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Dysfunctional strata schemes and the appointment of a compulsory strata manager

It’s not uncommon for owners corporations to have their issues. However, where issues in an owners corporation continue or worsen over time often some owners come to the view that the owners corporation would be better served if a compulsory strata manager was appointed by the Tribunal.

The purpose of this article is to provide insight into the circumstances which may lead to the Tribunal making orders for the appointment of a compulsory strata manager.

Sometimes the case for a compulsory strata manager is clear cut as there is clear evidence that the owners corporation is not functioning satisfactorily. Other times it is not so clear, the owners corporation may function well in some aspects but be deficient in other aspects. Sometimes there are competing factions for or against the current strata committee or strata management.

Section 237 of the Strata Schemes Management Act 2015 provides that the Tribunal may make an order appointing a strata manager to exercise all, or any specified functions of an owners corporation for a period of up to 2 years.

In making such an order, the Tribunal must be satisfied that:

  • The owners corporation is not functioning satisfactorily.
  • The owners corporation has failed to comply with a Tribunal order or the requirements of the Strata Schemes Management Act 2015.
  • The owners corporation has failed to perform one of its duties.
  • The owners corporation owes a judgment debt.

There have been numerous decisions made by the Tribunal appointing or declining to appoint a compulsory strata manager.

In the cases where a compulsory strata manager has been appointed by the Tribunal, some of the reasons given for this included:

  • Acrimonious relationships between owners.
  • Intemperate communications between the members of the strata committee.
  • A lack of consensus and disputation in the meetings of the owners corporation.
  • Attempts to remove people from the strata committee.
  • The resignation of the current strata manager.
  • Challenges to the validity of motions passed at general meetings.

However, there have been cases where the following issues did not result in the appointment of a compulsory strata manager:

  • Where a number of owners did not agree with the decision making taken by the majority in relation to the remuneration of the strata manager but could not prove that the decisions by the majority were unjustified or for an improper purpose.
  • Where meetings have not been conducted properly but, by the time of the hearing of the matter, this has been addressed and the meetings have been organised and run well and issues have been resolved via the meetings.
  • Where a resolution was passed requiring an owners corporation to explore other options before signing a management agreement but it failed to do so. The Tribunal found that as the majority of the owners were happy with the current agreement the failure to explore other options did not amount to dysfunction.
  • Where a strata manager erected bollards on common property visitor parking spaces without proper authorisation of the of the owners corporation it was found that this could be resolved as a discrete issue on its own merits and does not warrant compulsory management.

Orders for compulsory management are generally not obtained easily, In the case of Bischoff & Ors v Rita Sahade & Anr [2015] NSWCATAP 135, the Tribunal said:

,The appointment of a compulsory strata manager is a very significant step which must not be taken lightly, because it removes from the owners corporation its ability to manage its own affairs and reposes all of the functions of the owners corporation into a single person.

It is absolutely critical that owners applying for orders for compulsory management have relevant and objective evidence establishing the test in section 237 as set out above.

Usually the evidence will include witness statements by the owners supporting the appointment of the compulsory strata manager and will set out the history of the issues experienced from an objective standpoint and by reference to key documents such as minutes of meetings, email correspondence, accounting records, expert reports, etc.

Any owners, or an owners corporation, responding to an application for compulsory management will also need to weigh up the allegations made on an objective basis and consider whether changes in the administration or operation of the scheme need to be adopted to avoid compulsory management. Any owners who oppose the appointment of a compulsory strata manager should also prepare a witness statement responding to the allegations made.

Some examples of issues which may give rise to the Tribunal making an order for the appointment of a strata manager include:

  • The owners corporation fails to keep the common property in a state of good and serviceable repair as required by section 106 of the Strata Schemes Management Act 2015.
  • The owners corporation is not raising sufficient levies, is not maintaining the capital works fund, or is continually depleting the capital works fund.
  • The owners corporation does not have the mandatory insurance which is required.
  • The strata committee is not functioning due to personal grievances between the individuals on the committee and a deadlock in decision making.
  • An Annual General Meeting has not been convened or the owners corporation is not conducting meetings properly in accordance with the legislation.

Compulsory management can have draconian effects on an owners corporation and if it is able to be avoided this is usually the best option. Owners should endeavour to resolve issues without the external intervention of the Tribunal if possible and many strata managing agents are experienced in assisting in relation to this.

In the event however that best endeavours to reach a resolution fail, if there is sufficient evidence the Tribunal has power to order the compulsory appointment of a strata manager pursuant to section 237 of the Strata Schemes Management Act 2015 to protect owners from enduring the stress of living within an owners corporation which is not functioning satisfactorily.

The information provided in this article is general information only and should not be relied upon as legal advice or be used as a substitute for obtaining legal advice. The specific circumstances relating to you impact upon your legal rights and obligations and personal legal advice based upon your circumstances should be obtained. This area of law changes frequently and the law may have changed after the time this article was prepared, up-to-date legal advice should be obtained. Please do not hesitate to contact Williamson Lawyers if we may be of assistance.

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