David Bannerman / Global Business Edition 2016

On November 30, 2016, important new reform affecting strata occupants and investors will commence in New South Wales. In summary, the key factors to take into account are:

Finances

Financial reporting requirements will change and there will be changes in timing of levy payments and interest payments on arrears levies. Those who have not been raising funds to match their 10-year sinking funds can expect significant increases in levies to catch up.

Collective Sale or Development

Provision is to be made for compulsory sale or redevelopment of strata buildings, even where there is a dissenting minority, by means of a strata renewal plan. There will be a broader range of options for someone owning such a property or proposing to buy one, but if you buy a strata property, it might not be your choice when you sell it. The power will be shifting  from the minority to the 75 percent majority, and those living in areas recently rezoned to a much higher density will be considering their options.

Bylaws

The real changes to the existing bylaws are to reflect the renovations comments above, permit dogs without consent that are registered under the Disability Discrimination Act of 1992, and, interestingly, bylaws that are harsh, unjust, or oppressive will be of no force or effect. There will also be greater scope for bylaws addressing issues such as unauthorized parking, smoking, and occupant numbers, as well as improved mechanisms for enforcing bylaws.

Common Property Maintenance

A lot owner may be able to claim compensation from the owner’s corporation for failure to maintain common property if it causes loss to the lot owner. This is an interesting shift back to about four or five years ago, and it is likely that many claims will be made.

Renovations

Lot owners will be able to carry out “minor cosmetic work” without the consent of the owner’s corporation. Simpler procedures could potentially apply for “minor renovations,” where owner’s corporation consent will still be required. The practical effect here is often what happens in reality in most cases.

Governance

Strata committee members will be subject to duties but will have no liability if acting in “good faith.” This may inadvertently lead members to think that they do not need office bearers’ insurance, which is quite ill-informed. There will also be many changes to meetings and other procedures; importantly, voting and attendance at meetings are shifting to permit electronic means.

Tenant Rights

Tenants are to be given some rights, including being given notices of meetings, the right to attend those meetings, and in some cases, appoint a tenant representative. However, it is anticipated that this will have little take-up given the inability to vote and the owner’s corporation’s ability to limit matters that they can receive information about and be present at while it is being discussed.

Building Defects

A number of changes have been proposed to improve the process of addressing building defect issues in new strata buildings, such as two percent bonds and reports paid for by developers. However, it is really timed to come into effect toward the end of this construction cycle and is only applicable where home warranty insurance is not available.

Strata Managers

Appointment terms are to be limited, developers and persons connected will be prohibited from being strata managers, and the entitlement to receive commission income and other benefits is to be restricted.

Caretakers

Caretakers will become known as “building managers” and won’t be required to be a resident. The key effect here is to limit the term of this type of contract to 10-year maximum.

Conclusion

For property investors, these changes have the potential to make life better or worse, depending largely on how well you understand and can work with these changes. Investors should obtain legal advice about these issues before purchasing an investment property. If you already own strata property, it’s recommended that you look into these with a suitably qualified professional.