The new strata laws in New South Wales will start on November 30, 2016. The laws will affect more than a quarter of the population of NSW.
The review process
When the review of the current legislation first commenced, there was a real push from some owner groups to reduce the maximum term of caretaking agreements down to three to five years. As the legislation currently stands, all caretaking agreements entered into after February 10, 2003 are limited to a maximum term of 10 years, including options.
ARAMA was quick to respond to this attack on the industry and extensively lobbied the NSW government for an actual increase in the 10-year term. The upshot is that the new legislation continues to recognise the important role that caretakers play in the strata industry in NSW with the government sticking with a 10-year term limitation. It is not quite what ARAMA and the industry wanted but a least nothing went backwards. Again, the NSW government has elected not to regulate letting agreements so these agreements can still be for any term.
Surprisingly, it was the strata mangers who copped the brunt of the legislation changes. The term of appointment of strata managers in NSW will now be limited to a maximum of 12 months for a strata manager appointed at the first annual general meeting or three years for any other appointment. Any reappointment will also be limited to a maximum of three years. In addition, strata mangers can only transfer their agreements if the transfer is approved by a general meeting of the owners corporation. Consequently, strata mangers can no longer sell their portfolio of buildings without the sale being firstly approved by each owners corporation.
Under the 2003 legislation, there was a dual test as to whether a person was a ‘caretaker’ or not. First, the person had to own or have exclusive possession of a lot or common property. Second, the person had to carry out the usual duties of a caretaker. The upshot of this dual test was that some caretaker agreements were structured so that the caretaker never owned a lot or had exclusive use of common property (often held by a different but related entity) and therefore did not fit the definition of a ‘caretaker’. Consequently, the agreement was not limited in term to 10 years.
This loophole has been closed under the new legislation where the definition of a ‘building manager’ (replacing use of the word ‘caretaker’) means a person who assists in exercising any one of the following functions of the owner’s corporation:
- managing common property;
- controlling the use of common property; or
- maintaining and repairing common property.
The requirement to have exclusive possession of a lot or common property in the strata scheme is no longer relevant to new caretaker agreements, but is now more important than ever with respect to pre 2003 caretaker agreements.
Under the new legislation, a pre-2003 caretaker agreement that was previously sheltered from the 10-year term limitation will continue to remain protected provided the caretaker is entitled to exclusive possession of a lot or common property in the strata scheme. This means that as of November 30, 2016 if a caretaker is not entitled to exclusive possession of an area within their strata scheme then their pre-2003 agreement will expire on November 29, 2026 (if previously it would have expired later). This will be of particular concern for operators in bigger complexes made up of multiple strata schemes, where the caretaker may only hold exclusive possession over areas in some but not all schemes in the complex.
For example, the caretaker may have a reception located in one scheme and a residence in a second scheme, but no exclusive possession within the other residential schemes in the complex. In this scenario, the caretaker agreements for those schemes without any exclusive possession would have their terms limited to 10 years while the agreements in the other schemes would remain unaffected.
If you believe you may find yourself in this situation, you should discuss the issue with your solicitor before November 30, 2016 to best protect your investment.