Impending Changes to Strata Legal Services Obligations

A new Bill for the management of Strata Schemes has been passed in the New South Wales parliament and will come into force in July 2016. The Bill contains revisions of the Strata Schemes Management Act (1996) (Act), including section 80D which provides guidelines for the engagement of legal services.

Section 80D

Section 80D provides that an Owners Corporation or Executive Committee of an Owners Corporation must not seek legal advice or the provision of any other legal services, or initiate legal action for which any payment may be required unless a resolution is passed at the general meeting of the Owners Corporation approving the seeking of the advice or services or the taking of that action.

Regulation 15

Regulation 15 of the Strata Schemes Management Regulation (2010) (Regulations) provides the amounts over which a resolution must be obtained as follows:

“(1) the seeking of legal advice provision, the provision of legal services or the taking of legal action is exempt from the operation of section 80(d) of the Act if reasonably estimated costs of seeking legal advice, having the legal services provided or taking the legal action would not exceed:

(a)            An amount equal to the sum of $1,000.00 for each lot in the strata scheme concerned (excluding utility lots); or

(b)            $12,500.00

Whichever is the lesser.”

Legal costs are those costs or estimated costs of seeking legal advice or legal services including in the taking of legal action. The costs must have been disclosed by an Australian Legal Practitioner in accordance with the Legal Profession Act 2004 or set out in a proposed cost agreement under that Act.

Regulation 15 provides an exemption where the legal advice or services are provided for the purpose of recovering unpaid contributions and interests under section 80 of the Act.

Where a resolution has not been obtained before the commencing of legal action, the Court has dismissed an Owners Corporations case for rectification of defective building work[i]. However, a recent decision in 2 Elizabeth Bay Road Pty Limited v The Owners – Strata Plan 73943[ii] reached a different conclusion.

The Court of Appeal in this case found that the breach caused by failure to obtain a resolution was cured four months after the proceedings were commenced by the passing of a resolution approving the engagement of legal services for the action.

Section 103 – new provision

To address this uncertainty, the proposed bill now contains a provision at section 103, similar to s80D, which addresses the concerns relating to the failure of an Owners Corporation or Strata Committee (formerly Executive Committee) to obtain approval to engage legal services.

Section 103 provides that an Owners Corporation or Strata Committee may obtain legal services without obtaining approval if:

(a)            It is of their opinion that urgent action is necessary to protect the interest of the Owners Corporations; and

(b)            A resolution is passed by the Owners Corporation approving obtaining the legal services at a general meeting held within 30 days, or another period prescribed by the regulations, after the legal services are first obtained.

It appears therefore that a resolution will not necessarily be required to obtain legal advice before commencing legal action. This will have several advantages where urgent action is required due to legislative limitations within which an action can commence.

Section 103 also provides that the failure by an Owner’s Corporation, or Strata Committee of an Owners Corporation, to obtain an approval under the section does not affect the validity of any proceedings or other legal action taken by the Owners Corporations and can be remedied within 30 days by the passing of a resolution.

The intent of this clause is to prevent circumstances where legal action can be dismissed due to the failure of the Owners Corporation or Strata Committee to obtain agreement by majority vote in a general meeting. The proposed provisions appear broad enough to provide that legal actions should no longer be in jeopardy where it is commenced before agreement in a general meeting.

A common reason for Owners Corporations to commence legal action, or get advice, is to pursue builders, developers or insurers for repair of defective building work. There are a significant number of time constraints on these actions and legal advice should be sought before embarking on what may be a costly exercise.

Additional Assistance

Kreisson building and construction team is experience in all aspects of building claims. We can advise and act on:

  • Building defect claims;
  • Home Warranty Insurance claims; and
  • Building contracts.

To obtain our contact details and information on other legal services we provide to Strata Managers and Owners Corporations please  phone Kelvin Keane on 02 8239 6515.

The information contained in this brochure is offered as general advice only and may not apply to the reader’s specific circumstances. It is recommended that the reader obtain advice relevant to their specific circumstances should they wish to proceed further.

[i]   Owners SP46528 V Hall [2011] NSW SC 278

[ii] 2 Elizabeth Bay Road Pty Limited v The Owners – Strata Plan 73943 [2014] NSW CA 409