Strata Legislation Amendment Bill 2011

(10am 11 November 2011, Parliament House Sydney)

I move:

That this bill be now agreed to in principle.

In 10 to 20 years time most Sydney residents will be living in apartments. Population projections predict at least an extra one million people will be living in Sydney by 2026, and at least an extra two million by 2056. It will not be possible to house this number of people in traditional detached dwellings because this would require clearing the biodiverse and agricultural land needed for the food basin. Urban consolidation is an environmentally, economically and socially sustainable solution to population growth if it is accompanied by the provision of adequate transport, community facilities and open space. While apartment living can be a welcome lifestyle choice—with reduced maintenance, shorter commutes and new appliances and fittings for some—it does present challenges that do not exist in traditional single-dwelling living. These challenges must be addressed so that apartment living is an attractive choice for present and future apartment dwellers.

Apartments include collectively owned property and funds that must be managed. Owners of new apartments may need to consider taking legal action against developers or builders. Apartments create micro-communities that need to be run democratically and transparently, with accountability for those in positions of power. While legislative amendments in the past 10 years have provided some improvement, many problems remain unresolved. Together with strata law expert Richard d'Apice and his strata and community titles team, I have worked over a number of years on the proposed legislative reforms in this bill.

Last year I introduced the first in a series of bills: the Strata Legislation Amendment Bill 2010, which aimed to make simple changes to improve transparency, amenity, management, and dispute resolution in strata schemes. The bill followed my discussion paper, which was presented to residents, owners and strata professionals in 2009. Over the past year I have consulted further with occupants, owners, and the industry including the Institute of Strata Title Management and the Real Estate Institute of NSW. Some changes have been made. I now introduce the Strata Legislation Amendment Bill 2011. I turn to the detail of the bill. An original owner, developer or builder can have interests that are in stark contrast to owners and occupiers when it comes to pursuing construction defects, and in some strata schemes these people can take on management positions and make decisions that are not in the best interests of owners.

The bill would ban the original owner and the builder from holding the position of strata managing agent. The ban would be limited to 10 years commencing on completion of the final building works, because a potential conflict exists when action against the developer or builder can be taken. Ten years is generous and would cover most situations, including warranties and action under section 109ZK of the Environmental Planning and Assessment Act. Similarly, the bill would ban the original owner or someone connected with him or her from being the caretaker.

The bill introduces an ongoing obligation on the strata managing agent to disclose any connections with the original owner, caretaker, any letting agents for a lot, or a builder who carried out work on the strata scheme, and it makes the failure to do so an offence. Legal practitioners would also be required to disclose connections with the original owner before providing legal services to an owners corporation. This strengthens the existing disclosure requirements on legal practitioners. Such connections have the potential to create a conflict of interest. The owners corporation or executive committee would therefore have the power to terminate the appointment of a strata managing agent or engagement of a legal practitioner if such connections exist and have been disclosed. The Act already requires executive committee candidates to disclose connections with the original owner or caretaker, and the bill would make failure to do so an offence.

The executive committee has three positions: chairperson, secretary and treasurer. The Act presently defines the functions of these positions but the definition requires strengthening to avoid abuse of power or ineffectiveness. There have been reports of inappropriate conduct in some cases, particularly during meetings. The bill would enable the regulations to further clarify the powers of the chairperson and secretary at meetings of the owners corporation and anyone attending meetings. The regulations would also be able to establish a code of conduct for executive committee members. Under the bill all voting members of the executive committee would be subject to a code of conduct of six basic standards, which are based on those listed in the Queensland Body Corporate and Community Management Act 1997. The standards would require all members to commit to understanding and complying with the Act, to act honestly and fairly and not disclose private information, to act in the best interests of the owners corporation, to not interrupt someone's enjoyment of their home or common property, and to disclose any conflict of interest.

Important documents and information are not readily available to owners, residents and prospective owners. The bill requires additional matters to be recorded on the strata roll. These include licences with the owners corporation for the use of common property, plans and approvals for building work, details of loans to the owners corporation and copies of special resolutions passed to allow additions and alterations to the common property. Because of the size and number of the documents, the bill would also require the strata roll to include an index of documents held. If the owners corporation faces unexpected capital expenses that it cannot meet a special levy can be raised, but special levies can only be raised for the administrative fund, which is limited in use to specific purposes that many not legally cover the expenses needed. A total roof replacement, for example, can only be met by the sinking fund. The bill would therefore allow a special levy to be raised to also finance the sinking fund.

It can be difficult to get a quorum at an annual general meeting, particularly in smaller strata schemes. But levies for the administrative and sinking funds can only be increased with approval at an annual general meeting. If a quorum is rarely achieved and no lot owner or proxy attends an adjourned annual general meeting levies can remain too low to responsibly manage a building. The bill would allow for an automatic levy increase in line with the consumer price index if no lot owner or proxy attends an adjourned annual general meeting. This would ensure that levies do not decrease in real terms. The Act sets the minimum public liability insurance level at $10 million. This has remained unchanged for an unrealistically long period, while the potential for multi-person injury such as a balcony collapse is real. The bill would increase the minimum public liability insurance level to $20 million.

Owners can only vote at general meetings of the owners corporation if they have paid their levies. However, some demand to vote when their cheque has not been cleared. It is an owner's responsibility to ensure that levy payments are received before a general meeting. The bill would require receipt of cheques within five clear working days before a meeting, and that the cheque has not been dishonoured, before an owner can vote. New and larger apartment buildings usually include more than one stratum lot, which can become a strata title with separate strata lots. Examples of separate stratums within one development include residential, commercial, retail and car parking. Strata management statements regulate the relationships between these stratums, forming contracts and dictating how they interrelate and function. The financial and lifestyle consequences of strata management statements for lot owners can be significant, but statements are often put in place by only one or two people who have no ongoing role and they are sometimes influenced by a developer's interests.

Disputes are common, but the legislation does not adequately provide for resolution in the Consumer, Trader and Tenancy Tribunal (CTTT). The bill would allow the tribunal to make orders about the construction and interpretation of strata management statements where the dispute resolution mechanisms set out in the statement have been exhausted. While the tribunal can issue orders to resolve strata-related disputes, often orders are not complied with. The only option to get compliance is to again apply to the tribunal for a further order to make the person pay a penalty for his or her failure to comply with the original order. To improve compliance the bill would increase the penalty from 5 to 50 penalty units for contempt of the tribunal, bringing the maximum fine up to $5,500, and it would be an offence to contravene an order made by the tribunal or the adjudicator.

Currently the owners corporation generally pays for damage to common·property regardless of who caused it. Where owners or their occupants cause the damage it is only fair that they cover the cost to fix it. The bill would make the owner and occupier of a lot liable for the damage caused. However, where the occupier is responsible the owner would be entitled to be indemnified by the occupier. Overcrowding is a serious problem in inner-city apartments. Unscrupulous landlords and subletting tenants cram people into bedrooms and living rooms for profit.

Overseas students and new residents are targeted and apartment residents suffer from noise, higher water rates and wear of common property. Compliance with fire standards and ordinary safety procedures, such as locking doors, are ignored. In 2006 the City of Sydney introduced a consent condition for apartments that limits adult occupants to two per bedroom. This has enabled the city to take action against overcrowding in apartments built since 2006. The bill would incorporate this condition into all strata schemes across the State so that action can be taken regardless of when an apartment was built or where in New South Wales it is located.

Currently legal documents and notices are served on owners corporations by delivering them to the address shown on the certificate of title for common property; but the address is often out of date, delaying a process that may have time limits or require urgent action. Documents from councils get sent to the wrong address, never to be received or acted upon. The bill would also introduce an additional required method of service of legal documents, requiring that the documents also be sent to the owners corporation letterbox at the address of the strata scheme. The current legislation does not recognise electronic forms of communication, requiring all documents, including agendas and associated papers, to be distributed by hard copy. Delivery of documents by email is quicker, cheaper and preferred by some owners. The bill would allow the owners corporation to send documents via email to owners and residents who nominate an email address for this purpose.

Currently there are significant limitations on the power of the Consumer, Trader and Tenancy Tribunal to award costs in strata disputes outside vexatious and frivolous applications. This provides little incentive to settle a case. The bill would introduce provisions for awarding costs if the court believes the applicant has brought the proceedings in an inappropriate venue. A person entitled to vote at a general meeting can call a poll vote—that is, a vote based on unit entitlements—on any motion at any time during the meeting, even if the motion has been voted on by everyone present. This can make it very difficult to manage a meeting and there are reports that poll votes are called purposely to disrupt a meeting. The bill would limit the calling of a poll vote during a general meeting to calling a poll on the motion that immediately preceded the business item being discussed.

An annual general meeting must take place between 11 and 13 months of the anniversary date of the first annual general meeting: the Consumer, Trader and Tenancy Tribunal must approve holding it outside this period. This is onerous, particularly given that it is desirable that as many owners as possible attend the annual general meeting. The bill would allow the owners corporation to change the date of the annual general meeting by a vote at a general meeting provided that one annual general meeting is held each year. Proposed changes to by-laws are not always fully understood by owners before they have to vote on them and the consequences may become evident only when they are implemented. The bill would require that notices for general meetings with a motion to change a by-law include a report on its effect. The report must be prepared by the person proposing the change.

The current requirement for executive committee members to meet in person can make meetings difficult to schedule. In some cases telephone or television conferencing would be appropriate, and this option should be available. The bill would allow an executive committee to hold meetings through telephone or television conferencing provided that attendees can hear all members speak. The bill clarifies item 17 of the new form of the section 109 certificate, which is the certificate on which the owners corporation discloses levies relating to a lot. This is also used by potential purchasers.

The clarification provides for the disclosure of expenses which are not estimated by the owners corporation for the adequate maintenance of the building under existing section 75 of the Act. As item 17 of the new form is currently drafted, all items of expenditure need to be disclosed, and I understand from consultation that there is a wide-ranging interpretation of what this requires. I have been advised that the true intention of item 17 is to disclose to persons obtaining the certificate any unforseen expenditure that has not been made in the budget and the bill would clarify the requirement to disclose such expenditure.

This is a technical bill, and it is the result of a number of years of work. It is important, and it can make a difference to people's lives. It has been drafted with expert advice and extensive consultation. Before closing I would again like to acknowledge and thank Richard d'Apice, Ian McKnight and Rosemary Hall, and their team, for their hard work and dedication to strata reform. I also express my appreciation for the many hours of work put in by my research assistant, Tammie Nadone. I extend an invitation to the Minister, shadow Minister and any other member of this or the other House to meet with Richard d'Apice and his team for a briefing on the bill. I commend the bill to the House.

Debate adjourned on motion by Mr Daryl Maguire and set down as an order of the day for a future day.