Mondovo

Skip to main content
All Posts By

OMB Solicitors

On a Scale of One to Ten (Years) The appointment of a building manager in a NSW Strata Scheme

On a Scale of One to Ten (Years): The appointment of a building manager in a NSW Strata Scheme

By Articles, Body Corporate

In a year dominated by COVID-19, vaccines and lockdowns, do not be surprised if you missed an equally significant headline from New South Wales’ highest court – the appointment of a building manager in a strata scheme!

When the Strata Schemes Management Act 1996 (NSW) was amended by the Strata Schemes Management Act 2002 (NSW), the legislation restricted a building manager from continuously extending an agreement for more than 10 years after the Amendment Act, including any term or option to renew the agreement.

Previously, a building manager could be engaged by an owners corporation indefinitely.

However, it appears that the recent appeal decision of Australia City Properties Management Pty Ltd v The Owners – Strata Plan No 65111 has, for the time being at least, affirmed the legislature’s intention when it introduced a 10 year limit on the appointment of a building manager in a strata scheme.

Australia City Properties Management Pty Ltd

In Australia City Properties Management Pty Ltd v The Owners – Strata Plan No 65111, there was a dispute between the building manager and the owners corporation regarding the term of the management agreement (“Agreement”), which was entered into on 30 March 2001 – before the Amendment Act.

While the Agreement, dated March 2001, was for an initial period of ten years, with an option to renew for three (3) additional terms of five (5) years, the building manager and owners corporation entered into two (2) deeds of variation (“Deeds”) in March 2010 and March 2015 – after the Amendment Act took effect.

The Deeds had the effect of extending the term of the Agreement beyond the 10-year limit, such that it had an expiration date of March 2041.

In August 2019, the owners corporation terminated the Agreement, on the basis that the building manager had been “grossly negligent” in performing its caretaking duties. The manager argued that the Agreement was not validly terminated and as such, was entitled to damages in the amount of $2 million. These damages were calculated on the basis the Agreement was for a (total) term of 40 years.

Supreme Court Appeal

The issue on appeal was whether the Deeds in 2010 and 2015 were considered “caretaker agreements” under the Amendment Act, such that they were limited to a term of 10 years.

In determining whether the Deeds were limited to a term of 10 years, the Supreme Court considered their “text, context and purpose”.

Given the purpose of the Deeds was to grant a further option under the original Caretaking Agreement, the Court held that the Deeds were, in fact, separate “caretaker agreements”, as defined by the legislation.

The effect of this is that the Deeds were “read down” to expire on 29 April 2025, rather than March 2041, such that the Agreement was limited to a term of 10 years.

As a result, any award of damages to the service contractor for unlawful termination of the Agreement would be calculated up to April 2025.

While Australia City Properties Management may ultimately reach the High Court of Australia, for the time being at least, the decision by Chief Justice Bathurst has provided guidance on the term of a management agreement in a strata scheme.

Will Queensland follow?

While the term of appointment for building managers in NSW strata schemes is (currently) capped at a maximum term of 10 years, the same cannot be said of schemes across the border.

In Queensland, bodies corporate which are regulated by the Body Corporate and Community Management (Accommodation Module) Regulation 2020 (“the Accommodation Module”) may appoint a service contractor for a maximum term of 25 years, including any terms of extension.

And if you thought snap lockdowns were long…

Bodies corporate regulated under the Body Corporate and Community Management (Standard Module) Regulation 2020 are currently restricted to a term of ten (10) years.

Given the significance of the decision in Australia City Properties Management, it will be interesting to see if Queensland follows the lead of New South Wales and implements a limit on the term of a caretaking agreement for schemes regulated under the Accommodation Module.

OMB – Specialist Strata Professionals

OMB Solicitors’ specialist strata practitioners have recently seen a number of building managers attempt to circumvent the 10-year limit by requesting owners corporations extend their management agreement beyond this term.

Owners corporations should consult with OMB Solicitors when reviewing (or varying) the terms of its management agreement, to ensure it complies with the legislation.

Juliette Nairn Gold Coast Lawyers

When and why should a Body Corporate obtain a Building Defects Report?

By Body Corporate, Videos

In this video, OMB Solicitors Partner Juliette Nairn delves into the requirement of bodies corporate to obtain an expert report for building defects.

 

Today, I was wanting to speak about some of the changes and one, in particular, that’s occurred in our modules. As we all know in our body corporate industry, our modules changed on 1 March 2021. With respect to one of those changes, it is a requirement for a body corporate at its second Annual General Meeting to put up a motion. 

So it’s a motion proposed by the committee that the body corporate lawyers Gold Coast resolves to obtain an expert report of the whole of its building dealing with residential building defects. As a result of that change in the legislation, we’ve had a number of inquiries from body corporates and committees about, well, if the legislation says we have to do it at the second Annual General Meeting, does that mean we can’t do it at the third Annual General Meeting, or can we only get one report? Or if we don’t get that one report, have we missed our opportunity? So we’re going to answer some of those questions. 

A body corporate, with respect to submitting a building defects report either to a builder to carry out rectification work or to go to QBCC, can submit any number of reports and make any number of claims to QBCC for the rectification of residential building defects. In addition to that, a body corporate or a committee can make a decision to procure so to facilitate and engage experts to do any number of expert reports regarding their building. And that could happen at the first Annual General Meeting and anywhere up to the 10th Annual General Meeting.

The purpose of the change in the module is simply to bring the matter to the attention of the body corporate and its committee to say you are a new building. During the first three to six years of your body corporate that potentially could be latent defects or in the earliest stages of your building, there could be minor defects while the builder is still around. And we want you to put forward that motion where it’s a legal requirement for you to obtain a defects liability report about residential building defects affecting your building. That’s all that section really deals with.

From my perspective, I wanted the legislators to go further with their change to the module. I wanted the legislators to do what we recommend body corporates do, which is at their first Annual General Meeting.

So this is the first time that a body corporate is in control of the meeting after the initial period from the original owner. But at that time, it consider the type of motions to go on its first Annual General Meeting, and at that time, say we want to hire an independent expert to look over all our aspects of common property and report to us as to whether or not there is any problems within our building. Because at that first Annual General Meeting, it’s quite possible that the original owner, the developer, still exists and that the builder is still attending to other defects pursuant to the building contract it signed with the original owner. 

So I would have liked the legislators to have actually made it mandatory at that time for a body corporate lawyers Gold Coast its first Annual General Meeting to specifically deal with those residential building defects. Obviously, this is a very big topic at the moment, particularly when we look at what happened in Miami in the United States with the falling down of that building and we’ll certainly learn a lot in the future with respect to those types of buildings, but particularly here in Queensland where we have substantial building work and new builds going on at the moment which are in the vicinity of the beachfront, they’re built on sand, are affected by weather, are affected by poor building practices and are affected by sinkholes. We are going to really need to focus in the future on residential building defects and we need to start looking at those issues now. 

So just a reminder when you’re dealing with a new build and particularly at your second Annual General Meeting, remember the new requirement in the module. But based on my recommendation, take it a step further and deal with those issues at your first Annual General Meeting. 

Thank you very much for taking the time to listen to me today. As you are aware, I’m Juliette Nairn of OMB Solicitors and residential building defects and dealing with them from a body corporate lawyers Gold Coast perspective is something that I have done since 1997 and it’s something that I’m quite passionate in making sure that we’re increasing the building standards within our body corporate buildings, particularly in Queensland.

Book now