Explained: The Biggest Change in NSW Strata Legislation in 20 Years

The regulations for the new NSW Strata Schemes Development Act 2015 were at last released on 2 November 2016 – four weeks before their commencement.

Along with the Strata Schemes Management Act 2015, and its Regulations, they represent the biggest change in strata legislation in NSW for 20 years.

The Acts contain almost 500 sections and cover all aspects of strata development and management. It is not possible to cover all the proposed changes and what their impact may be on the development industry and strata owners.

Instead, here are six changes that will be of greatest interest to the urban development industry:
75 per cent threshold
One of the most talked about changes has been the reduction in the need for a threshold of 100 per cent to 75 per cent for strata owners to renew their development. This clause in the development bill has been widely reported on as a means to displace current residents and allow developers to redevelop older developments.

However, this is not as concerning as some have made out. There are measures which protect all owners and to ensure the process is fair. The change could lead to more redevelopment, particularly of older strata units and unlock areas of the city which have low density and sit on underutilised parcels of land.

The revisions are reflective of 21^st century strata living and the protections mean this is a balanced provision.
Unit entitlements
The possible inequity of unit entitlements (UEs) has often arisen as the previous legislation did not set out requirements for how an initial schedule of UEs is to be calculated. There is a new requirement that the table of UEs is accompanied by a certificate from a valuer.

This must confirm that the UEs have been apportioned on a market value basis on the valuation day. Using market value to determine UEs is a reasonable factor; certainly better than using size of lot or other determinants.
Building management committees
The increasing push for mixed use developments has seen a rise in building management committees (BMCs). The legislation contains a number of new requirements for BMCs and their governing strata management statement (SMS).

To date, there has been no requirement to explain the method used to divide costs amongst members of a BMC nor for such a method to be fair. There is now a requirement that the cost allocation be fair and that the method used be to apportion the costs be detailed in the SMS.

The increasing prevalence of BMCs means that SMSs must provide for a reasonable dispute management process. The legislation allows for dispute resolution to be managed via NSW Civil and Administrative Tribunal (NCAT) or another body.

The specific inclusion of NCAT allows disputes to be considered by a body that will have significant familiarity with strata schemes. Additionally, it’s likely to be significantly cheaper than other processes.
Building Defects Bond
The 2 per cent building defects bond has been a key topic of discussion. The logic behind this bond is to cover the cost of any defect rectification. The bond is being introduced in an effort to provide more protection to strata owners.

The bond will be placed in a trust for two years to cover the cost of rectification of any defects that might arise during this time. The bond has the potential to improve the quality of strata buildings in NSW and provide peace of mind to those buying into a strata scheme.

There is a concern however that the increased construction costs associated with the introduction of the defect bond will further exasperate the shortage of affordable housing. Many feel the 2 per cent bond will ultimately be passed onto the consumer. It will be important to ensure that the processes for calling on the bond are detailed, transparent and equitable for all parties.

Tenants
There has been a lot of coverage of the introduction of a 'tenant representative' for schemes that have at least half of the lots tenanted. This person is eligible to sit on the executive committee but does not have a voting right nor do they contribute towards a quorum.

There is also a requirement that general meeting agendas are sent to all tenants. This will be a high cost to the owners corporation, costs borne not by tenants but by lot owners. Tenants will not be able to vote at these meetings. The current legislation provides tenants with more rights than the tenant specific provisions in the new legislation.

They can attend and vote at general meetings if they hold a proxy, they can also be nominated to the committee as a full, voting member. Given these provisions already exist, the ‘tenant representative’ will have less rights than a tenant being nominated by an owner under the current provisions (which are being retained).

This is of particular note for commercial strata schemes where investor owners are generally more willing to have their tenant be a proxy holder and be nominated to the committee.

These are positive steps forward but a number of proposed changes will lead to increased costs of developing and managing strata schemes, costs that will be passed on to owners in the form of higher management fees.

The article was written by Matilda Halliday, Prudential Investment Company of Australia's (PICA) National New Business Advisor. PICA is one of Australia’s largest strata management companies with over 200,000 lots under management.