Rethinking strata reform

| February 14, 2012

With the rapidly changing landscape of housing in New South Wales, Strataman says it is time to rethink our entire approach to strata.

While commerce around the world is at a ‘change point’, Strata is no different. There is a rapid change in the landscape of Sydney – in the size and type of developments – which is vastly different to the landscape of Sydney when Strata legislation was originally written over 50 years ago. Apart from being ‘tweaked’ here and there (mostly procedural changes) perhaps it is time to rethink the whole approach to strata.

Broad categories that need addressing:

  1. Merging of legislation relating to strata/community title
  2. Electronic technology
  3. Clarity of lot/common property
  4. Mandatory minimum briefing session/fact sheet for Executive Committee
  5. Expansion of requirements for large schemes
  6. Termination of strata schemes
  7. Streamlining of dispute resolution process
  8. Procedural/management changes both of Strata legislation & other legislation that impacts on how strata schemes are managed
  9. Greater power to the Owners Corporation regarding breach of by-laws
  10. New schemes – more protection for purchasers
  11. Utilities – Water Usage

Here are some of the key points:

1.  Merging of legislation relating to strata/community title: Merging of strata and community so there is consistency – one set of legislation for both rather than different rules for each.
2.   Electronic technology: Changes to legislation to accommodate current electronic technology for communication. For example, meetings via Skype or similar technology. The definition regarding what ‘present personally’ means and other procedural matters would need to be addressed.
3.   Clarity of lot/common property: Clarity regarding the aged old problem of whether it is lot or common property. Further development/correction of the Memorandum recently issued by the NSW Lands Department.
4.   Mandatory minimum briefing session/fact sheet for executive committee: Due to the broader range of responsibilities and issues impacting a strata scheme it’s vital that executive committee members have at least a general understanding of key responsibilities and other legislation impacting an Owners Corporation, no matter what the size of the scheme. The recent Work Health & Safety Act changes are a perfect example of the need for this.
5.   Expansion of requirements for large schemes: Large schemes are far larger than was probably ever envisaged when Strata legislation first came into existence. The large strata developments need to be considered and governed in a different way to smaller, or very small, schemes.
Example: What qualifications/training should executive committee members be required to have if they are working with the strata manager relating to a budget of $2 million and the scheme is comprised of serviced apartments, commercial office and retail space, as well as 350 apartments? This is very different to a small neighbourhood scheme of eight apartments. It certainly is not a case of ‘one size fits all’ in all circumstances.
6.   Termination of strata schemes: The termination of strata schemes needs to be addressed. Many schemes are beyond an economical state of repair. Legislation needs to be put in place whilst there is still a small window of time to consider this soberly and constructively, before it is such a major issue that legislation is rushed through Parliament to cope with the situation.
7.   Streamlining of dispute resolution process: Dispute resolution through the CTTT has been a long standing issue. Those living in strata want a speedy, effective dispute resolution path, rather than a process which can take up to 12 weeks or more, with only a mediocre result for those concerned. (Main issues: illegal installations; illegal parking; noise; damage to common property; by-law enforcement; access to lot for emergency repairs.)
Most of these issues relate to facilitating long term harmonious living in strata schemes. The issues are often compounded as the schemes become larger. The harmony issue needs to be addressed because otherwise it won’t be a case of “build it and they will come”. If people do not want to live in strata schemes, because the dispute resolution process cannot be addressed, then this could have a catastrophic effect on the real estate market – with hundreds of units vacant because no-one wants to live there. There are some strata schemes, at this very time, which could be considered dysfunctional because harmony/control issues cannot be effectively resolved.
Apart from good governance legislation, what is also needed is a focus on how to make the strata scheme a well-run community living environment for all those who live there.
8.   Procedural/management changes both of Strata legislation and other legislation that impacts on how strata schemes are managed:  Streamlining of many cumbersome procedural processes would assist with cost reduction for owners in the management of their schemes. A major undertaking for certain, and it needs to be considered in parallel with electronic communication technology.
Sinking Fund Assessment – apart from considering this Assessment, a timeframe should be placed in legislation for mandatory adoption over a set period of time.
Special levies for major projects – these should be raised to the Sinking Fund as this is the more appropriate fund. When raised to the Administrative Fund, this gives an incorrect view to a purchaser of what it costs to run a scheme on a day to day basis.
Unfinancial owners should not be permitted to attend General Meetings. If they do attend, they should not be permitted to address the meeting.
Definitions – put into the legislation a clear definition of terms (i.e. visitor)
Building Management Committee – to be covered more extensively in legislation
9.   Greater power to the Owners Corporation regarding breach of by-laws: There needs to be a revamp of the by-law compliance area so that the Owners Corporation has much stronger powers allowing for the enforcement of by-laws.
10.   New schemes: Developers should be required to obtain a Sinking Fund Assessment and Valuation and attach these documents to the Contract for Sale. It is a common experience that the Sinking Fund is considerably understated in a budget, as is the sum insured on the building. These two large expenditure items could be correctly addressed in the initial budget, which would give purchasers a truer indication of the levies AFTER the first year.

11.   Utilities: With the increasing cost of water, new strata developments should be required to have individual water meters – as with electricity and gas.  For years there has been an incorrect proportioning of the cost of water usage across all the lot owners for a scheme.

The higher your unit entitlement, the more you pay of the excess water usage charge to the Owners Corporation.  Hypothetically, there could be a single person living in the penthouse with the highest unit entitlement and a family with four children living in a smaller unit on the lower levels with a smaller unit entitlement. The family would use far more water than the penthouse owner, but the penthouse owner pays more under the current arrangements. This is totally inequitable and should be addressed.

Special consideration,  perhaps in the form of a grant (or subsidy), should be given to any existing schemes interested in retro-fitting individual water meters.
 The Bottom line
A “tweak” of what we currently have is not needed, but a new vision of what is needed for what strata has now become, and what it will become in the future. Also, the legislation should be such that the governing/management of those schemes is effective and beneficial both for the landscape of the cities and also for those who live and invest in those schemes.
 STRATAMAN has provided an online Strata Information Service (for NSW) since 1999 and makes that information available to strata managers, lot owners, residents, property managers and anyone else directly or indirectly involved in the Strata Industry.