Strata Law​

Strata is a system of allocating title to a multi-level building. It is a means of dividing up the air-space above a parcel of land in a way in which each lot can be owned, purchased and sold independently of the other lots and independently of the common areas. It is a way to define the boundaries of the individual lots in the air-space above a parcel of land.

When a strata plan is registered by the developer it is allocated a number (for example 12345) and the scheme then becomes known as “The Owners – Strata Plan No. 12345”. This is what is referred to as the “strata scheme”. Once the strata plan is registered and the scheme comes into existence the “owners corporation” is created and it obtains ownership of common property from the developer.

The owners corporation is a legal entity which is created when the strata scheme is created. In some respects the owners corporation is similar to a company. It owns the common property and is responsible for the administration of the strata scheme. This is done by electing a committee of “managers” (i.e. the strata committee) and engaging a strata managing agent who is also given authority to manage the scheme. The office bearers (Chairperson, Secretary and Treasurer are the executive management of the scheme.

There are many laws which impact upon strata schemes however the main law governing day-to-day management of strata schemes in NSW is the Strata Schemes Management Act 2015. When I refer to the “law” in this article I mostly refer to this law.

A large strata scheme is a strata scheme which has more than 100 lots (excluding utility lots and lots used for the purposes of parking). In some circumstances the law prescribes different requirements for large strata schemes.

For example, it is a requirement for a large strata scheme to obtain at least 2 quotes in relation to any work or expenses which will exceed $30,000.

The lots are the individual units which, as referred to above may be owned, purchased and sold independently of the other lots. They are numbered consecutively. For example, if there are 10 lots in a strata scheme they will be numbered from 1 to 10. Sometimes the postal address of the lot does not correlate with the lot number. However, knowing your lot number is important.

The common areas, such as the driveway, the hallways, the gardens around the building, are usually common property. This means they are not owned by any of the lot owners but instead are owned by the strata scheme. All the owners and occupants may use the common property as they require together with the other owners and occupants.

The common property is not limited to the common areas. There are parts of the building which are essential for its stability and these parts are also often common property. The boundaries around the lots, including common walls, are also common property.

The law defines the common property as any part of a parcel that is not within a lot.

The starting point to identify what is common property is to obtain a copy of the strata plan. The thick lines on the strata plan show the boundary walls, these walls are common property. The air space within the thick lines will either be designated as common property or the air-space of a particular lot.

To interpret the strata plan, it is generally easier to identify the areas which are lot property and assume all other areas are common property.

Some examples of common property include:

• The windows and sliding doors around the outside of the lots.
• The concrete slab which is the foundation for each level of the building.
• The roof.
• Balcony balustrades.
• Lifts.
• The driveway and gardens.
• The stormwater and sewerage services, the hot and cold water and gas services.
• Fire safety systems.

Lot property is the airspace within a lot, including some of the fixtures and fittings within the airspace. In legal terms the lot is created by the inner surface of the floor, ceiling and boundary walls of the lot. Fixtures which are wholly within the air-space of the lot are lot property.

Some common examples of lot property include:

• Internal walls and doors (walls which are not located on thick lines on the strata plan).
• Kitchen cabinetry.
• Laundry tub, bath, basin, toilet.

The owners corporation has a strict obligation to properly maintain and keep the common property in a state of good and serviceable repair. This includes renewing or replacing fixtures or fittings comprised in the common property.

However, the duty to maintain the common property does require the owners corporation to upgrade or improve the common property. If the owners corporation wants to add to, alter or erect a new structure on the common property, this must be approved by special resolution at a general meeting.

If an owner identifies an area of the common property requires maintenance or repair, the first step is to provide clear notice to the strata manager or the Secretary. If the issue is not addressed an owner may request a motion be placed on the agenda of the next general meeting or make an application to the NSW Civil and Administrative Tribunal for an order compelling the owners corporation to undertake work.

Owners are permitted to undertake work to the common property boundaries around their lots, however there are rules which need to be considered prior to undertaking the work.

The law divides the work owners may undertake into three categories and different levels of approval are presceibed for each category.

The three categories are:

• Cosmetic work.
• Minor work,
• Work which is neither cosmetic or minor.

Cosmetic work includes work such as installing hooks, nails or screws, installing handrails, painting; and crack repairs in internal walls. Owners do not require approval from the owners corporation for this work.

Minor work includes renovating a kitchen; changing recessed light fittings; installing or replacing wood or other hard floors; and reconfiguring internal walls. Owners must obtain approval at a general meeting prior to undertaking this work. The approval is provided by the passing of a general resolution, a special resolution is not required.

The third category is the work which is not cosmetic work or minor work but is more significant in nature. This includes work which involves structural changes, waterproofing, or changes the external appearance of the lot. Owners must obtain approval at a general meeting prior to undertaking this work. A special resolution is required.

The registered strata plan is a very important document.

It is important because, first, it defines what is lot property and what is common property. The thick lines on the strata plan show the boundaries of the lot property. The walls located on these boundaries are common property, and the lot property starts from the inner surface of those walls.

Secondly, the strata plan sets out the unit entitlements.

Unit entitlements are important. They are shown on the strata plan. The strata plan sets out the number of units of entitlement which apply to each lot.

Generally larger lots have higher unit entitlements than do smaller lots. This means larger lots generally own a larger share of the common property than the smaller lots.

There are two main reasons unit entitlements are important. The unit entitlements govern how much voting power a particular lot has and how much strata levies are payable by each lot.

That is, a larger lot usually has higher unit entitlements, and as it owns a larger share of the common property, it has more voting power and it pays a higher contribution towards the strata levies.

The registered by-laws are also a very important document. The by-laws are the rules which apply to the strata scheme and the owners and occupants within the scheme.

Strata schemes have the power to make their own by-laws and it is quite common for schemes to make many by-laws to regulate how the common property may be used. To make a by-law, it must be approved as a special resolution at a general meeting.

It is important to consider the by-laws prior to purchasing a lot in a strata scheme and it is important to consider the by-laws prior to undertaking work or making changes to your lot.

If an owner or occupant does not comply with the by-laws the strata scheme may issue a notice to comply to the offender and may eventually make an application to the NSW Civil and Administrative Tribunal to obtain orders to compel compliance with the by-laws or even impose a penalty for noncompliance.

One of the most common breaches of by-laws include parking motor vehicles on the common property or in other owners parking spaces.

This is a by-law which is made to give an owner exclusive use over an area of the common property. It is sometimes referred to a common property rights by-law.

It is common for exclusive use by-laws to be made for bathroom renovations, kitchen renovations, the installation of air-conditioning systems, and the installation of awnings.

In most cases exclusive use by-laws are drafted by a legal practitioner who specialises in strata law. The by-law is provided to the strata manager who will then convene a general meeting for the owners to vote whether to approve or reject the by-law. A special resolution is required.

It is important to note that an exclusive use by-law does not change common property to lot property. The area which is subject to the exclusive use by-law will remain common property however its control, maintenance, etc. may be subject to the terms of the exclusive use by-law.

There are two types of general meetings. There are Annual General Meetings which must be held every 12 months and then there are Extraordinary General Meetings, which are held if the owners corporation needs to make a decision prior to next Annual General Meeting.

For an Annual General Meeting all owners must receive notice of the meeting at least 14 days prior to the meeting, for Extraordinary General Meetings the notice period is 7 days.

It is not compulsory to attend general meetings however it is certainly good to attend as many important decisions are made at general meetings, especially the Annual General Meeting.

It is a requirement that the owners corporation keep full and accurate minutes of the general meetings, which must minute all the motions passed at the meeting.

If the scheme is not large strata scheme, the owners corporation must provide each owner with a copy of the minutes within 14 days after the general meeting. If the scheme is a large strata scheme, a copy of the minutes must be provided if an owner requests the minutes within 14 days after the general meeting.

If an owner is not able to attend a general meeting in person the owner may appoint a proxy to vote on behalf of the owner at the general meeting. There are strict limits on the number of proxy any one owner may hold.

The law places limits on the number of proxies an owner may hold to avoid proxy farming. Proxy farming is where one owner sources a large number of proxies to procure the voting power required to determine the voting of resolutions.

The law provides for three types of resolutions and prescribes which type of resolutions need to be made to pass motions at a general meeting: ordinary resolutions, special resolutions and unanimous resolutions.

An ordinary resolution is one which may be made by at least half of the owners present at the meeting, who are entitled to vote, voting in favour of the motion. This includes votes which are made by proxy.

A special resolution is one which is made by not more than 25% of the value of the votes cast, taking into account those who are entitled to vote, being cast against the motion. In other words, a special resolution requires at least 75% of the owners to vote in favour of the motion.

A unanimous resolution means that no owner may vote against the motion.

The law states that the owners corporation must appoint a strata committee.

The strata committee are analogous to the managers of a business. Together, acting by a majority of their number, they have authority to the make the day-to-day decisions which do not otherwise need to be made at a general meeting.

The law states that the strata committee members must carry out their functions for the benefit, so far as practicable, of the owners corporation and with due care and diligence.

The strata committee may be appointed at the Annual General Meeting or at an Extraordinary General Meeting.

The process of appointing the strata committee involves:

• Nominations for membership being made and received.
• The number of strata committee members being decided.
• The strata committee being elected.
• The names of the strata committee members being recorded in the minutes of the meeting.

The law provides that the strata committee must appoint a chairperson, secretary and treasurer of the owners corporation.

The functions of the chairperson are to preside at and make determinations as to quorums and procedural matters at meetings of the owners corporation and the strata committee.

The functions of the secretary include issuing notices to owners, the preparation and distribution of minutes of meetings, to enable the inspection of the owners corporation’s documents, answer communications, and to convene meetings of the strata committee.

The functions of the treasurer include notifying owners of strata levies and to keep the bank account and accounting records and prepare the financial statements.

These are meetings which are held by the strata committee only. However, there are some important rules which apply to the meetings which all owners should be aware of.

Any owner of a lot is entitled to attend the strata committee meetings however a lot owner (who is not a member of the strata committee) is only able to speak at the meeting if the strata committee approves.

To facilitate owners attending strata committee meetings, notice of strata committee meetings must be given to all owners prior to the meeting and notice must be displayed on the notice board.

Motions are resolved by votes with decisions being made according to the majority of the number of votes for and against each of the motions. Only the strata committee may vote at strata committee meetings. Lot owners who attend strata committee meetings are not permitted to vote.

As is the case with general meetings, the strata committee must record full and accurate minutes of its meetings which set out all the motions which were passed at the meeting

If the scheme is not large strata scheme, the strata committee must provide each owner with a copy of the minutes within 7 days after the meeting. If the scheme is a large strata scheme, a copy of the minutes must be provided if an owner requests the minutes within 7 days after the meeting.

A strata manager is a person who holds a strata managing agent licence.

The owners corporation may appoint a strata manager to be the strata managing agent of the scheme. The appointment must be made by a written agreement and it must be approved at a general meeting. The written agreement is referred to as the strata managing agency agreement.

The law restricts the period of time a strata manager may be appointed to 3 years however the strata manager may be re-appointed at the expiration of the 3 years.

One of the main reasons strata managers are appointed is to exercise by delegated authority the functions of the owners corporation, the strata committee or the office holders. However, the strata managing agent cannot make decisions which the law says must be decided by the owners corporation.

The owners corporation may, at any time, convene a general meeting and revoke or vary the delegation of authority to the strata managing agent.

The strata managing agent is under a fiduciary duty to act in the best interests of the owners corporation. The law provides that a strata managing agent must not request or accept a gift or other benefit from another person in relation its functions as the manager of the scheme.

Building managers are contractors who are engaged by the owners corporation to assist in relation to various day-to-day requirements such as managing the repair and maintenance requirements of the Common Property, provide security services, provide cleaning services.

The building manager must have a written agreement with the owners corporation, which must be approved by the owners corporation at a general meeting. The agreement may run for a term of up to 10 years.

The developer is the persons, or entities, which owned the land, or the lots, prior to the registration of the strata plan. It is the person or entity the original purchasers of the lots purchased the lot from.

Often the developer will be a company and will be set up as a “special purpose vehicle”. This means the company was registered solely for the purpose of developing the strata scheme and after it has sold the lots it no longer has substantial assets.

The law imposes some restrictions on how developers may deal with the strata scheme. For example, the developer, or a person connected to the developer, may not be appointed as a strata managing agent until 10 years after the registration of the scheme.

Strata levies are the contributions the owners make to fund the owners corporation.

The amount which is to be raised as strata levies is set at the Annual General Meeting however if unforeseen expenses arise additional amounts may be raised as “special levies” at any Extraordinary General Meeting.

The owners corporation has two funds, an administrative fund and a capital works fund and strata levies need to be raised to ensure there are sufficient amounts in both of these funds.

These are the funds the owners corporation raises to cover the day-to-day operational expenses of the scheme.

These are the funds the owners corporation puts aside to pay for larger capital works expenditure which will be required in the future. The amounts paid into this fund are usually based upon a capital works fund plan which sets out the capital works required over a period of 10 years.

The most common disputes arise in relation to breaches of the by-laws and repairs and maintenance to the common property.

The first step to resolve a dispute is to raise the issue with the strata managing agent and provide supporting documents, such as photographs. The strata managing agent will likely than consult with the strata committee in relation to the issue.

If the strata managing agent is unable to resolve the issue, for some issues it is compulsory to attempt mediation as the next step. For more information in relation to refer to our guide to mediation

If mediation is not productive, or if mediation is not compulsory, an application will need to filed in the NSW Civil & Administrative Tribunal. Often a legal practitioner, such as Williamson Lawyers, is engaged to assist in preparing the application and to provide advice in relation to the evidence required to support the application.

Often expert opinion evidence is required, Williamson Lawyers can assist in relation to sourcing the best experts. For example, refer to our article on what evidence is required to prove noise is affecting your strata unit