Articles

When Developers and Strata Managers Don’t Mix

NEW STRATA REFORM

The new Strata Schemes Management Act 2015 (the Act) which came into force on 30 November 2016 creates circumstances under which a strata manager is not entitled to be appointed as the strata managing agent of a scheme until after the end of the period of 10 years commencing on the date of registration of a strata plan, where the strata manager is a person connected with the developer.1

 PURPOSE OF REFORM

The purpose of the reform is to prevent developers influencing the owners corporation by controlling the rates and management of the scheme to prevent the developer having to rectify defective building work prior to the expiration of the developers obligations under the Home Building Act to repair defects up to and including a period of 6 years.

Many strata managers play a role in assisting developers in the establishment of their strata scheme and benefit from this role in that they are often in a prime position to continue as the strata managers for the strata scheme after its registration.

The introduction of these reforms has forced one of NSW largest developers, Meriton, to sell their strata management business due to a conflict arising because that strata management business was unable to play a role in managing Meriton’s new developments.2

CRITICAL QUESTION

The question raised by the reform is, to what extent a strata manager can be connected to a developer before they are not entitled to be appointed as the strata managing agent of the scheme for a period of 10 years?

This connection is determined by the definition provided under the regulations attending the Act and may be further defined by any litigation arising from circumstances concerning the appointment of strata managers.

As yet the legislation is untested however the Act and regulations do provide a definitions of persons connected to developers who for the purposes of the legislation will be prohibited.

SUMMARY OF REGULATION

S 7 of the Act and s 62 of the accompanying regulations provide that a “person connected with” a developer :

  • is a relative of the developer;
  • is the holder of an executive position if the developer is a corporation is a relative of the holder of an executive position of the corporation;
  • is employed or engaged by the developer, is a business partner of the developer;
  • holds an executive position in the developer corporation;
  • is the employer of the developer;
  • is an employee or engaged by a corporation that also employs or engages the developer;
  • holds an executive positon in a corporation that employees or engages the developer;
  • is a related body corporate or an associate entity in the meaning of the Corporate Protections Act 2001 of the developer;
  • holds an executive position in a related body corporate or an associated entity of the developer;
  • holds or will hold any relevant financial interest in the developer; and
  • is or will be entitled to exercise any relevant power whether in the persons own right or in on behalf of any other person in the business of the developer.

A mere, dealing, contact or arrangement with the principal by an Owners Corporation or strata committee in the capacity of a member of the owners corporation or strata committee does not mean that the person is connected to the developer.

 WARNINGS TO STRATA MANAGERS

The above description provides some obvious connections which limit the engagement of the strata manager by the owner’s corporation including a relative, office holder, business partner, or employee of the developer or related entity.

The meaning of “engaged by the developer” in item (c), however, may encompass strata managers who have, from time to time, been engaged by the developer to assist in setting up the strata scheme.

The operative word appears to be “is” meaning that if, at the time of appointment by the owners’ corporation, the strata manager “is” still engaged by the developer, the strata manager would breach the legislation.

Strata managers should therefore be aware of the need to show a clear separation between their business relationships with the developer at the time of their engagement by the owners’ corporation and provide disclosure of any previous relationship with the developer early in any negotiations with the owners’ corporation.

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.

Download this article.

Download Infographic


 1Strata Schemes Management Act 2015 s 49(3).

2Apartment Giant Meriton Selling Strata Business Due to Changes to New South Wales Laws, Domain, 29 September 2016