Reform of the NSW strata and community scheme laws

Current strata laws have been in operation for about 50 years and apply to some 72,000 strata schemes across NSW. It is estimated that within 20 years more than half the State’s population will be housed under a strata scheme. An important feature of strata legislation is that it allows all unit owners to have title to land, although the extent of a strata lot owner’s entitlement is defined by a building, which is collectively owned. Owners within a building often have different views on how to protect the value of their investment. Strata laws are designed to help strata owners collectively decide what is best for their asset – in terms of how it is maintained, improved and managed.

The NSW community has overwhelming informed Government that current laws are out-dated, overly complex and work to discourage effective owner participation. Accordingly, the Government has now released a Strata_Law_Reform_Position_Paper which raises a number of issues and possible reform solutions covering all aspects of strata management.

Some of the more significant suggested reforms include:

  • Changes to the way that strata committees are formed and represented;
  • Tenants having a voice in the (non-financial) management of the building;
  • Improvements to the way in which building defects are identified, assessed and rectified, including a suggestion that developers pay a bond that will be held in trust until an independent inspector agrees that identified defects have been fixed;
  • Establishing a process for the collective sale and renewal of strata schemes where there is less than unanimous support – the suggestion being that a 75% threshold ‘consensus opinion’ is sufficient to decide on the future of a strata scheme; and
  • Changes to the way in which strata expenses are met and budgeted for.

The 75% consensus opinion reform is of particular relevance to older style buildings. Almost 30% of NSW’s strata schemes were registered more than 30 years ago and many strata buildings have reached or are approaching the end of their economic life. The redevelopment of such sites will potentially be easier where there is a 75% majority support to the termination of a strata scheme—versus the existing 100%. The reform will help areas to renew and is expected to be a major fillip for housing construction in the State.

The developer’s “3 for 1” rule of thumb would apply for such strata redevelopment projects. Many current strata owners will be doing their own sums as to whether the continual repair of older buildings represents the best use of strata owner funds, or whether redevelopment of such sites is a more feasible, and now a more possible option. Councils and State Government will also be keen to understand the likelihood and the extent of the impact both as an agent for change and in terms of their own resources.

For further information please contact Martin Bregozzo - Senior Consultant.