Developer’s Responsibility for an Unfair Strata Management Statement

The Owners – Strata Plan 74602 v Eastmark Holdings Pty Ltd; Eastmark Holdings Pty Ltd v The Owners – Strata Plan 74602 [2015] NSWSC 1981

Decision date: 24 December 2015

This case concerned a large mixed use development in North Sydney, the scheme comprising four separate buildings of commercial and residential use.  Completed and registered in 2005, the lots were largely owned by the developer and then some lots were gradually sold. However, the purchasers believed the structure of the strata management statement to be largely in favour of the developer and its retained lots, with disproportionate contributions for shared facilities allowed for so as to advantage the developer.

Despite this claim, the Supreme Court of NSW held largely in favour of the developer, deciding that:

1. The developer did not owe a prescriptive fiduciary duty to the owners corporation “to act with absolute candour and honesty” and to “act in [its] interests in developing the [strata management statement”;
2. The developer did not load up the strata management statement so as to impose a disproportionate and unfair burden of costs for shared facilities on the owners corporation;
3. The developer’s registration of the strata management statement cured any breach in relation to the apportionment of costs in that it disclosed the final and precise terms to purchasers buying into the scheme prior to completion of their sale contracts; and
4. The developer is only considered a lot owner following completion of the development, thus entitling the developer to vote at any meeting of the owners corporation and not rendering it unfair to do so.

While there was a level of sophistication to the investors buying lots in the scheme, the take home message is to be mindful that a developer does not owe an owners corporation a prescriptive fiduciary duty to do the seemingly fair thing. Investors in newly developed strata schemes need to be prudent and conduct their own inquiries into the fairness of the scheme’s structure and the apportionment of fees for shared facilities before completion.