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Improvements and Acquiescence

THE DEFENCE OF ACQUIESCENCE:
ACT NOW OR (POSSIBLY) FOREVER HOLD YOUR PEACE

Disputes about improvements to a lot or common property can be defended by an owner on the basis that the body corporate did nothing, over an extended period of time, to enforce the scheme’s by-laws or its rights to common property.

If this defence is successful, the body corporate cannot enforce against the owner, the relevant by laws or common property rights that the owner contravened.

This is the defence of acquiescence.

Acquiescence

The High Court defines acquiescence as the contemporaneous and informed (or knowing) acceptance, or standing by, which is treated as assent (or consent) to what would otherwise be an infringement of rights.

The defence of acquiescence is arguably consistent with an adjudicator’s broad discretion to make orders that are just and equitable in the circumstances to resolve a dispute.

Adjudication

Adjudicators recognise that in some circumstances, acquiescence is relevant if a body corporate allows an unapproved improvement to remain for an extended period of time without acting.

To establish the defence of acquiescence, it is necessary to show –
1. that the body corporate did something beyond mere delay to encourage the owner in the belief that the body corporate did not intend to assert its rights;

2. the owner must have acted to his or her detriment on that belief;

3. the belief of the owner must have a reasonable basis.

Examples

Case examples where the defence of acquiescence was successful include:

1. An owner built several decks encroaching on common property between 1991 and 1993. The body corporate appeared to make no complaint about the positioning of the decks and only applied to the Commissioner’s Office in 2005. The body corporate was found to have acquiesced to the decks by failing to take appropriate action earlier to have those decks removed;

2. An owner inherited an unapproved shed constructed on the owner’s exclusive use car park. The relevant bylaw was not enforced by the body corporate for over 20 years. No objection to the presence of the shed was raised after a fire service inspection in 2014. There were many other unapproved sheds constructed on common property. The body corporate was found to have acquiesced to the shed;

3. An owner constructed a carport in about 2004 or 2005. Ownership of the lot changed in 2009. The construction of the carport was raised in a general meeting in 2009 but no specific decision was made. The body corporate were found to have been aware of the existence of the carport for some time. There was no evidence of a body corporate complaint about the carport for 10 years. The only time the body corporate became concerned about the carport was because of action being taken by local council. The body corporate was found to have acquiesced to the carport.

If a body corporate is found to have acquiesced to an owner’s improvement, it is likely that a body corporate will not be acting reasonably if it seeks to have that improvement removed.

There are of course case examples where the defence of acquiescence has been unsuccessful, and the body corporate were allowed to seek the removal of an owner’s improvement.

What to do?

The question of whether the defence of acquiescence applies will turn on the facts of the individual case.

Delay is not the only factor relevant to the defence, but it is very important. Acting early will assist a body corporate to overcome the defence.

Article Written by Brendan Pitman (17 January 2023)

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

Be Warned – Inspectors in NSW Targeting Property Management

BE WARNED – INSPECTORS IN NSW TARGETING
PROPERTY MANAGEMENT

On Site Residential Property Managers and Building Managers holding full real estate agents licences to conduct letting – beware!

The Office of Fair Trading has been taking compliance actions against agents (including On Site Residential Property Managers) that do not meet their obligations. Inspectors have issued non compliant agents/managers with penalty infringement notices totalling $16,500.00. Failure to comply with the Supervision Guidelines (referred to below) carries a penalty of up to $22,000.00 for a corporation or $11,000.00 in any other case.

Under the Property and Stock Agents Act 2002 (“Act”), every place of business must have a Licensee in Charge (“LIC”). A LIC is responsible for the proper supervision of the business and must hold a Class 1 licence (noting however, that an On Site Residential Property Managers licence is an equivalent of a Class 1 licence). Corporations or individuals who run a business under a Class 2 licence must employ a Class 1 licence holder to be the LIC of their business.

The key requirements when appointing a LIC are –
• all parts of a business must be supervised by the LIC;
• only a LIC can authorise the withdrawal of funds from the trust account;
• the LIC must ensure proper supervision of the business in accordance with the Secretary’s Guidelines for the Proper Supervision of the Business of a Licensee (the “Supervision Guidelines”);
• if a nominated LIC is not available for whatever reason, NSW Fair Trading must be notified of the replacement LIC within 5 business days.

Why Have The Supervision Guidelines Been Introduced?

Licensees who run a sales/letting business have a legal obligation to ensure the proper supervision of their business.

The NSW government takes the view that it is vital that businesses are properly supervised, particularly as large sums of money in trust accounts may be involved. Poor supervision can cause distress and financial loss for consumers. It can also lead to claims of negligence, misleading conduct and fraudulent use of trust money – for which substantial maximum penalties apply.

The Supervision Guidelines sets out the government’s requirements for proper supervision of a business, including the steps that a LIC must take to prevent fraud and misrepresentation.

These requirements include –
• supervision of employees engaged in the business; and
• establishment of procedures designed to ensure that the provisions of the Act, the Regulations and other relevant laws are complied with; and
• monitoring employees’ conduct to ensure that those procedures are being followed.

What Are The Key Requirements Of The Supervision Guidelines?

Every LIC must:
1. Prepare and maintain a document as part of the operational procedures that clearly identifies the LIC of the business and the dates on which that person was the LIC;
2. ensure that details of the LIC (including the dates that person commenced and finished being a LIC) are notified to the Secretary in accordance with the Act;
3. prepare and maintain operational procedures for the purposes of providing adequate supervision of business processes and employee conduct across their business;
4. ensure all operational procedures of the business are reviewed at least once each calendar year to ensure they are sufficiently robust and comply with the law;
5. ensure all persons engaged in the business are familiar with, and comply with, all operational procedures;
6. prepare and maintain written procedures for the review of their trust account and daily or next day banking practices with respect to the receipt of trust money;
7. conduct a review of their trust account transactions at least once per calendar month to ensure that the amounts deposited into and withdrawn from the trust account have been verified using the relevant financial institution’s records as source documents, that all persons who have access to the trust account system have separate logins and their passwords are not shared with anyone and that any adjustments shown in an end of month reconciliation can be explained with evidence;
8. ensure that all rental (and sale) money is paid into the trust account and rental money owing to a landlord under a residential tenancy agreement (less any authorised expenses) is paid to the landlord at the end of each calendar month, unless instructed otherwise by the landlord;
9. maintain a record of all cash transactions, including, at a minimum, the cash amount received, the name of the person who received the cash from the payer, the name of the person who prepared the daily banking of those funds, the name of the person who deposited the funds in trust at the financial institution and the trust account details;
10. prepare and maintain written procedures for the verification of the identity of a party with whom it is proposed to enter an agency agreement and a record must be kept of all documentation relied upon to verify an individual’s identity;
11. if applicable, in the case of a person who has the legal right to act on behalf of the owner and where that person is not listed on the certificate of title, ensure that the original or a certified copy of the document which confers the power of sale or management on that person is sighted and a copy of the document retained.

Requirements For Verifying the Identity Of A Person

In verifying the identity of a person, a licensee must sight an original or certified copy of –
(a) a primary proof of identity document; and
(b) two secondary proof of identity documents; and
(c) a document providing proof of legal ownership of the property.

A “primary” proof of identity document is listed as –
1. a current Australian driver licence; or
2. a current photo card issued by a State or Territory Government agency; or
3. a current Australian passport; or
4. a current non-Australian passport.

A “secondary” proof of identity document is listed as –
1. a current Medicare card; or
2. a current credit card; or
3. a current passbook or an account statement from a bank, building society or credit union up to one year old; or
4. an electoral enrolment card or evidence of enrolment not more than two years old; or
5. a gas, electricity or council rates bill up to one year old; or
6. a water rates notice up to one year old.

A document that is “proof of legal ownership” of the property is –
1. the certificate of title for the property; or
2. a current council rates notice up to one year old; or
3. a land valuation notice up to one year old.

A LIC must also prepare and maintain written procedures that ensure all communication during the provision of services under an agency agreement is with the owner of the property or the person with the legal right to act on the owner’s behalf. A LIC must also prepare and maintain written complaint handling procedures.

Employee Supervision

A LIC must also –
1. prepare and maintain written procedures outlining the respective roles and responsibilities of licensees and employed certificate holders in relation to the preparation and signing of agency agreements,
2. be responsible for verifying that all persons engaged in the business have completed all continuing professional development courses they are required to undertake (according to the Secretary’s requirements issued and notified to licensees and certificate holders under the Act), as well as ensuring that the applicable work experience requirements in accordance with the Property and Stock Agents (Qualifications) Order 2019 have been met, and also recording the length of time an individual has been engaged by the business.

Gifts and Benefits Register

A LIC must also prepare and maintain a register of all gifts and benefits received by persons engaged in the business in accordance with the Act.

What You Need to Do – Now!

If you haven’t already done so, every onsite manager needs to urgently comply with the Supervision Guidelines – or risk a substantial fine if an inspector knocks on your door.

Article Written by Col Myers of Small Myers Hughes Lawyers

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

Is Ownership of a Managers Unit Essential?

IS OWNERSHIP OF A MANAGER’S UNIT ESSENTIAL?

One of the biggest “selling” points as to why it is beneficial for an Owners Corporation to enter into a 10 year Building Management Agreement with a Caretaker/Manager is that they are engaging a person who is going to be living onsite on a long-term basis and are therefore readily available to deal with all of the issues and emergencies that crop up from time to time, outside of normal working hours. This is particularly so in the larger complexes.

However, with the substantial rise in real estate values in recent years, we are seeing a consistent push by building managers to want to “unhook” the management unit from the Building Management Agreement. This is primarily driven by the fact that the net return on the total investment in management rights can be significantly reduced because of the high cost of buying the management unit.

Some management rights sale brokers have reported occasions recently where this reduced rate of return has led buyers to look for alternate types of businesses, whilst they chase a better rate of return. For example, leasehold motels – with no Owners Corporation to deal with, no real estate to purchase, no real estate licence or trust account required, a residence still included onsite and long-term security of tenure.

How best to overcome the problem?

The answer will very much depend on how the management rights have been structured in each complex.

If the reception/office area is part of the title to your residential unit (or is an exclusive use allocation attaching to your residential unit) then you have no flexibility and the unit cannot be severed from the management rights.

In the Sydney area, however, there are many reception/offices established as separate freehold lots. Consequently, designated managers’ residential units are irrelevant to the ongoing operation of the management rights. There are also other complexes where there are no reception/office areas required for the running of the business.

It is these types of complexes where there are some real options available.

Options

Your options are twofold –
1. if your Owners Corporation will allow it, sever the management unit completely from the management rights so that the management rights are attached only to the office lot; or
2. sever the existing management unit from the management rights but provide that the manager must still reside in the complex.

By doing this, the manager has the flexibility of either buying a cheaper (say) one bedroom unit in the complex or renting a two or three bedroom unit.

So, what is the better option?

I remain a firm believer that building managers should reside in the complex they manage. It is difficult to argue that Owners Corporations should engage building managers on long-term agreements if there is not some stand out, positive reason for doing so. That stand out reason is having a building manager living onsite and effectively on call 24/7, in the case of an after hours emergency. This is the ultimate (and unarguable) difference between an Owners Corporation engaging a Building Manager -v- employing ad hoc tradespersons to handle repairs and maintenance of common property as required.

Severance Process

As long as the building manager resides in an onsite unit, ownership of a unit should be irrelevant to the Owners Corporation. So, what is the process to achieve this?
1. Firstly, the Building Management Agreement will need to be varied to delete reference to the nominated manager’s residential lot – and substitution of a reference to “any lot occupied by the manager from time to time”. This variation will require an ordinary (majority) resolution at a general meeting of the Owners Corporation.
2. Secondly, a change may also be required to the by-laws – so as to delete reference to a particular nominated manager’s residential lot and to substitute a reference to “any lot occupied by the manager from time to time”. This change of by-laws will require a special resolution (which can only be passed if no more than 25 per cent of the votes, based on unit entitlement, are cast against the motion.)

CONCLUSION

Building managers should consider their options as far as severing expensive residential management units from the management rights documentation and thereby provide flexibility, moving forward.

This flexibility will make a future sale of the management rights more attractive in the marketplace.

Article Written by Col Myers of Small Myers Hughes Lawyers

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

Update on Pets in NSW Strata Buildings

Fundamentals
• An owners corporation in NSW cannot stop an occupier from having a pet in their unit, as long as it does not disturb other residents;
• However, tenants need permission from their landlord to own a pet. A landlord can refuse to allow a tenant to have a pet. Also, a landlord does not need to give a reason why. However, landlords cannot ask tenants to pay a pet deposit and they can’t charge a higher amount of rental bond for a tenant to keep a pet;
• Depending on the scheme by-laws, an occupier may need to tell the owners corporation before a pet is brought into the complex, as owners corporations can create their own rules for pets. It is important to firstly check the scheme’s by-laws. However, by-laws banning all pets are not valid and banning animals based on size, type, or quantity, will not be valid in most circumstances; and
• Assistance animals cannot be banned from living in a strata scheme.

Owners Corporation and Pets

An owners corporation in NSW cannot stop a unit occupier from having a pet in their unit, as long as it does not disturb other residents.

In 2020, the Court of Appeal in Cooper -v- The Owners Corporation – SP 58068 held that a by-law that provided an outright ban on pet ownership was “oppressive” pursuant to section 139(1) of the Strata Schemes Management Act 2015, because it interferes with the property rights of a lot owner by controlling or prohibiting a particular use, in circumstances where that use does not materially and adversely affect the enjoyment of another lot.

However, most owners corporations will firstly require the occupier to write to the secretary or strata manager if they have a pet, or want to get one.

It is important to firstly check the scheme’s by-laws to see what the process is and what information is needed for approval. It is not unusual for an owners corporation to ask for:
• the pet’s name, type, breed, weight and age;
• a photo of the pet;
• the pet’s vaccination records and a microchip number (if the pet needs these in NSW).

Rules for keeping pets in strata

An owners corporation can set rules about how occupiers keep their pets while living in strata.

As previously advised, firstly check the scheme’s by-laws to see what these rules are.

The by-laws often cover:
• keeping the animal within your property;
• watching the animal when on common property;
• cleaning up after the animal on common property.

Can an owners corporation evict occupiers or their pets?

The owners corporation cannot evict an occupier, but may try to remove the person’s pet.

The owners corporation can only remove a pet if it causes ‘unreasonable interference’ to others, or the pet’s behaviour has broken a by-law.

The owners corporation must follow the proper process and give the person a chance to fix the situation, before they attempt to evict a pet.

If an occupier has broken a by-law, the owners corporation must firstly issue a ‘notice to comply’ – asking the person to stop their pet’s behaviour.

If the behaviour continues, the occupier or the owners corporation can contact NSW Fair Trading to seek a (free) mediation.

If the issue is not resolved at mediation, anyone involved in the dispute can then apply to the NCAT to remove the animal.

Can a landlord evict a tenant or the tenant’s pet?

In short, yes.

If a landlord has refused permission to have a pet in their unit, or the tenant hasn’t asked the landlord for permission to keep the pet, then the tenant may be breaking their rental agreement.

In that case, the landlord may ask the tenant to remove the pet or move out of the property.

Making a complaint about another resident’s pet

Obviously, you need to talk to the pet owner first about their pet’s offending behaviour. They may not know about it.

Some strata schemes also have an internal dispute process that can be used. Check with your strata committee or strata manager to see if there is one.

If the pet’s behaviour has broken a by-law, the owners corporation can issue a notice for the occupier to stop the behaviour. If it is still not resolved, anybody involved in the dispute can apply to the NCAT for an order to remove the animal.

Getting a nuisance order via the local Council

If the owners corporation or strata committee cannot solve the issue, an application can be made to the local council to seek an order against nuisance dogs and cats.

To apply for an order, you need to contact the local council.

Proof of the behaviour, to support the nuisance order, will most likely be required by the council.

If the council chooses to issue the order, the pet owner must comply with the rule in the order.

If they do not, they can be fined by the council.

Assistance Animals

Assistance animals cannot be banned from living in a strata scheme.

An owners corporation can ask an occupier to provide evidence of their assistant animal’s status, including:
• accreditation from an assistance animal training body;
• an assistance animal permit issued by Service NSW;
• a signed statement that the animal has been trained to assist a person with a disability and meets acceptable hygiene and behaviour standards.

Owners corporations however should not ask for private medical records as evidence.

Article Written by Col Myers of Small Myers Hughes Lawyers

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

NSW Real Estate Licensing and Building Managers in NSW

REAL ESTATE LICENSING AND BUILDING
MANAGERS IN NSW

As you would be aware, there is no licence required to carry out Caretaking duties, but you do need a real estate agent licence to sell, lease or manage real estate on behalf of owners.

Since late 2021, there are now two classes of real estate agent licences in NSW – a Class 2 licence and a Class 1 licence.

CLASS 2 LICENCES

Before you can obtain a Class 2 real estate agent licence in NSW, you must first hold a Certificate of Registration to act as an assistant agent. You also need to hold a Certificate of Registration for at least 12 months, so as to gain experience under the supervision of a licensee.

A Class 2 licence allows you to –
• Act as an agent for a client to sell, buy or exchange property, businesses or professional practices;
• Negotiate with clients and vendors;
• Collect rent, deposits, bond payments and fees related to a lease, licence or contract.

However, Class 2 licence holders are not allowed to open or manage a trust account, or be nominated as a licensee in charge of a business.

To be eligible for a Class 2 licence, you must have –
• Held a certificate of registration as an assistant real estate agent (with or without restriction condition) for at least 12 months; and
• A Certificate IV in Real Estate Practice; and
• Completed work experience requirements for a Class 2 agent over a 12 month period;
OR
• Held a Class 2 restricted real estate agent licence within 12 months of making an application; and
• A Certificate IV in Real Estate Practice; and
• Completed work experience requirements for a Class 2 agent over a 12 month period.

Continuing Professional Development

Class 2 real estate agents must also complete 6 hours of continuing professional development (CPD) learning each year. This includes –
• 3 hours of compulsory CPD topics (these are set by Fair Trading and change every year); and
• 3 hours of elective CPD topics.

CLASS 1 LICENCES

Before you can apply for a Class 1 licence, you need to have held a Class 2 licence for two years. The idea behind this is that the 2 years training will further help build your skills and experience, so that you are ready to take on the additional functions of a Class 1 agent.

A Class 1 licence allows you to do all of the things that a Class 2 agent can do, but also allows you to –
• Act as a Licensee in Charge (LIC);
• Work independently as a sole trader;
• If you are an LIC, open and authorise trust account transactions for the business.

Only a Class 1 agent who is nominated as a licensee-in-charge (LIC) of a business can authorise withdrawals from the business trust account.

Continuing Professional Development

Class 1 real estate agents must complete 9 hours of continuing professional development (CPD) learning each year.

This includes –
• 3 hours of compulsory CPD topics (these are set by Fair Trading and change every year);
• 3 hours of elective CPD topics; and
• 3 hours of business skill topics.

ELIGABILITY TO BE ABLE TO APPLY FOR A LICENCE

To obtain a licence, you must meet the following criteria –
• You are at least 18 years old;
• You are a fit and proper person to hold a licence;
• You have the qualifications required for the licence class you are applying for;
• You have completed the required work experience tasks;
• Your previous licence (or certificate of registration) has not been disqualified;
• Your principal place of business is either in NSW or within 50km of the NSW border;
• You hold a Diploma of Property (Agency Management CPP51119) or Diploma of Property Services (Agency Management CPP50307); and
• You hold a Certificate IV in Real Estate Practice.

Mutual Recognition of Interstate Licences
• If you hold a current and equivalent licence in another state or territory (or New Zealand) you can lodge a form to apply to work in NSW under an equivalent licence.
• The key issue here is that you must hold a current licence in the other state – not just have done the course to qualify to hold that licence.

THE MANAGEMENT RIGHTS INDUSTRY FAVOUR – THE ON-SITE RESIDENTIAL PROPERTY MANAGERS LICENCE

The Australian Residents Accommodation Managers Association (ARAMA) pushed hard for this licence category.

An On-Site Residential Property Managers licence allows you to act as an agent –
• For giving possession of residential premises under a lease, licence or other contract;
• For collecting bonds, deposits, rents, fees or other charges in connection with any such lease, licence or other contract.

Note – This licence does not allow you to act as an agent for the purposes of selling real estate.

The NSW Government recognised that On-site Residential Property Managers work or live in the unit or apartment complex they are responsible for. Given their unique working arrangements, this form of licence is treated as a Class 1 real estate agent licence in NSW, allowing the manager to let units and operate a trust account.

Most importantly, this form of licence means that you don’t have to first hold a Certificate of Registration or Class 2 licence, thereby cutting out effectively 3 years of having to work in the real estate industry, before becoming eligible to let and operate a trust account.

However, you must have completed the Certificate IV in Real Estate Practice and continuing professional development (CPD) requirements apply.

Refining the Educational Requirements for the On-site Residential Property Managers Licence

ARAMA has pointed out to the NSW Government that the current educational requirements of a Certificate IV in Real Estate Practice is a gross overkill for obtaining an On Site Residential Managers Licence. This course includes educating licensees on duties that they are not allowed to perform under the On Site Residential Managers Licence – such as selling real estate selling!

Hopefully, common sense will soon apply and the education requirement for this form of licence will be limited to all the licensee is allowed to do – i.e. let units and operate a trust account!

Article Written by Col Myers of Small Myers Hughes Lawyers

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.