New South Wales Bills Explanatory Notes

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STRATA SCHEMES MANAGEMENT BILL 1996

1996

Explanatory note

This explanatory note relates to this Bill as introduced into Parliament.

The Strata Schemes Management (Miscellaneous Amendments) Bill 1996 is
cognate with this Bill.

Overview of Bill
The object of this Bill is to repeal and re-enact in a separate Act provisions
currently contained in the Strata Titles Act 1973 and the Strata Titles
(Leasehold) Act 1986 relating to the management of strata schemes
established under those Acts and the settlement of disputes concerning those
schemes. The Bill renames the 1973 and 1986 Acts to the Strata Titles
(Freehold Development) Act 1973 and the Strata Titles (Leasehold
Development) Act 1986.

Significant changes to the management and dispute provisions include the
following:

Management

* At present, the 1973 and 1986 Acts provide that a strata scheme has
the by-laws set out in those Acts. Some of those by-laws can be
amended or revoked by the body corporate of the scheme (now called
the owners corporation), but some of those by-laws cannot be
amended or revoked. The Bill changes those by-laws that cannot be
amended by an owners corporation into provisions of the proposed
Act. Those by-laws that can currently be amended or revoked are
retained as the by-laws for existing strata schemes. However, new
strata schemes will be able to register their own by-laws.

* An owners corporation will be able to give a 10% discount on levies
paid before the due date. Overdue levies will attract interest at 10%
per annum (or another rate set by the regulations) if not paid by the
end of one month after the due date.

* Miscellaneous changes are made to the provisions relating to the
insurance taken out in relation to a strata scheme, including requiring
updated valuations of buildings at least every 5 years and increasing
the amount of public liability insurance required from $5,000,000 to
$10,000,000 per claim.

* Auditing of financial statements for a strata scheme must be carried
out in accordance with Australian Auditing Standards.

* Certain restrictions are imposed on the powers of an owners
corporation during the initial period. The initial period is the period
from when the owners corporation is constituted until there are owners
(other than the original owner) whose unit entitlements are at least
one-third of all the unit entitlements for the strata scheme concerned.

The Bill allows the owners corporation to apply to the Board to
overcome those restrictions rather than, as at present, to the Supreme
Court.

* An owners corporation is to be advised when a mortgagee has taken
possession of a lot and when the use of a lot changes.

Explanatory note page 2

* An owner will be able to appoint an agent to receive notices and other
documents from the body corporate if the proprietor is intellectually or
physically impaired, is illiterate or is unable to read or write English
sufficiently well or is absent from the lot.

* Exemptions from certain provisions of the proposed Act are provided
for strata schemes containing 2 lots only.

* The proposed Act makes miscellaneous changes to the procedures for
meetings of owners corporations and of councils of owners
corporations (now called executive committees), including
amendments to the notice, quorum and voting provisions.

Disputes

The Strata Titles Commissioner (now called the Strata Schemes
Commissioner) will have the function of mediating strata disputes
rather than the Commissioner's current function of adjudicating in
such disputes.

Adjudicators will be appointed and the Commissioner's current
powers to make orders and most of the current powers of the Strata
Titles Board (now called the Strata Schemes Board) to make orders
will be transferred to those Adjudicators.

The Board will retain power to make certain types of orders and will
hear appeals from decisions of Adjudicators.

An Adjudicator or the Board will be required to refuse to deal with a
matter if satisfied that in the circumstances mediation was appropriate
but was not attempted.

The Board will be given power to impose a civil penalty of up to 50
penalty units (currently $5,000) for a breach of an order of an
Adjudicator or the Board. The Board will be able to impose a civil
penalty of up to 5 penalty units (currently $500) if satisfied that a
person has contravened a notice issued by an owners corporation to
comply with a particular by-law that the person has previously
contravened.

Explanatory note page 3

Outline of provisions

Preliminary

Chapter 1 contains clauses 1-7. The Chapter makes provision for the name
of the proposed Act, its commencement and the definitions of certain words
and expressions used in it. The Chapter provides that the proposed Act binds
the Crown.

Chapter 2

Management of strata schemes

Part 1

Introduction

Part 1 contains clauses 8-10. The Part explains that a strata scheme is
managed principally by an owners corporation established for the scheme.

The executive committee of the owners corporation, and the strata managing
agent if one is appointed, are also involved in the management of the scheme.

Part 2

The principal manager--the owners corporation

Part 2 contains clauses 11-15. The Part constitutes an owners corporation for
a strata scheme on registration of the relevant strata plan under the Strata
Titles (Freehold Development) Act 1973 or the Strata Titles (Leasehold
Development) Act 1986. The Part confers functions on an owners corporation
and enables it to employ persons to assist in the exercise of those functions.

The Part also gives effect to Schedule 2 which contains provisions relating to
meetings and procedure of an owners corporation.

Part 3

Others involved in management--the executive

committee

Division 1

Constitution of the executive committee

Division 1 contains clauses 16-21. The Division requires an owners
corporation to elect an executive committee and requires the executive
committee to appoint a chairperson, secretary and treasurer. With some
exceptions, the decisions of the executive committee are the decisions of the
owners corporation. The Division also gives effect to Schedule 3 which
contains provisions relating to the constitution of the executive committee
and the appointment of the chairperson, secretary and treasurer.

Explanatory note page 4

Division 2

Members and office holders of the executive

committee

Division 2 contains clauses 22­25. The Division specifies the functions of
the secretary and treasurer of the executive committee and provides that only
certain persons can exercise functions relating to the finances and accounts of
an owners corporation. The Division also allows an owners corporation to
make a payment to a member of the executive committee in recognition of
services performed by the member.

Part 4

Others involved in management--strata managing

agents

Division 1

Appointment of strata managing agent

Division 1 contains clauses 26 and 27. The Division enables an owners
corporation to appoint a strata managing agent who is licensed under the
Property, Stock and, Business Agents Act 1941
Division 2

Functions of strata managing agent

Division 2 contains clauses 28­32. The Division enables an owners
corporation to delegate functions to a strata managing agent. An owners
corporation may continue to exercise functions that have been delegated to a
strata managing agent. The Division also places requirements on a strata
managing agent to record the exercise of certain functions.

Division 3

Accountability of strata managing agent

Division 3 contains clauses 33­40. The Division enables an owners
corporation to serve a notice on its strata managing agent requiring the agent
to provide certain information relating to financial matters and transactions
entered into by the strata managing agent on behalf of the owners
corporation.

Part 5

By-laws

Division 1

What by-laws apply to a strata scheme?

Division 1 contains clauses 41­43. The Division provides that the by-laws
for a strata scheme in existence at the commencement of the proposed Act are
those set out in Schedule 1. New strata schemes will have to register a set of

Explanatory note page 5

by-laws under related amendments made to the Strata Titles (Freehold
Development) Act 1973 and the Strata Titles (Leasehold Development) Act
1986. The Division specifies matters that may be included in those by-laws
(although it does not limit the matters that may be included) and enables
model by-laws to be prescribed and adopted.

Division 2

How are the by-laws enforced?

Division 2 contains clauses 44­46. The Division provides that owners,
occupiers, mortgagees and covenant chargees of lots in a strata scheme are
bound by the by-laws for the scheme. An owners corporation may serve a
notice on an occupier of a lot who is breaching a by-law requiring the
occupier to comply with the by-law. Such a notice may be enforced by an
owners corporation under Chapter 5.

Division 3

Amendment or repeal of by-laws

Division 3 contains clauses 47­50. The Division enables an owners
corporation to amend its by-laws and sets out the procedure for doing so. The
Division also places certain restrictions on by-laws.

Division 4

Special provisions for by-laws conferring certain

rights or privileges

Division 4 contains clauses 51­56. The Division enables an owners
corporation to make a by-law conferring on an owner or owners of lots in a
strata scheme a right of exclusive use and enjoyment of, or special privileges
in respect of, the whole or part of the common property for the scheme.

Division 5

Special provisions for strata schemes that are part

of community schemes

Division 5 contains clauses 57­60. The Division provides for the
management statement for a community scheme of which a strata scheme
forms part to prevail over the by-laws for the strata scheme. The Division
also places obligations on lessees of lots to comply with such management
statements.

Chapter 3

Key management areas

Part 1

Introduction

Part 1 contains clause 61. The Part explains that the owners Corporation for a
strata scheme has the control, management and administration of the strata
scheme. The Part also gives an overview of the key areas of responsibility
that an owners corporation has in managing a strata scheme.

Explanatory note page 6

Part 2

Maintenance and repairs

Part 2 contains clauses 62­65. The Part imposes a duty on an owners
corporation to maintain and repair the common property of a strata scheme.

The Part gives power to an owners corporation to carry out work and recover
money from some other person who was responsible for carrying out the
work but failed to do so. The Part also sets out the circumstances in which an
owners corporation may enter property for the purpose of carrying out
necessary work.

Part 3

Finances of strata scheme

Division 1

Admimistrative and sinking funds and account of

owners corporation

Division 1 contains clauses 66­74. The Division requires an owners
corporation to establish an administrative and sinking fund for the strata
scheme. A sinking fund need not be established for certain schemes
containing 2 lots only. The Division specifies the types of payments that are
to be made to and from those funds. The Division also requires an owners
corporation to establish an account in a financial institution.

Division 2

Levy of contributions

Division 2 contains clauses 75­80. The Division requires an owners
corporation to estimate its expected expenditure and to levy contributions to
its administrative and sinking fund to cover that expenditure. The Division
also provides for the manner in which those contributions may be levied and
enables discounts to be given for early payment and interest to be imposed
for late payment.

Part 4

Insurance

Division 1

Definitions

Division 1 contains clauses 81 and 82. The Division defines certain terms
used in the Division.

Division 2

Insurance of buildings

Division 2 contains clauses 83­86. The Division requires an owners
corporation to insure buildings in the strata scheme. In the case of a strata
scheme for part only of a building, the obligation to insure is placed on the

Explanatory note page 7

owners corporation for the strata scheme and the other owners of the
building. Valuations of buildings to be insured are to be obtained at least once
every 5 years. The Division also enables an Adjudicator to grant exemptions
from the requirements of the Division.

Division 3

Other insurance

Division 3 contains clauses 87 and 88. The Division specifies other types of
insurance that an owners corporation is required to take out, such as
insurance relating to workers compensation and occupier's liability
insurance. The Division also enables an owners corporation to take out
certain other types of insurance.

Division 4

Insurance claims and other matters affecting

insurance

Division 4 contains clauses 89­95. The Division contains miscellaneous
provisions, such as provisions relating to who has an insurable interest in
property in a strata scheme and what happens in certain circumstances when
an insurance claim is made by an owners corporation.

Part 5

Records and accounts

Division 1

The strata roll

Division 1 contains clauses 96­99. The Division requires an owners
corporation to keep a strata roll containing information in relation to each lot
in the strata scheme and to the common property in the strata scheme.

Division 2

Other records and accounts required to be kept by

owners corporation

Division 2 contains clauses 100­105. The Division requires an owners
corporation to keep records of certain matters, such as minutes of meetings
and notices, orders and accounts. The Division enables an owners
corporation to require certain persons possessing records, accounts or
property of the owners corporation to produce those records or accounts or
that property.

Division 3

Preparation and auditing of financial statements

Division 3 contains clauses 106 and 107. The Division requires an owners
corporation to prepare financial statements. If the owners corporation decides
to have those statements audited, they must be audited in accordance with
Australian Auditing Standards.

Explanatory note page 8

Division 4

Inspection of records and issue of certificates

Division 4 contains clauses 108 and 109. The Division enables certain
persons to inspect the records of an owners corporation and to request the
owners corporation to issue a certificate as to certain matters relating to a
particular lot.

Part 6

Other provisions relating to functions of the

owners corporation

Part 6 contains clauses 110-115. The Part contains miscellaneous provisions
relating to the functions of an owners corporation. Those provisions include
powers of an owners corporation to borrow money and deal with property
and restrictions on the things that an owners corporation can do in the initial
period after the strata scheme is established.

Chapter 4

Owners, occupiers and other persons

with interests in lots

Part 1

Responsibilities sf owners, occupiers and other

persons relating to lots

Part 1 contains clauses 116 and 117. The Part imposes certain obligations on
owners, occupiers and other persons with interests in lots not to interfere with
the structure of the lot or services provided to the lot and not to create a
nuisance.

Part 2

Notices required to be given by owners,
occupiers and ether persons

Part 2 contains clauses 118­120. The Part requires certain notices to be given
to an owners corporation when a person acquires a right to cast a vote at a
meeting of the owners corporation, leases or subleases a lot or, being a
mortgagee, takes possession of a mortgaged lot.

Part 3

Representatives of owners and other persons

Part 3 contains clauses 121 and 122. The Part deals with agents and
representatives of owners and other persons having interests in lots.

Explanatory note page 9

Chapter 5

Disputes and orders of Adjudicators and

Board

Part 1

Application for order to resolve issue relating to

strata scheme

Part 1 contains clauses 123­126. The Part deals with the making of an
application for an order under the Chapter in relation to a dispute, complaint
or other issue affecting a strata scheme. The application is initially made to
the Registrar of the Board who must refuse to accept the application unless
mediation has been attempted.

Part 2

Mediation and resolution of disputes by

Commissioner

Part 2 contains clauses 127­134. The Part provides for a person to apply to
the Commissioner for mediation of a matter in relation to which an
application for an order under the Chapter can be made. Certain disputes
between strata schemes for part only of a building and other owners of the
building may also be mediated under this Part. Mediation under the Part is
carried out by mediators approved by the Commissioner. However, an
Adjudicator can make orders giving effect to agreements between parties to
mediation sessions whether or not mediation was arranged through the
Commissioner or independently. The Part also contains provisions relating to
mediation and mediators.

Part 3

Procedure after Registrar receives application

Part 3 contains clauses 135­137. The Part sets out the procedure that must be
followed by the Registrar after the Registrar accepts an application for an
order under the Chapter.

Part 4

Orders of Adjudicator

Division 1

General power of Adjudicator to make orders

Division 1 contains clauses 138 and 139. The Division gives an Adjudicator
a general power to settle disputes relating to strata schemes where the dispute
is not the subject of other provisions contained elsewhere in the Chapter.

Explanatory note page 10

Division 2

Orders relating to property

Division 2 contains clauses 140­145. The Division gives an Adjudicator
certain powers to make orders relating to matters affecting property in the
strata scheme, such as alterations and repairs to common property, acquisition
of property, and entry to lots by an owners corporation.

Division 3

Orders relating to insurance

Division 3 contains clauses 146 and 147. The Division gives an Adjudicator
certain powers to make orders relating to the insurance of strata scheme
property.

Division 4

Orders relating to contributions

Division 4 contains clauses 148 and 149. The Division gives an Adjudicator
certain powers to make orders relating to the contributions levied by an
owners corporation.

Division 5

Orders relating to keeping of animals

Division 5 contains clauses 150 and 151. The Division gives an Adjudicator
certain powers to make orders relating to the keeping of animals in a strata
scheme.

Division 6

Orders relating to meetings and decisions of

owners corporation

Division 6 contains clauses 152­154. The Division gives an Adjudicator
certain powers to make orders relating to meetings and decisions of an
owners corporation.

Division 7

Orders relating to records of owners corporation

Division 7 contains clauses 155 and 156. The Division gives an Adjudicator
certain powers to make orders relating to the keeping, updating and
inspection of the records of an owners corporation.

Division 8

Orders relating to by-laws

Division 8 contains clauses 157­159. The Division gives an Adjudicator
certain powers to make orders relating to the by-laws of a strata scheme.

Division 9

Orders relating to covenants and ether restrictions

Division 9 contains clauses 160 and 161. The Division gives an Adjudicator
certain powers to make orders relating to the enforcement of positive
covenants and other restrictions over lots in a strata scheme.

Explanatory note page 11

Division 10

Orders appointing strata managing agents

Division 10 contains clause 162. The Division gives an Adjudicator certain
powers to make orders appointing a strata managing agent for a strata scheme
on application by certain persons having an interest in the scheme or, in
limited circumstances, on the Adjudicator's own motion.

Division 11

Provisions relating to orders of Adjudicator

Division 11 contains clauses 163­176. The Division contains. general
provisions relating to orders made by Adjudicators dealing with matters such
as dismissal of applications for orders, investigation of applications, the
making of ancillary orders and interim orders and restrictions on the making
of orders.

Division 12

Appeals against orders of Adjudicator

Division 12 contains clauses 177­181. The Division provides for an appeal
to the Board against an order of an Adjudicator.

Part 5

Orders of Board

Division 1

Matters for which orders may be made by Board

Division 1 contains clauses 182­184. The Division gives the Board specific
powers to make orders in relation to the authorisation of certain acts by an
owners corporation during the initial period and reallocation of unit
entitlements. The Board can also deal with certain matters referred by an
Adjudicator.

Division 2

Provisions relating to orders of Board

Division 2 contains clauses 185­199. The Division contains general
provisions relating to orders made by the Board dealing with matters such as
dismissal of applications for orders, investigation of applications, the making
of ancillary orders and restrictions on the making of orders.

Division 3

Appeals against orders of Board

Division 3 contains clauses 200 and 201. The Division provides for an
appeal to the Supreme Court on a question of law concerning an order of the
Board.

Explanatory note page 12

Part 6

Enforcement of orders of Adjudicators and Board

and certain notices

Part 6 contains clauses 202­206. The Part enables the Board to impose a
civil penalty of up to $5,000 for a contravention of an order of an Adjudicator
or the Board. The Part also enables the Board to impose a civil penalty of up
to $500 on a person who contravenes a by-law of a strata scheme after having
received a notice from the owners corporation regarding a previous
contravention of the by-law.

Part 7

Effect of orders of Adjudicators and Board

Part 7 contains clauses 207­210. The Part contains provisions dealing with
matters such as the recording of certain orders in the Register and the time at
which orders take effect.

Chapter 6

Administration

Part 1

Strata Schemes Commissioner

Part 1 contains clauses 211­216. The Part provides that the Director-General
of the Department of Fair Trading is to be the Strata Schemes Commissioner.

The Part sets out the functions of the Commissioner.

Part 2

Strata Schemes Adjudicators

Part 2 contains clauses 217­219. The Part provides for the appointment of
Strata Schemes Adjudicators and sets out their functions.

Part 3

Strata Schemes Board

Part 3 contains clauses 220­222. The Part provides for the establishment of a
Strata Schemes Board. The members of the Board will be Magistrates or
persons qualified to be Magistrates. The Part sets out the functions of the
Board and provides that proceedings before the Board are to be heard by one
member sitting alone.

Part 4

Registrar and Deputy Registrar

Part 4 contains clauses 223 and 224. The Part provides for the appointment
of a Registrar and Deputy Registrar of the Strata Schemes Board and sets out
their functions.

Explanatory note page 13

Chapter 7

General

Part 1

Matters relating to proceedings

Part 1 contains clauses 225­230. The Part contains miscellaneous provisions
relating to the taking of proceedings in relation to strata schemes.

Part 2

Legal assistance

Part 2 contains clauses 231­234. The Part enables certain applications for
legal assistance to be made to an Adjudicator by an owner of a lot or an
owners corporation.

Part 3

Service of documents

Part 3 contains clauses 235 and 236. The Part provides for the way in which
notices and other documents may be served on a person under the proposed
Act.

Part 4

Seal of owners corporation

Part 4 contains clauses 237 and 238. The Part contains provisions dealing
with who may affix the seal of an owners corporation to a document and who
is to have custody of the seal.

Part 5

Miscellaneous

Part 5 contains clauses 239­248. The Part contains miscellaneous provisions,
including provisions relating to the making of regulations and giving effect to
Schedule 4 which contains savings and transitional provisions.

Schedules

Schedule l contains the by-laws for existing strata schemes.

Schedule 2 sets out provisions relating to the meetings and procedure of an
owners corporation.

Schedule 3 contains provisions dealing with the constitution, and meetings,
of an executive committee of an owners corporation.

Schedule 4 contains savings and transitional provisions.

Explanatory note page 14

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