Review of strata and community title laws
Fair Trading Policy
PO Box 972
Parramatta NSW 2124
Dear Sir/Madam,
RE: Feedback on issues raised in the Discussion Paper
Thank you for giving me the opportunity to comment on the Strata & Community
Title Law Reform Discussion Paper. I have reviewed the issues raised in the
discussion paper and offer the following comments:
1. There are currently five separate Acts and five associated Regulations
regulating strata and community schemes. Do you believe that the laws
should be simplified? Given the types of schemes in NSW, should the
legislation be more or less prescriptive?
I strongly support a streamlining of the laws relating to strata & community
schemes to ensure they are easier to understand, apply and administer. This
would be of benefit to both owners and small businesses within this sector and
contribute to reducing both red tape and unintentional breaches of the law.
Small business operators dominate a number of stakeholder groups within this
sector, including managing agents, residential, retail and commercial property
investors/landlords and real estate agents. According to ABS Data, the
majority of businesses categorised as ‘residential property operators’ are sole
operators or small businesses. Therefore I strongly support any actions which
would reduce the administrative burden currently placed upon the sector by the
operation of five separate Acts and associated regulations.
I would strongly advise against adopting the approach of combining all the
existing laws into one Act as I believe it would potentially result in a piece of
legislation which is large and unwieldy. In addition, numerous sets of
regulations would then be required to support the Act so that differences
between types and sizes of schemes can be adequately captured. This may
prove counter-productive to the overall aim of simplifying the legislation and
reducing red tape.
I believe a more user-friendly approach would derive from the proposed option
of combining the strata scheme management and strata development laws and
then combining the community scheme management and community
development laws. This would recognise the slight differences between the two
types of land title involved and create a more logical delineation within the
legislation. This would mean that owners within a scheme would only need to
refer to one piece of legislation for most matters pertaining to their property. In
addition, small business operators within this sector such as managing agents,
landlords, property developers and real estate agents would more readily be
able to determine which legislation applies in which circumstances.
A simplification of the legislation and its terminology would provide greater
clarity for small business operators and assist them in delivering a more
effective, transparent and efficient service to clients. This would provide
greater opportunity for these operators to grow their business by spending less
time on interpreting legislation and more on service delivery.
In regards to how prescriptive the legislation should be, I would recommend a
more flexible and less-regulated approach enabling individual schemes to
democratically decide their own rules. However, I would support the provision
of set of broad guidelines using a principle-based approach. This would enable
owners (including investors and landlords) and managing agents to work
together within a recommended framework to establish by-laws which makes
sense to their particular set of circumstances and would ultimately lead to
greater commitment and adherence to these by-laws.
2. There are currently five separate Acts and five associated Regulations
regulating strata and community schemes. Do you think that the way the
schemes are run can be improved by more education and training?
Should these initiatives be voluntary or mandatory?
Better education would benefit all stakeholders within this sector and I would
support a digital communication strategy similar to that currently in place within
Queensland which produces an information kit and electronic newsletter which
keeps interested parties informed and updated on news, events and issues.
These in conjunction with the development of template forms and sample
documents would assist both owners corporations, investors and small
businesses within his sector.
These types of educational resources would be of particular benefit to
managing agents who are predominately small business operators. The
provision of standardised tools and information would assist these businesses
in performing their duties and promote consistency in service delivery across
the sector.
As part of good governance I support the proposal that schemes be required to
review and endorse their existing by-laws at regular intervals. The removal of
the current legal requirement that owners corporations register any
amendments to their by-laws with the Land and Property Information and pay
an associated fee would create greater freedom to schemes to make changes
to their by-laws ensuring they are relevant to current circumstances.
I strongly support an expansion of the section 109 certificate to become more of
a disclosure statement providing information about a building which is likely to
be of material interest to prospective buyers, with information including status of
levies, known building defects, and current or recently concluded court action.
This would streamline current practices which recommend buyers obtain a
‘section 109 certificate’ and, arrange for their solicitor/conveyance or a
specialist strata search company to inspect the books and records of the strata
scheme. It would also streamline and simplify the administrative processes for
those businesses engaged in providing these services.
3. How could owners be encouraged to participate in the running of their
scheme? For example do you support a system of postal voting or
compulsory voting being introduced?
I acknowledge that there is a need to encourage greater participation in the
running of schemes to ensure that buildings continue to be well-maintained and
that the value of an owner’s asset, whether it is a residential or commercial
property, continues to grow. Without a healthy strata or community scheme,
properties can become economically unviable for both potential owners and
investors.
I would favour the introduction of a model such as that in South Australia which
allows absentee voting and requires voting papers to be sent out in advance of
meetings. Such a model would overcome the issues of managing proxy voting
and quorums. Absentee voting would ensure that owners who are unable to
attend meetings can still participate in the decision making process. Given that
most meetings of owners corporations occur onsite, absentee voting would
ensure that those owners who are investors/landlords within the building but
are unable to attend meetings can still have their voice heard. In addition, this
would ensure that meetings would proceed regardless of whether or not there
is a quorum ensuring that decisions about key issues can be made without
delay. In addition this would eliminate the situation where owners and
managing agents attend meetings where decisions cannot be made and
enacted as there is not a quorum.
The issue of tenant participation and representation is of significance to the
many small businesses which operate within commercial premises located in
strata or community schemes. These businesses provide significant services
to residents of the building and the broader community. The decisions made by
the owners corporation will often impact directly upon their commercial activities
and in some cases may impede those activities. I would recommend that
consideration be given to a provision for tenant representation in schemes,
especially in regards to commercial tenants whose livelihood can be directly
impacted by committee decisions.
I recommend that consideration be given to section 34 of the Retail Leases Act
1994 which clearly articulates when the Lessee of a retail shop should be
reasonably compensated by the Lessor for ‘disturbance’ to their ability to
conduct their commercial activities. Within a strata or community scheme the
‘disturbance’ is often under the control of the owners corporation rather than the
Lessor and therefore I strongly recommend that the new legislation clearly
articulates when the owners corporations is responsible to remedy such
‘disturbances’ to the commercial activities of a Lessee within a scheme.
4. For some schemes, there will be a point where it is better to terminate a
scheme rather than arrange significant and expensive repairs. What
process should be in place to terminate a scheme? How many owners
would need to agree for a termination to be approved?
I agree with those stakeholders who believe current termination processes are
too difficult and that there needs to be a simpler and fairer system to enable the
sale and/or redevelopment of strata and community scheme buildings. This is
of particular significance given that almost a third of all residential strata
schemes within the Sydney metropolitan region were registered more than 30
years ago and there is a growing need for urban consolidation and renewal.
The current legislation that requires 100% owner agreement to the termination
of a strata scheme can create situations within schemes that are both unfair
and untenable for the majority of owners and potential property developers.
The fact that a minority of owners can block the potential sale and/or
redevelopment of a building can result in a situation where owners/investors
are forced to keep putting money into a property in order to maintain it even
though they are receiving an increasingly poor return on investment.
I believe it is essential that the legislation includes a mechanism to assist
stakeholders with the winding up of a scheme where there are a variety of
views about the future of a scheme. This would be consistent with what has
happened in both local and international jurisdictions and would create a fairer
and less administratively onerous approach for both owners and potential
property developers.
The current legislation acts as a deterrent and/or hindrance for many
businesses operating within the property and construction sectors. Changes to
the requirements relating to the termination of a scheme and resulting collective
sale would create greater opportunities for these businesses as it would free up
much needed property stock and would reduce the administrative burden and
time involved in potential buyers negotiating settlements with owners
corporations.
5. Do you believe that the definition and responsibilities relating to common
property should be clarified? If so, how?
I would support a clear, reasonable and simple definition of ‘common property’
being adopted across the sector and included within the legislation to ensure
that unnecessary and often trivial disputes are avoided. A clearer definition
would minimise the reliance of stakeholders within this sector on external
practitioners and/or solicitors who they engage to assist them in interpreting this
term within their particular set of circumstances.
For businesses occupying retail/commercial premises within a scheme a
clearer definition of ‘common property’ would undoubtedly assist them in
understanding when and for what purpose it is necessary for them to seek
owners corporation approval. This hopefully will minimise disputes, reduce
unnecessary expenditure and lead to more harmonious relations between
residential and commercial occupants.
6. An owner wanting to renovate his or her own lot can sometimes be faced
with significant red tape in getting permission from the owners
corporation. Should this process be simplified? If so, how?
I would strongly support changes to the legislation which would provide for a
more practical and common sense approach for seeking permission from
owners corporations for renovations. The current system is not only confusing
but very restrictive and can work against both residential and commercial
owners and tenants wishing to renovate and upgrade their properties. The
establishment of clear and certain rights and obligations would assist the
stakeholders within this sector by reducing the need for establishing costly
exclusive by-laws for one-off renovation requests and by potentially minimising
the number of disputes thus saving all stakeholders money and time.
Small business operators looking to either purchase or rent commercial
premises within a scheme would benefit from a more streamlined and time
efficient process. The current approach which is lengthy and administratively
onerous for both owners and potential tenants can serve as a deterrent to many
small business operators who wish to customise premises to suit their
commercial purpose but are often financially restrained at the start up stage of
a business.
7. Do you have any views on how the process of preventing and/or handling
disputes in schemes could be improved?
The current three tiered formal dispute resolution process is unnecessarily
onerous and I support the development of a new model which places greater
onus on parties to reach a resolution prior to pursuing more costly legal
avenues. A reduction in the complexity and legalistic nature of the current
system would also provide a more level playing field for all parties and a less
expensive but more direct route to dispute resolution.
I strongly recommend that a compulsory informal step in the dispute resolution
process is introduced into the legislation. Schemes should be required to
demonstrate they have attempted to resolve disputes informally prior to being
able to access formal channels. With the right tools and guidance the majority
of disputes could be resolved informally thus avoiding administratively onerous,
lengthy and costly formal dispute resolution procedures.
The existing system is set up such that numerous jurisdictions can deal with
matters pertaining to strata and community scheme, including Fair trading
mediation, the local courts and CTTT. I would support a move to broaden the
jurisdiction allowing the majority of disputes within schemes to be dealt with by
Fair Trading mediation. This would minimise the layers of jurisdiction in which
a matter can be heard potentially leading to more consistent decisions being
made and precedents created which can then be applied in future matters.
This is consistent with the NSW Government’s goal of providing alternative
dispute resolution mechanisms that are relatively quick, informal and less
expensive.
I recommend that once a dispute resolution process is determined a set of best
practice guidelines is developed and provided to stakeholders to assist them in
managing dispute resolution processes. These could include flowcharts and
sample documentation to assist in clarifying the steps to be taken.
8. Should the schemes be given greater powers to enforce their own bylaws? If so, what steps could be introduced to prevent this power from
being abused?
I endorse a reduction and streamlining of the offence provisions within strata
and community title law to a set of core breaches. However, I would
recommend more consideration be given to the penalty levels and how these
are to be enforced. The option of introducing penalties which are higher for
corporations than individuals seems to be predicated on the assumption that
corporations are large entities able to absorb such penalties with minimal
impact on their business. However, ABS data indicates that the majority of
businesses within this sector are either sole operators or small businesses and
many would be ill-equipped to absorb fines which might reach into the vicinity of
$100,000 for serious breaches. A fairer approach may be to introduce an
increasing scale of penalties to apply to repeat offenders regardless of whether
they are corporations or individuals.
I would support further consideration being given to the option of encouraging
or requiring schemes to appoint a committee member as a ‘compliance officer’
as this may enable greater flexibility and independence for schemes to act
where breaches of by-laws occur. This would potentially minimise delays in
enforcing penalties and speed up any remedial action required by the offender.
However, the appointment of such an officer would need to be accompanied by
training to ensure that ‘compliance officers’ are conversant with the legislation
and equipped to carry out their duties in a fair and consistent manner. In
conjunction with this provision there would need to exist within the legislation
the ability to suspend or remove a scheme’s ability to issue fines if it is found
that the power is being abused. This measure would safeguard both owners
and tenants who may be unfairly discriminated against.
Should you wish to discuss any of the issues raised in this submission, please
contact Julie Giuffre, Senior Advisor Advocacy on (02) 8222 4823.
Yours sincerely
Yasmin King
Small Business Commissioner
5 November 2012