Fixing the Lottery this is Building Defects in NSW Strata Buildings

FIXING THE LOTTERY THAT IS BUILDING DEFECTS IN NSW STRATA BUILDINGS

 

We have all heard about the appalling building defects that have occurred in a number of new strata buildings in Sydney in recent years. Complexes such as “Opal Tower” and “Mascot Towers” are shocking examples of innocent mums and dads buying their dream residence, only to find that their unit and their complex were shoddily built and their dream has turned into a financial nightmare. Karen Stiles, from the Owners Corporation Network (which represents apartment owners) has said it “beggars belief that buildings so badly built received occupation certificates which allowed developers to settle on apartments.” How was this allowed to happen?

Design and Construct Contracts

Contractual arrangements for multi-storey projects differ, but commonly developers engage a builder to undertake a design-and-construct project. This means the builder is responsible both for the development of the design and the construction of the building. Whilst the developer might initially engage architects and engineers to prepare early designs to obtain planning approvals, these consultants then become subcontractors. Once contracted, the builder will work to find efficiencies and cost savings in the development of the design and construction of the building.

Although building approvals are required, the nature of a design-and-construct project means that many aspects of the design change after the initial approval is obtained. Many certifiers approve, allow, or are not aware of, variations that have been made. The result is that changes to approved design occur frequently, at the discretion of the builder, project manager and/or contractors and without independent certification.

The Shergold Weir Report commissioned by the NSW Government found that inaccurate designs mean that certifiers can never fully ensure compliance because they then must rely on inspections and some of the most important safety elements are hidden from view and a point-in-time inspection cannot properly assess essential construction processes.

Changes Implemented

The NSW Government has supported the vast majority of the Report’s recommendations and has (or is) implementing the following major reforms across the construction industry:

  1. Appointment of an expert Building Commissioner to act as the consolidated building regulator in NSW;
  2. Putting in place new laws that require building practitioners involved in designing buildings to submit building plans to the Commissioner (so that they may be audited), declare that the plans are BCA compliant and meet other relevant requirements and provide reports explaining why that is the case for performance solutions. Builders will also have to declare that their buildings are constructed in accordance with these plans. It will be an offence to knowingly or recklessly declare non-compliant plans or fail to lodge the documents on time. Disciplinary action will be able to be taken against practitioners who improperly make these declarations. The Building Commissioner will not need to sign off on building plans;
  3. The Building Commissioner will register the building practitioners who can lawfully make a declaration that plans are compliant or make a declaration that plans accurately reflect a building’s as-constructed design. These practitioners will have to maintain the necessary skills and insurance to meet the registration requirements and will be subject to disciplinary action for professional misconduct;
  4. Ensuring that building practitioners owe a duty of care to Owners Corporations and subsequent titleholders of residential developments, as well as unsophisticated construction clients who are small businesses. This means that homeowners will have a right to pursue compensation when they suffer damage because of a building practitioner’s negligence.

From 1 July 2021, most of these changes took effect for Class 2 buildings. These are typically multi-unit, multi-storey residential buildings where people live above and below each other.

The NSW Government see Class 2 as the highest priority right now, but the NSW Government will expand the reforms to other classes of construction in the future.

Also, previous changes to the Strata Schemes Management Act relating to residential strata properties that are four or more storeys now require that:

  • Developers must lodge a building bond equal to 2% of the building contract price, before an application is made for an occupation certificate;
  • Developers must give documents to the building inspector that help with their inspection;
  • There is a means for the developer and owners to agree on the amount of the building bond to be released for repairs, if they can’t agree;
  • A debt recovery mechanism has been put in place that enables the recovery of unpaid or insufficient bonds from a developer

Conclusion

Strata building defects have resulted in enormous extra workloads for Strata Committees and Building Managers – not to mention the emotional and financial hardship caused to unit owners. David Chandler was appointed the NSW Building Commissioner in 2019 after an impressive forty year career in the Australian construction industry.

Hopefully, he is the right man to clean up all of this shoddy construction, workmanship and design in strata buildings.

Article Written by Col Myers (July 2021)

 

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.

 

 

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Pros and Cons of Pooled Letting

PROS AND CONS OF POOLED LETTING

 

When an owner lets out their unit through an on-site letting agent, there are two ways that the owner’s letting income is typically calculated. These can be described as the “direct income” method or the “pooled income” method.

The method to be used is set out in the letting appointment (i.e. the agreement between the letting agent and the owner of the investment unit).

The majority of letting appointments pay an income to owners using the direct income method, where the income collected from the unit bookings is paid directly to the owner, after deductions of all expenses.

The pooled income method is used predominantly for short term lettings in a hotel style business. When using pooled income, the combined income and expenses for all units in the letting pool are aggregated and then a share of the profit is paid to all the owners in the letting pool.

In a perfect world, the pooling of income would seem the fairest way for Managers to operate their letting businesses. By pooling the income, owners can’t accuse the Manager of favouring certain owners over others when allocating bookings, and all owners rise and fall together with the success of the letting business. However, as we all know, we don’t live in a perfect world!

There are a number of common issues that can arise when operating a pooled letting business. The types of questions you will encounter include:

  • How to fairly determine the income ratio? Do you allocate based on the number of beds, unit entitlements (which are designed to reflect value), quality of the unit, sea views or some other unique quality? Or do you divide everything equally regardless?
  • How to share expenses? Do you share any or all expenses across the letting pool? Do you share expenses only up to a certain cost? Do you use the same ratio for sharing income to also sharing expenses?
  • How to determine who authorises significant expenditure? Do you ask a committee or one or two owner representatives, or should you be asking all owners – as all owners are sharing the costs?
  • How to operate a maintenance fund? Do you deduct a maintenance levy each month or just withdraw expenses as and when incurred?
  • What happens when an owner leaves the pool or has only just joined the pool? Should part of the retained maintenance funds be returned to the leaving owner? What if an owner leaves the pool after the general maintenance fund has just paid out for a new hot water system or installed new carpet in their unit?
  • How to adjust income when the owner uses their unit? Do you make no adjustment, or do you pro rata adjust for the days used?
  • How to change the terms of the letting appointment? What do you do if not all owners agree to your proposed change?

If you elect to go the pooled income route with your letting business, all of the above questions need to be thoroughly considered and appropriately addressed in your letting appointments with your owners. Unfortunately, we see a lot of letting appointments providing for pooled income where the issues raised above are not sufficiently answered.

When these issues are not suitably addressed we see unfair scenarios arise where owners are not receiving an income that truly reflects their unit’s contribution to the letting pool income. For example, if two bedroom units are in demand far more often than three bedroom units, the owners of the two bedroom units are effectively supplementing the income of the owners of three bedroom units. To add insult to injury, if the distribution of the pooled income is based on unit entitlements (i.e. the value of the units), the three bedroom units will also receive a higher return from the pool than the two bedroom units.

When you look at the questions and examples above, you can see there are many situations where a disgruntled owner could easily start asking some difficult questions. Questions that will be uncomfortable to answer if the terms of your letting appointment are either vague or silent on the issue.

If you operate a letting business that pools the income given to owners and your letting appointment doesn’t have the answers to these questions, it’s definitely recommended that you prioritise a revision of your letting appointments, as it only takes an issue with one owner to be an issue with all owners.

Article Written by Col Myers (June 2021)

 

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.

 

 

GET IN TOUCH

Tel:          +61 7 5552 6666

Fax:         +61 7 5528 0955

Office:      Level 2, 17 Welch Street, Southport Qld 4215

Postal:      PO Box 1876, Southport QLD 4215

 

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What is Gallery Vie

WHAT IS GALLERY VIE?

 

What is Gallery Vie, and why is the caretaker wanting to vary the caretaking agreement?

 

Gallery Vie is the name of a strata building which was involved in a 2015 Queensland Civil and Administrative Tribunal (QCAT) decision that significantly changed how Body Corporate legislation was interpreted going forward. In particular it changed how termination clauses in caretaking and letting agreements are applied when the caretaker has taken out a loan and used the caretaking and letting business as security for that loan.

In the Body Corporate legislation, when a bank has provided a loan to a caretaker, the bank is granted a special ability to step in and take control of the caretaking and letting business in the event the Body Corporate intends to terminate the caretaking and letting agreements. This special right is intended to prevent disruption to the services being provided to the Body Corporate and provide comfort to banks to encourage them to invest in the caretaking industry. Without bank investment, the vast majority of caretakers would not be able to operate.

Prior to the Gallery Vie QCAT decision it was widely understood that a Body Corporate could not terminate a caretaking or letting agreement that was secured by a bank for any reason without first allowing the bank the opportunity to rectify the breach or step in and take control of the business. The Gallery Vie decision however came to the conclusion that if the caretaking or letting agreement included additional termination rights over and above the rights granted in the Body Corporate legislation, it was possible for a Body Corporate to terminate an agreement without allowing the bank the option to step in first. This outcome severely undermined the protections the banks thought they held under the legislation and immediately led to banks cancelling or limiting lending to caretakers who were affected by the precedent set by the Gallery Vie decision.

To address the banks’ concerns raised by the Gallery Vie decision and ensure that loans could continue to be offered to caretakers, most caretaking and letting agreements need to be amended to remove termination triggers that deny the banks the option to step in. These are triggers that allow the Body Corporate to terminate the agreements, such as:

  • the caretaker becoming bankrupt,
  • the caretaker having receivers appointed,
  • the caretaker being convicted of a crime, or
  • the caretaker becoming physically or mentally incapacitated.

By varying caretaking and letting agreements to remove the ability of these triggers to prevent banks stepping in, it returns the caretaking industry to the position it was in prior to the Gallery Vie decision (as originally intended in the legislation) and gives the banks the comfort they need to continue offering finance to caretakers. If the caretaking and letting agreements are not varied as required by the banks, the caretaker faces the prospect of losing their finance altogether or having to agree to finance on significantly less viable terms.

    Article Written by Ben Ashworth (7 May 2021)

     

    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.

     

     

    GET IN TOUCH

    Tel:          +61 7 5552 6666

    Fax:         +61 7 5528 0955

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    Termination of Residential Tenancies in NSW after the COVID-19 Moratorium

    TERMINATION OF RESIDENTIAL TENANCIES IN NSW AFTER THE COVID-19 MORATORIUM

     

    The temporary tenancy moratorium introduced by the NSW Government to restrict when landlords could evict residential tenants due to rental arrears as a result of COVID-19 ended on 26 March 2021.

    From 27 March 2021, a six-month transitional period has begun.

    NSW Fair Trading has introduced a flowchart to assist landlords and tenants to understand how the transitional measures may affect a tenancy agreement.

    Step 1 – Establish if the tenant was COVID-Impacted during the moratorium period?

    During the moratorium period, between April 2020-26 March 2021,

    1. Did one or more rent-paying members of the household:
      • lose their employment, income or work hours due to COVID-19, OR
      • have to stop working or substantially reduce work hours due to illness with COVID-19, another member of the household’s illness with COVID-19 or to care for a household or family member with COVID-19? AND
      • did this result in a reduction in the weekly household income (including government assistance) of at least 25%?

    If so, the tenant was an ‘impacted tenant’.

    1. Did the ‘impacted tenant’ fail to pay rent or charges under their lease during the moratorium period that:
      • were payable, and
      • were not paid (either with or without the agreement of the landlord), and
      • are still owing?

    If so, these are ‘arrears’.

    If the above applies, the transitional measures apply.

    Step 2 – Have the parties negotiated a repayment plan between themselves?

    Step 2B – Use NSW Fair Trading Dispute Resolution (formal arrears repayment negotiation process)

    1. A landlord or a tenant can apply to NSW Fair Trading for assistance.
    2. NSW Fair Trading will request evidence to help parties negotiate the repayment plan.

    Step 2C – Have the parties been able to agree to a repayment plan?

    1. If yes, the repayment plan documented should include:
      • total amount payable;
      • payment frequency and amount.
    2. If no, the landlord may issue a termination notice or apply to Tribunal for a termination order to end the tenancy.

    A landlord cannot issue a termination notice unless:

    1. if no repayment plan is in place, they have participated in the formal arrears repayment negotiation process in good faith; OR
    2. if a repayment plan is in place, the tenant has missed more than two consecutive repayments; AND
    3. it is fair and reasonable to do so.

    In deciding whether it would be fair and reasonable, the Tribunal will consider:

      • the steps taken by the landlord and tenant to negotiate a repayment plan;
      • any payments made by the tenant towards the arrears;
      • the general financial position of, and any financial hardship experienced by, the landlord or tenant;
      • the availability and affordability of reasonable alternative accommodation for the tenant; and
      • any special vulnerability of the impacted tenant.

    Decision and orders are then made by NCAT and, if appropriate, the tenancy will end.

     

    Article Written by Col Myers (May 2021)
    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.

    GET IN TOUCH

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    Postal:      PO Box 1876, Southport QLD 4215

     

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    Changes to NSW Strata Laws

    CHANGES TO NSW STRATA LAWS

     

    There are now 81,717 strata schemes registered in NSW and every year this number grows by more than 1,000 across both Sydney and regional NSW. 

    Minister for Better Regulation, Kevin Anderson, has stated that, with the continued surge in popularity of apartment living, the NSW Government expects over half the population of Greater Sydney to be living in strata titled apartment towers, townhouses and blocks of flats by 2040. 

    The following changes to the Strata Schemes Management Act 2015 commenced on 24 February 2021: 

    1. Owners of multiple lots can appoint a single proxy – a person who owns more than one lot in a scheme may appoint a single proxy to vote on behalf of all their lots (to prevent the limitation on the number of proxies a person can hold stopping this from occurring);
    2. Proxies are still valid for adjourned meetings – a proxy that is appointed for a meeting that is adjourned is still valid for the reconvened meeting;
    3. Secret ballots – must not be disclosed as part of an inspection of a strata scheme’s records, unless ordered by the NSW Civil and Administrative Tribunal (NCAT) or a Court;
    4. Providing the by-laws to tenants – strata laws are now consistent with residential tenancies laws to clarify that a landlord must provide the strata scheme’s by-laws to a tenant before entering into a lease. 

    There is a further amendment Bill before Parliament that is expected to become law in mid-2021 which will introduce the following changes:

    1. An owners corporation will be able to authorise, by way of an ordinary resolution, the installation of sustainability infrastructure on common property, such as: 
      • the installation of solar panels,
      • increasing the recovery of recycling of material,
      • reducing the consumption of water,
      • preventing pollution and greenhouse gas emissions, and (e) facilitating the use of sustainable forms of transport.

    2. Any by-law or a decision by an owners corporation that would unreasonably prohibit the keeping of an animal on a lot will have no force or effect. However, the regulations may specify circumstances in which the keeping of an animal may unreasonably interfere with another occupant’s use and enjoyment of the occupant’s lot or common property (e.g. a dangerous dog). 

    3. An owners corporation will need to serve a copy of any NCAT application it receives on each owner, instead of just placing a copy of the application on the noticeboard. 

    4.NCAT will have the power to require a person to pay a penalty of up to $5,500.00 for breaching an order made by NCAT. 

      Article Written by Col Myers (January 2021)

       

      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.

       

       

      GET IN TOUCH

      Tel:          +61 7 5552 6666

      Fax:         +61 7 5528 0955

      Office:      Level 2, 17 Welch Street, Southport Qld 4215

      Postal:      PO Box 1876, Southport QLD 4215

       

      OFFICE HOURS

      Open:        8:30am – 5:00pm Monday to Friday

      contact small myers hughes

      Categories