07 Nov 2013

Lofty reforms: changes in the works for NSW strata law

by Gary Best, Eugene Tan

Proxy farming and conflicts of interest in strata management are key areas of reform in NSW.

This week the New South Wales Government signalled its promised reforms to strata laws are taking shape. Updating on a process which began in 2011, Rod Stowe, the Commissioner for Fair Trading, and New South Wales Minister for Fair Trading Anthony Roberts offered some insight into what changes might be expected in the new strata laws which are yet to be formally announced.

In separate addresses to the Strata Community Australia Convention at the start of the month, we were given a preview of the changes which are to come. Key amongst the promised changes are:

  • provisions to combat "proxy farming";
  • limitations to the terms of management contracts;
  • greater transparency in relation to managing agents' disclosure requirements;
  • scope for tenants in strata schemes to have input at strata meetings;
  • changes to the model by-laws to address common issues, including parking, pets, smoking and hardwood floors; and
  • more flexibility around how owners can communicate and vote on strata issues.

Proxy farming

The new laws, when introduced, are expected to combat proxy farming (the process by which a member gathers up the right to vote on behalf of other members who are less active in a strata scheme) by imposing limits on the number of proxies which members can hold. In a scheme of more than 20 lots a member will only be entitled to hold proxy votes totalling 5% of lots in the scheme, and in schemes of 20 lots or less, a member will be limited to holding only one proxy vote.

The aim is to improve democratic decision-making, increase participation in the management of strata schemes by owners and unwind situations where a single member (or small group of members) may be exerting excessive control in a scheme.

Conflicts of interest and greater transparency

The Minister has indicated that members will be required to disclose any conflicts of interest in relation to matters before the committee and where a conflict arises, that member will be precluded from voting (unless the committee waives this ban).

Managing agents will also now be required to disclose any potential conflicts of interest, including any relationship they have with the developer when entering into management agreements.

It is yet to be seen whether the Government will move to ban managing agents from receiving commission from insurers for maintaining strata insurance policies with those companies, or whether the laws will instead require a greater level of disclosure so that members can see the amount of incentives paid to managing agents by insurers.

The terms of management agreements will also be required to be made available to owners and tenants on request to improve visibility surrounding the services and costs imposed by managing agents.

Limits to management terms

The terms of management contracts will be capped at three years. The automatic renewal of management contracts will also be prohibited. These changes are designed to address complaints of long-term contracts being entered into with managing agents at the first AGM – effectively enabling the developer to select the managing agent.

Tenant involvement

With 30% of people in New South Wales living or working in strata environments, and an increasing trend away from home ownership towards extended tenancies, it is expected that the new laws will provide new rights for tenants in strata schemes to have access to owners corporation meetings and to participate in strata communities. Tenants will not have the ability to affect the financial decisions of the owners corporation.

Model by-laws

The model by-laws are being updated to accommodate changes to strata living which have occurred over time. Pets will normally be allowed under the new model by-laws whereas they are currently banned in the existing form. It is expected that the model by-laws will address smoking on balconies in response to concerns of smoke drift between premises. Common complaints about hardwood floors may also be reduced by including standard rules regarding laying new floors so that any objections can be heard prior to installation.

Of course, changes to the model by-laws will not affect any by-laws currently in place, however, New South Wales Fair Trading is hopeful that with an average of five new strata schemes being registered each day, the adoption of these updated model by-laws may curb complaints into the future.

Flexibility in communication and voting

Bringing strata law into line with how we communicate today, the new laws will look to scrap the need to serve hard copies of motions on owners, instead allowing matters to be raised by email or other online methods. Additionally, it is likely the new laws will contemplate attendance at meetings via teleconferencing or videoconferencing. This should increase the ability for members to participate in the affairs of the strata scheme and may reduce overall costs of administration.

Voting methods are also set to change with postal votes, secret ballots and electronic voting being introduced to remove the barriers of physical attendance at meetings.

More to come

We are yet to see the formal drafting the new laws but the Government is aiming to have new legislation in place by mid-next year. Clayton Utz continues to monitor the progress of strata reform and will provide further updates as available. To see how Clayton Utz can assist you in resolving strata disputes, streamlining the operations at your strata scheme and ensuring your preparedness for the changes to come, contact Gary Best or Eugene Tan.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.