New NSW Strata Legislation to Take Effect

One statistic that you may not know is that it is estimated that, by 2012, half of the population of New South Wales will either live or work in Strata buildings. In light of this growing trend, the New South Wales government are introducing a plethora of reforms to the current legislation. To learn more about these reforms and how they may impact upon people residing or working in such a building, I’m joined by David Sachs of Sachs Gerace Lawyers. David, what do these reforms really mean?

Well, the reforms are a massive revolution in the way in which Strata schemes are going to be managed in New South Wales. One of the particular features, I think, of it is the responsibility which is going to be cast on lot owners and their representatives in the executive committee. The … For a long time, people who work in the Strata industry like me have likened people sitting on executive committees to directors of corporations. That has becoming more and more the reality in Strata. Whether you’re in a small Strata scheme of 2, 3, 4, perhaps up to 15 lots, or whether you’re in a Strata scheme that has 100 or up to 300 lots, the executive committee is going to be foisted with an enormous amount of responsibility in order to manage all of the facilities and all of the legal dimensions of operating that Strata scheme.

If you’ve got 300 lots under your control and you’re sitting on an executive committee with 3 or 4 other people, you are going to be not unlike the director of a large corporation within Australia. You’ve got all of those responsibilities, and with those responsibilities comes a need to be fully informed, to have knowledge of the legal aspects of the decision you’re making, and to be aware of exactly what is going on within your Strata scheme. You’re going to be responsible for it, including being legally responsible for it. The new act, and the new amendments, are making those responsibilities very clear.

David, what specifically were these reforms trying to achieve?

Because it was up until then … Look, Strata schemes can vary, but it encouraged amateur hour. That would be people who just did nothing, and a lot of people out there in Strata Land would have been the victims of executive committees that, either because they were lazy or because they were afraid of making decisions or because they were particularly careful with money and didn’t want to spend anything, that just weren’t getting anything done for the Strata scheme. That’s not what lot owners either needed or demanded.

There would be other people who, for their own personal reasons or misguided goodwill, were running it like their own personal fiefdom and bossing people around and making decisions that affected other people and making lot owners feel disempowered. That’s just unacceptable when that becomes a problem. There are plenty of good Strata managers, people who run things well, who are very good-hearted, they’ve got a good community spirit, who are actively acting in the best interest of their owners corporation. They’re not the problems. The problems are the other ones. I think the New South Wales parliament recognized that you need to lift Strata from beyond the Saturday community soccer club and sausage sizzles and all of that stuff and move it into an area where people are making real decisions involving substantial amounts of money. You’re not just choosing whether you’re going to buy a new set of goalposts.

When you look at some of the decisions that executive committees need to make, for example, entering into a facilities management agreement. If you’ve got 150 lots and you need to have a person working full-time or part-time just to manage all of the facilities that you’ve got in your building, like the air conditioning, the fire services, the electrics, all of those bits and pieces. There are complicated contracts. There are payments that are going to be of hundreds of thousands of dollars per annum. You’re going to be dealing with professional people in order to do that. To do that, you can’t just be someone who is just doing it on your kitchen table. You need to be a professional as well in order to take the responsibility for the owners corporation and to be able to do your job properly.

David, in light of all this, how does the executive committee deal with all these changes?

Well, the executive committee, first of all, needs to be informed. The first thing that the executive committee needs to do, once they’re elected, is they need to take stock of all of the, in particular, the agreements that the owners corporation is bound to. I think when people come in to an existing scheme on the executive committee and they go through all of its records, they’ll probably find, particularly in a larger scheme, that they’ve got a multi-page Strata management agreement. They might well have a multi-page building management or facilities management agreement. Likewise, there’ll be a very detailed cleaning contract. If they’ve got lifts in the building, and most of them do, there will be a lift maintenance agreement. There may be an agreement for the provision of their fire services.

The executive committee members need to, first, identify all of these documents and understand what it is that they’re about so that they will know what they’re directing their attention to, and then they need to understand how these things are being operated. Until they get to that point, they can’t actually do the job of management that’s being required of them. They’re going to have to work hand in glove with their Strata manager, who is a very useful resource for the executive committee. That’s what the Strata manager is there to do, to assist with the management. In the end, it’s the executive committee members working together at their meetings that need to make decisions about what’s happening with these agreements.

For example, if the executive committee is dealing with complaints from lot owners about the way in which the cleaning is being done, well, I guess people could talk about that until the cows come home. If somebody’s going to do something about it, it’s the executive committee’s responsibility to actually take legal action under the cleaning contract, to deal with the cleaning contract, to make sure that those problems are fixed, or that, if they can’t be fixed, that the contract is put to an end, or to engage new cleaners under a new cleaning contract. These are contracts worth hundreds of thousands of dollars that are going to have to be negotiated by the executive committee.

It could be incredibly overwhelming for the committee, I’m assuming. There’s just so many moving parts.

There are, and one thing that often comes out … This is a very common problem, is that in any of these management agreements, that there’s often an automatic option in it. By an … An automatic option is where you get a contract that’s going to be for a period. Let’s say, for example, you sign up an agreement with a lift maintenance company and you’ve got them for 3 years and they’re providing certain services to you. They come out and check your lifts every month, they make sure they’re all moving, they deal with problems with lifts sticking and doors not opening, et cetera, et cetera. They do that.

They’re very very enthusiastic for the first year, the second year. After the third year, it’s all a bit sort of hi ho hum, they don’t come out sometimes. They’ve got your business, they’re getting your money, they’re more enthusiastic about getting new business. People start grizzling about the lifts and whatever. The executive committee is dealing with it. They’re kind of unhappy, but they’re kind of lethargic about it.

What no one has ever noticed is, in the back of this lift maintenance agreement, is a clause that says when the contract comes to an end after 3 years, if you don’t tell them that you’re going to terminate the agreement, then it’s automatically extended for another 3 years. The number of times I’ve had people come to see me and go, “Oh, we’re really unhappy with the lift maintenance contract. We want to get some new people, but they’ve just told us that they’ve extended it for another 3 years. What are we going to do about it?” The reality is that, unless there’s some particular reason why they can put an end, absolutely nothing. The lift maintenance contractor, though they’re really unhappy, they want to improve, they want to provide a good service to their lot owners. They’re now stuck with those people for another 3 years.

You will find those clauses in lots of contracts that owners corporations sign up to. They’ll be in every building management agreement. It will be in every Strata management agreement, every caretaker agreement. People have got to be alive to those things. It could be a good thing. It could be good for the owners corporation. They might want to keep continuity. Equally, they want to be in the commercial situation where they can change if they want to in order to get a better price or a better service for their lot owners. Unless the executive committee is on top of these things, nobody else is going to be on top of them.

David, from the executive committee’s perspective, at what point is it prudent to get legal advice and legal assistance in this? I’m assuming that it should be done very very early on in the consideration of agreements, et cetera, and even the framework of how the committee should conduct itself. Is that something that you recommend?

It is always a good idea for an executive committee, if it is confronted with a big … If it’s got a big bundle of documents, to get legal advice just in order to give the executive committee an understanding of what these contracts are, so that they can be explained to them as a layperson. A good lawyer … We certainly do it. A good lawyer is always able to explain complex legal documents to people in a way that they can understand. The executive committee needs to understand it. They also need checklists of the things … When they need to take action about extending contracts or what it is that they are going to do. Then, they’ve got some working knowledge of how the contract operates for them.

They can work all that out themselves, I guess, but in my experience, unless you’re a lawyer and you understand how all of these contracts operate, you’re not going to be able to do it on your own. In order to get that done, to spend an hour or two with a lawyer, having them look over these documents, is an insurance policy against the cost of not understanding the agreements, which could be a hundred times more than what you end up paying to a lawyer in order to get yourself on the right path.

David, thanks for joining me.

Okay. Thanks, Dan.