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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.

Dealing with Building Defects and Strata Insurance Claims

Dealing with Building Defects and Strata Insurance Claims

By Articles, Body Corporate

The sudden collapse of a Miami apartment block on June 24, killing more than 98 people, made headlines around the world and focused attention on the horrific consequences of unaddressed building defects.

Initial findings on the collapse of the Champlain Towers South in the Florida suburb of Surfside suggest long-term degradation of reinforced concrete supports in the underground parking garage caused by water penetration from a leaking pool was a major factor.

In Australia, the increasing popularity of living close to work, retail and transport facilities means ever more high-rise apartments in our major cities and regional centres. As a result, developers rapidly construct new blocks to meet the demand, not always with the rigour required of modern construction and building codes.

High profile local cases of building defects such as the slanting of Sydney’s Opal Tower and the fire at Melbourne’s Lacrosse building have highlighted some of the legal issues involved for owners in such properties, which we’ll look at in this post.

Building defects and strata properties

A building defect can be caused in a number of ways, from faulty workmanship to poor design, use of defective materials, or a failure by a builder to follow standards set out in the National Construction Code.

For a fault caused by any of these means to be considered a defect, it must carry the risk of damage or destruction to the building or make it unable to be used for its intended purpose. This is considered a major defect.

A minor defect, by contrast, is any defect that is not a major defect and will usually be a cosmetic fault.

Common building defects include damage caused by inadequate waterproofing or cracks which appear in walls, ceilings and floors due to issues with a building’s structure.

In Queensland, a building defect is a faulty or unsatisfactory work under the terms of the Queensland Building and Construction Commission Act (‘the Act’).

Under the Act, statutory warranties exist in relation to new buildings, enforced by the QBCC. Within these periods, the builder is responsible for remedying any defects.

Defect liability periods in Queensland

Defect liability periods are the time limits in Queensland within which an owner or body corporate can make a claim against the builder to remedy defects.

Structural, or major, defects such as water leaks, major cracks and structural failure have a defect liability period of six years + six months from the ‘practical completion’ date of the building in Queensland.

Non-structural defects such as frayed carpet, or paint and tiling defects, for example, have a 12-month defect liability period.

Once a defect is detected and known about, it must be reported to the builder within 12 months through lodgment of a defective building work complaint with the Queensland Building & Construction Commission.

Defects found on both individual and common property in strata properties are covered by the statutory warranty. The body corporate may bring an action to have the defect remedied on behalf of a lot owner.

It’s important for a body corporate to act quickly once a building defect is known about as after the expiration of the warranty, responsibility for rectification will generally fall on the body.

It should be noted that a body corporate is not responsible for building defects within lots unless those defects relate to the structure of a building and the building was created in a building format plan.

Strata insurance claims

Strata insurance is taken out by a body corporate to cover public liability, damage to common property and common area contents, theft, recovery after a catastrophe, and legal liability for office bearers.

Many strata insurance policies include excluding any loss or damage arising from an existing defect in the building’s construction and/or design.

Such exclusion may leave a body corporate with limited or no cover in relation to building defects.

Bodies corporate should also check a similar exclusion is not part of the public liability coverage of the policy so that they are covered in the case of personal injury that might result from a building defect.

A body corporate can reduce its exposure by establishing the practical completion date of the building and being aware of the statutory warranty period; commissioning a defect report well before the expiry of the warranty; actioning any defects identified in the report before the liability defection period expires.

Consult specialist legal professionals

OMB Solicitors’ specialist practitioners in this area of the law mean we regularly advise bodies corporate on the complexities of strata insurance policies when building defects arise in buildings.

We will help advise on the fine print of the policy. We will also provide a body corporate with the right advice to enforce rectification of defects through the QBCC, or a separate contractual claim against a developer or builder in relation to defects.

Call us Gold coast Solicitors today if advice is required on any of the issues raised in this article.

A person's best friend – their pet!

A Person’s Best Friend – their Pet!

By Articles, Body Corporate

The “war” regarding pets within bodies corporate has been seething for a long period of time.

This “war” continues as a result of a recent case in NSW. I am not going to bore you with the details of Cooper’s case1 as they have been widely reported and commented on in other forums2.  If you would like to, you can read the full 55-page decision: see footnote.

However, this NSW Court of Appeal decision is not just another “dog case”. What I particularly want to discuss in this article, is what guidance can we obtain from the judiciary regarding by-laws and how do we implement that guidance in the future?

Due to the Covid-19 pandemic, people have been spending a lot more time in their residential accommodation and consequently, everyone wants a pet!

In NSW and VIC, walking an animal became one of the few outdoor activities that was tolerated under the restrictions. For people’s mental health, the joy of keeping a pet in their residential accommodation has been a priority to many.

So how does this impact within our Strata world? Basically, more people are seeking to have a pet (or two) within their scheme.

As a consequence, all bodies corporate (through their committee) should look at the wording of their “pet/animals” by-law and ensure that it is suitable for their scheme.

How do you enforce a pet by-law?

The starting point is to make sure your by-laws are drafted properly. The Judges in the Cooper’s Case were critical of the language used in the pet by-law (ie, how the pet by-law was drafted), but their comments went even further. Specifically, stating “the language of S136(1) is awkward” – see below:

“1363  Matters by-laws can provide for

      1. By-laws may be made in relation to the management, administration, control, use or enjoyment of the lots or the common property and lots of a strata scheme.
      2. A by-law has no force or effect to the extent that it is inconsistent with this or any other Act or law.

The subject matter of the by-laws appears to be three functions (management, administration and control) operating in relation to specified subject-matter (lots, or common property and lots, within a strata scheme).”

The language is deemed “awkward” because it does not aid the drafter of by-laws. Can I really draft a by-law that impacts on the “enjoyment of a lot”? I think not.

Although the Judges were commenting on NSW strata title laws, these are very similar to the laws in our QLD legislation. As a result, the Cooper’s Case provides us with guidance regarding how to draft a valid and enforceable by-law.

The starting point being that a lot owner’s indefeasibility of title with respect to the right of what they can and cannot do within their Lot must not be constrained by the power to make a by-law.

In other words, a by-law cannot impact on the individual rights of lot owner. By-laws are a necessary and useful tool within a Body Corporate to assist the committee in regulating common property activities and the relationships between owners, residents and other stakeholders in a scheme. By-laws need to be carefully drafted and should not simply be copied from someone else’s scheme. Also, by-laws should not deal with (or be reactive to) a one-off situation.

By-laws cannot ban pets

Once you have a well drafted pet by-law, if a resident (owner or occupier) would like to keep a “pet”, then it will make a “pet” application to the committee. Due to Cooper’s case, the committee will actually need to properly consider the application on its merit.

When we are dealing with dogs, the committee will also need to consider other legislation. For example, if a person has a recognised disability under the Guide, Hearing and Assistance Dogs Act 2009 (QLD) and relies upon the animal for assistance, the person does not need to ask permission before bringing a guide, hearing and/or assistance dog into the Body Corporate.

Certified guide dogs (either in training or fully trained) with their approved handlers have the right to enter public places, public passenger vehicles and places of accommodation. This includes shops, cinemas, cafes, restaurants, clubs, holiday accommodation, rental accommodation, Body Corporate buildings, taxis, planes, public transport and entertainment and sports venues.

The Guide, Hearing and Assistance Dog Act 2009 protects these rights and imposes penalties for people (including bodies corporate) that breach this legislation.

For a committee to appropriately identify a certified dog, look for the round blue and white cloth badge and/or harness for guide, hearing and assistance dog’s (there may also be other dog badges or brandings).

An approved handler (including those who have an alternative handler helping them to physically control the dog), trainers, and puppy carers, accompanied by a certified dog or dog in training must always carry an approved guide, hearing and assistant dog’s identify card.

It is for the committee and lot owners to understand that certified guide dogs, hearing dogs and assistance dogs are governed and protected by the Guide, Hearing and Assistant Dogs Act 2009 (QLD) – please ensure these individuals and their animals are protected from discrimination.

Concerns abouts pets

Owners and occupiers often have a range of concerns about having animals (including dogs) in a Body Corporate.  The main issue for a Body Corporate appears to be the likelihood of a negative impact upon the common property or maybe a person living at or visiting the Body Corporate.

In my view, the majority of these genuine concerns of Lot owners can be appropriately addressed and eased by setting reasonable conditions within the by-law.

What about a companion animal?

A “companion” animal is very different to a certified or approved assistant animal.

An emotional support animal (including a dog) provides support through companionship and it can help ease anxiety, depression and certain phobias.  A guide dog (which is a service dog) is generally allowed anywhere the public is allowed.

However, Emotional Support Animals (ESAs) are not.

For example, ESAs generally cannot accompany their owners into restaurants or shopping malls.

ESAs refer to dogs and other pets that provide emotional support and comfort to their owners on a daily basis.  ESAs legally must be prescribed by a licensed mental health professional like a therapist, psychologist or psychiatrist.

Service dogs (i.e. guide dogs) have been trained to perform specific tasks for individuals and as such are usually granted access to go anywhere their owner goes.

This is different to an emotional support animal because it does not require any specific training.

Where to from here

Dealing with a beloved family pet requires the Lot owners and a Body Corporate Committee to be fair, compassionate and objective.  Obviously, the starting point is having an appropriately well worded, delicately drafted by-law.  Pursuant to the by-law, an owner, occupier or a guest (in other words any invitee) to the Body Corporate will be entitled to have their guide, hearing and assistance dog on-site to assist the person with the services for which the dog has been trained.

This is very different to the position where the invitee to the common property of the Body Corporate has a companion pet.

The Lot owner or occupier who has the companion pet will need to complete an appropriate pet application and such a pet will be subject to the same conditions as all other residents within the building.

For the purposes of our Queensland Body Corporate Legislation, there is no difference between a treasured family pet and an emotional support animal.

OMB Gold Coast lawyers specialises in acting for bodies corporate and preparing well worded and delicately drafted by-laws. If you require any assistance with your by-laws, please do not hesitate to contact our Family Lawyers Gold Coast.

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1 https://www.caselaw.nsw.gov.au/decision/1750ba2de664989200f239fb

2 Cooper v The Owners – Strata Plan No 58068 [2020] NSWCA 250 (23 September 2020)

3 Strata Schemes Management Act NSW

Impact of COVID-19 on Body Corporate Levy Recovery

Impact of COVID-19 on Body Corporate Levy Recovery

By Articles, Body Corporate

COVID-19 has had a significant financial impact on individuals, businesses and Bodies Corporate alike. As a result, the Queensland Government passed the Justice and Other Legislation (COVID-19 Emergency Response) Amendment Act (“Amendment Act”) which amended the Body Corporate and Community Management Act 1997 (“BCCMA”) to assist individuals that have been financially affected and in turn support the wider Strata Community.

The Amendment Act came into force as of 25 May 2020 and will remain in place until 31 December 2020.

The existing position was that Bodies Corporate have a statutory obligation to recover unpaid levies together with the approved interest and the reasonably incurred recovery costs of seeking recovery of the unpaid levy. The changes represented in the Amendment Act overcome the need for Committee’s to consider waiving a proportion of the debt, for example the interest component as considered previously, given the current social and economic impacts of COVID-19.

The Amendment Act and what it means for Owners, Committee’s, Managers and Others, is as follows:

  1. Sinking Fund Budgets

A key change is that a Body Corporate, may, by ordinary resolution, adjust the sinking fund budget for the current or future financial year by removing some or all of the anticipate major expenditure.

Where a Body Corporate does utilise the benefit of the Amendment Act to adjust the sinking fund budget, and amounts have been paid by owners towards the budgeted expenditure then the Body Corporate “must” refund the owners the amount paid on account of that component.

Should be noted that lot owners are not required to request the refund and Bodies Corporate and Committee’s should be weary of their obligations to avoid contravention of the Amendment Act.

For example, a scheme maybe in need of rectification works and $200,000.00 has been allocated to be collected from the owners, with a proportion to be collected within the current period and the remaining to be collected at a later date. The resultant effect is that this may be removed from the budget of the Body Corporate, if agreed by ordinary resolution. This further reduces contributions payable by lot owners.

While this seems to be a worthwhile short-term relief for owners, come 1 January 2021, the budget expenses that have been removed will be required to go into the following budget and will be collected from all owners.

This is a short-term fix. This should not be a course to be adopted where sophisticated sinking fund forecasts are not in place to determine what may be deducted and refunded to owners within the Body Corporate.

  1. Amending the due date for Contributions Levied

Another takeaway from the Amendment Act is that Committees can alter the due dates for payment of levy contributions to the last date of the Body Corporate’s financial year. This is to provide lot owners who are suffering financially as a result of COVID-19 a further period in time to pay their contributions.

This is not a restrictive issue and can be applied on a discretionary and selective basis, or alternatively may be applied to every lot owner.

Again, cash flow forecasts are an important consideration should the Body Corporate wish to invoke the use of this Amendment.

  1. Penalties for Late Payment

We are well aware that Bodies Corporate can charge interest at a rate of 2.5% per cent per month on outstanding contributions.

A significant amendment is the prevention of Bodies Corporate from charging penalty interest on outstanding lot owner contributions until 31 December 2020. This is further inclusive of interest on outstanding levies that had been accumulating prior to the COVID-19 pandemic.

For example:

An account requiring payment of a contribution instalment given to an owner of a lot 2 months before the commencement is not paid until 1 February 2021. The owner is not liable for a penalty for the contribution instalment being in arrears during the relevant period. However, the owner may be liable for a penalty for the contribution instalment being in arrears before and after the relevant period.

This however does not prohibit a Body Corporate from taking action to recover outstanding Body Corporate debts all together.

This amendment should not be used as an excuse for not attending to payment of your contributions as and when they fall due. Come 1 January 2020 interest will be reinstated and will accumulate at a rate of 2.5% per month on outstanding levies.

OMB strongly suggests that all outstanding arrears be satisfied prior to 1 January 2020 to avoid interest accumulating and prevent the institution of legal proceedings for the recovery of the outstanding levies.

Recommendations and takeaways:

  1. The Body Corporate should act reasonably in dealing with financial management and when presented with payment plans;
  2. Payment plans should be settled and satisfied prior to 1 January 2020;
  3. Bodies Corporate should be aware that the Amendment Act is a short-term fix and should be mindful of the forecasted future and financial stability of the Body Corporate; and
  4. Employ sensible and practical solutions to assist with the financial hardship of owners.

You can review the COVID-19 emergency financial management legislation here.

Should you wish to discuss your Body Corporate issues, please contact our Gold Coast Lawyers to assist.

Elisha Hodgson gold coast lawyers

Amendment to Financial Arrangements for Bodies Corporate Passed

By Body Corporate, Videos

In this video, Associate, Elisha Quigg discusses the impact of the Justice and Other Legislation (COVID-19 Emergency Response) Amendment Bill which relates to levy recovery.

The legislation received assent on 25 May 2020 and amends the Body Corporate and Community Management Act

The purpose of the legislative changes is to alleviate the financial burden caused by the COVID-19 Emergency on bodies corporate and owners of lots included in the schemes.

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