NSW: When is a Strata Scheme Not Functioning Satisfactorily for the Purposes of Appointing a Compulsory Strata Manager?

This article is about appointing a compulsory strata manager in NSW.

This question was answered in The Owners – Strata Plan No 76317 v Ho [2020] NSWCATAP 205 which concerned an appeal from a decision made in the Tribunal where orders were made appointing a compulsory strata manager pursuant to s 237(1) of the Strata Schemes Management Act 2015.

The appeal was ultimately dismissed however the judgment set out the reasons the Tribunal at first instance found that the requirements of s 237 of the Act were satisfied and these reasons can be used as indicia of whether a scheme is functioning satisfactorily.

These were:

1. Due notice of the annual general meeting (“AGM”) was not provided to all lot owners.
2. There was no quorum at the AGM.
3. The strata manager failed to prepare a 10 year capital works plan meaning there was no capital works plan in place.
4. The strata manager failed to provide a copy of the proposed new strata management agency agreement in advance of the AGM so that lot owners could consider it before the meeting.
5. The strata manager incorrectly minuted the resolution of the AGM that there would be no increase in strata levies and stated in the minutes that the AGM had agreed that levies would be raised.
6. Lot owners who were not financial were appointed to the strata committee when they were ineligible to be appointed.
7. After the AGM the strata manager sent levy notices for increased levies when no increase of levies had been agreed.
8. The strata manager was slow to act on noise complaints made by Ms Ho in May 2019, only sending a notice to the premises involved on 27 June 2019.
9. Publicity was given within the strata plan to a proposed strata committee meeting that was misguided in that an EGM was to be held to deal with the issues raised. The Tribunal found that posting the notice on the noticeboard was intimidatory and inappropriate and that the strata manager did not take sufficient steps to have the notice removed.
10. The failure by the Owners Corporation to mediate did not reflect well on the strata manager, particularly as the Tribunal has not found that the preponderance of the submissions of the lot owner applicants at first instance were not ‘groundless, misconstrued, malicious and self-interested’ as claimed by the Owners Corporation and strata manager.

Interestingly, the reasons for the finding note several times that the strata manager either did something or failed to do something (i.e. failed to prepare a sinking fund plan, did not include the new management agreement with the meeting notice and was slow to act on the noise complaint). This means that strata managers should try to ensure that their owners corporations comply with the Strata Schemes Management Act 2015 and provide advice where they are not. For instance, if a noise complaint is received the strata manager should provide the information to the strata committee, offer recommendations and request instructions. In many cases the strata manager may not have the power to issue a warning notice without approval of the strata committee. Clearly requesting instructions from the strata committee should put the ball back in their court. Similarly, strata managers should consider the wording of motions placed on agendas. In this case the decision reads as if the strata manager failed to prepare the capital works plan. Delving deeper, did the strata manager have the skills and experience to be able to do so? And was it resolved that the strata manager rather than a third party consultant was to prepare the plan? While we do not know the answer to this question, careful wording of motions and consideration of whether the strata manager had the requisite skills, experience and time to prepare the report may have avoided the lack of a plan.

The Tribunal at first instance had considered the individual failings of the Owners Corporation and the strata manager and concluded that, when taken together, the breaches were serious and affected the proper functioning of management of the strata scheme. The Appeal Panel noted that some of the findings taken on their own would not have justified the appointment of the compulsory manager but the Tribunal at first instance had correctly considered the failures together.

The Appeal Panel also referred to the Appellants’ submissions that the appointment of a compulsory strata manager is a serious step not to be taken lightly however it also noted that section 237 of the Act is clear in its language in that it requires the Tribunal to be satisfied that the management of a strata scheme ‘is not functioning or is not functioning satisfactorily’. In addition, the severity of the appointment of a compulsory manager was mitigated by the length of the appointment – in this case it was for 12 months – whereupon the lot owners would have an opportunity to appoint another strata manager.

Jasmin H.Singh and Allison Benson
Kerin Benson Lawyers
E: [email protected]
P: 02 4032 7990

This post appears in Strata News #501.

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This article has been republished with permission from the author and first appeared on the Kerin Benson Lawyers website.

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