on to say “If the NCAT order is granted, the amended unit entitlements will remain in place until all stages of the development are complete. If, however the NCAT order is not granted, then the levies would revert to the original unit entitlements. Either way, once all stages of the development
              are complete, the developer will organise a final valuation and subject to the same, the unit entitlements will be finally adjusted and/or confirmed based upon the values at the time”.

              I think that is vindication of my stance, but still have some reservations. Firstly, having seen the valuation that the re-allocation of UEs was based on, it very clearly says it is an estimate only – which I assume will not be enough for NCAT even if no current Lot owners oppose a re-allocation of UEs to make them fairer (a likely scenario). Secondly, are there traps for young players in leaving it to the developer to apply to NCAT – for example, could the developers seek reimbursement for all costs, such as a proper valuation, from the Owners Corporation (which of course they don’t pay levies to)?

              I also wonder whether a senior Strata Manager has a duty of care, and before issuing Strata Levy notices based on changed UEs should have advised the Owners Corporation (and then us when we asked the question) that a Bylaw could not alter UEs. Similarly, I query the ethics of a law firm that initially provides what seems to be incorrect advice, perhaps designed to fob of my concerns and mislead.

              Your opinion would be welcome.

              #66335
              Jimmy-T
              Keymaster

                The strata managers sound as if they are in breach of their professional Code of Conduct.  At the very least, these five basic principles:

                1.3 DUTIES OF ALL MEMBERS
                All Members must at all times:
                i. Act ethically.
                ii. Act honestly, be straightforward and sincere.
                iii. Not provide false, misleading or deceptive information.
                iv. Be objective, fair and not allow prejudice or bias to override that objectivity.
                v. Be and appear to be free of any interest, which might be regarded as being
                incompatible with integrity and objectivity.

                Sadly, though, you can’t make a complaint through the SCA about your strata manager being in cahoots with the committee since they will only accept complaints from committees. Nice “get out of jail free” card the strata managers have written for themselves.

                In your shoes, I would still take a complaint against the strata manager at Fair Trading for deliberately offering misleading and erroneous legal advice.  That will fire a shot across their bows and the very least and might be useful if you decide to go to NCAT and ask the Tribunal not to adjust the UEs in a way that hands total control to this one family.

                I might even write a column about this in the AFR – no names, no pack drill, of course –  see what that stirs up.

                 

                The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
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