Strata and Community Title Review. Submission to NSW Fair Trading. November 2012

Transcription

1 Strata and Community Title Review Submission to NSW Fair Trading November 2012

2 Executive summary The Property Council of Australia welcomes the opportunity to comment on the Strata & Community Title Law Reform Discussion Paper released by the NSW Government. Reform of strata and community title laws in NSW is long overdue. There is a potent mix of issues currently at play in NSW that demand we reform strata laws to unlock the potential for strata renewal: Aging stock Some of the oldest strata buildings in Sydney are close to 100 years old well past their natural physical or economic life. CBD growth Government forecasts suggest employment growth in the Sydney CBD will escalate by 3,200 new employees annually. This demands continual renewal of commercial office stock. The design imperative Older strata titled buildings were created prior to good design principles and without the capacity for renewal will remain eyesores on the urban landscape indefinitely. Lack of maintenance Agreement on maintenance can be difficult in large strata schemes due to the number of owners. This can exaggerate the decline in the quality, safety and lifespan of buildings and undermines the initial investment of owners. Strata deadlock A strata scheme can only be terminated by a court order or a unanimous resolution where no unit owner votes against termination. It serves as a recipe for gridlock. Expertise and risk management - The costs, procedural complexity and resources challenges of undertaking complete redevelopment act as a deterrent to renewal by existing owners. Owners can also lack the ability to outsource the task to practitioners with a greater capacity to manage risk. We applaud the NSW Government s commitment to creating a more modern, innovative and effective regulatory framework for strata and community schemes. However, the centrepiece of any reform that aims to achieve these objectives needs to be movement on the threshold for terminating strata schemes. Our submission: 1. Promotes an efficient and transparent solution for unlocking strata renewal that will better facilitate building regeneration and urban renewal to meet Sydney s urgent growth needs. 2. Recommends solutions to a range of residential strata scheme management issues identified by our members that operate in this space. Recommendations 2 P a g e

3 Recommendations Recommendations CHAPTER 1 FUTURE REGULATORY APPROACH 1. Combine strata scheme management laws with strata scheme development laws. The same approach should also be taken with community scheme laws. 2. A developer that retains ownership of units in a strata scheme following the scheme s first AGM should hold voting rights proportionate to its unit share, subject to existing restrictions in the law only. 3. The Government should adopt a plain English approach to strata and community scheme legislation with more detailed clarification of critical components of the legislation. CHAPTER 2 GOVERNANCE 4. Make training compulsory for a percentage (depending on the size of the strata scheme) of members of the Executive Committee, with an exception for those with relevant industry experience, before that committee is considered properly formed and able to carry out its functions. 5. Reform voting processes to overcome apathy in strata schemes by: a. Limiting the number of proxies that can be held by an individual owner to no more than 5% of the total number of lots b. Introducing a system of pre-meeting postal voting/absentee voting. c. Making voting compulsory for all owners. d. Providing the option of secret ballots on substantive issues. e. Limiting the number of proxies or voting rights that can be held by an individual owner to no more than 5% of all voting rights when voting for an Executive Committee. f. The 5% limits in a) and e) above should only apply to large strata schemes. Limits on voting rights should be contingent upon the size of the strata scheme, with a sliding scale determining the proportion of voting rights allowed in different seized schemes. 6. Make office bearers liability insurance compulsory in all strata schemes. 7. Allow payments to be made to Executive Committee members of large strata schemes for their service. 3 P a g e

4 8. Allow Executive Committees and Strata Managing Agents to send notices and documents by or other technology only if an owner, tenant or other person associated with a strata scheme elects to receive them in this way. 9. Place a 3 year limit on the consecutive holding of office for Executive Committee members in large strata schemes. 10. Require all motions to be accompanied by an explanatory note and to identify the person who submitted the motion. 11. Allow community association property to be dealt with by way of special resolution rather than unanimous resolution. 12. Introduce greater flexibility around staged community developments, including the ability to more easily create community association property in the latter stages of the development. 13. Mandate the appointment of professional strata managers for schemes of 100 lots or more. CHAPTER 3 MANAGING THE BUILT ENVIRONMENT 14. The existing requirement of unanimous agreement to terminate a strata scheme should be removed and replaced with a threshold of 75% in favour of termination, regardless of the scheme s age or asset type. 15. The Property Council s Renewal Plan process should be adopted for the termination of strata schemes and should apply to both the collective sale and cooperative redevelopment of strata schemes. 16. Clarify the definition of common property by including explicit definitions for wall, floor and ceiling in the strata schemes legislation. 17. Memorandum No AG and Memorandum AG should be incorporated into new and existing strata plans as appropriate. 18. Amend section 62 of the Strata Schemes Management Act to introduce a qualified obligation to maintain common property. 19. Amend section 62 of the Strata Schemes Management Act to relieve Owners Corporations from the absolute obligation to take action for defects. 20. Developers should be required to provide a maintenance schedule for consideration and adoption at the first AGM of a new strata scheme. 4 P a g e

5 21. The maintenance schedule should be prepared by the building contractor and should be structured as set out in this submission. 22. The Owners Corporation should be required to budget for the provision of maintenance in accordance with the maintenance schedule. 23. Defects should be included as a compulsory agenda item at the first AGM of strata schemes. CHAPTER 4 MANAGING MONEY 24. The statement of unit entitlement in a strata plan should be in a Valuer s Certificate in the strata plan and be certified by a qualified valuer. CHAPTER 5 MANAGING DISPUTES 25. Create clearly defined dispute resolution pathways for the main disputes that arise in strata schemes to allow for the relatively quick, informal and inexpensive resolution of strata scheme disputes. 26. Allow Owners Corporations to issue fines up to a certain level for basic breaches of by-laws, where there is proof that the by-law has been breached and for fines to be added to the outstanding levies of owners. MISCELLANEOUS ISSUES 27. Require developers to prepare and provide an asset register to the Owners Corporation at the first AGM, and to hand over the occupation certificate for the building. 28. Introduce a requirement for consent authorities to specify the terms of a s88b instrument at the DA or strata approval stage and allow private certifiers to sign off on s88b instruments as compliant with the conditions of consent. The LPI should recognise the certifier approved s88b instrument as being in registrable form. 5 P a g e

6 Introduction The Property Council of Australia is the leading advocate for the nation s $600 billion property industry. Our members are Australia s major investors, developers and owners of office, residential, retail, industrial, retirement living and hotel assets. As investors, owners, developers and managers of strata and community schemes, our members have an inherent interest in the: 1. better management of residential schemes and buildings; and 2. development of a more effective scheme renewal process for all strata schemes, regardless of building age or use. The Property Council has been a consistent and constructive voice in the debate on strata and community title reform for many years. We strongly support reforming the current strata scheme renewal laws provided that the following signature design principles are met: A reasonable threshold A fair and sensible approach would require a majority decision, rather than a unanimous one, for the termination of a strata scheme. Based on overseas practice we advocate a threshold of no more than 25% against termination. Fair compensation For owners who oppose termination, fairness remains the key principle. Several international models have an allowance for owners who oppose termination to secure independent market valuations of the redevelopment value of the land before selling their share to the Owners Corporation. Consumer protection Many owners do not have the resources or expertise to undertake redevelopment themselves. A new model should allow owners to engage a developer to undertake and manage the redevelopment process. Preserve control A Renewal Plan should be required on all proposals to renew a strata scheme. It would require a staged process that sees owners consulted and would allow them to retain control of each step in the process. Phased introduction Suitable transitional arrangements should to be made to account for the interests of existing owners and investors in strata buildings. Legislation should allow for new termination provisions to apply after 12 months for new buildings and 2 years for existing buildings. 6 P a g e

7 Commercial strata stock In addition to the signature design principles outlined above, the Government s reform of strata scheme termination and renewal processes must include commercial strata stock. Sydney s profile as a global financial hub demands strategic planning controls that can facilitate a long-life pipeline of development capacity to match future requirements for new commercial floor space. Our CBD is constrained by existing planning controls that limit supply to only years (including additional capacity provided by Barangaroo). By the time the City s planning controls are changed to facilitate growth beyond this horizon, it will still take years for new supply to be delivered. One of the keys to unlocking this inevitable future supply shortfall it to revitalise strata titled commercial buildings. There are currently 113 commercial buildings in the CBD that are strata titled. These buildings represent 22% of the CBD s total building stock, but only 9.5% of the CBD s net lettable area. Including commercial buildings in strata scheme termination and renewal reforms will ensure that these buildings can be unlocked for further development and deliver: A substantial efficiency dividend by amalgamating these buildings with adjacent buildings to increase floor plates thereby reflecting market trends and demands. Greener and more efficient commercial buildings than the aging and fragmented stock it replaces. Of the last 30 commercial buildings built in the CBD, 16 Premium/A-Grade buildings accounted for 90% of the new stock, while 14 B-Grade or lower graded buildings delivered just 9% of stock. A clear opportunity for the owners of these schemes to maximise their initial investment and increase their returns. At the same time the City wins as new commercial stock comes online, delivering on industry-leading sustainability dividends and much needed office capacity for the future. As well as being highly relevant to our constrained CBD, it would also open the door to greater opportunities for renewal of stock in other key areas, including North Sydney, Parramatta and other regional centres. 7 P a g e

8 Chapter 1 Future Regulatory Approach REDUCE RED TAPE (Question 2) The Property Council strongly supports the NSW Government s commitment to reduce red tape by 20% in its first term. A significant red tape reduction could be achieved by re-combining the strata scheme management laws with the strata scheme development laws. The same approach should also be taken with the community scheme management and development laws. Combining the development and management laws for strata and community schemes would help achieve the Government s goal of reducing uncertainty and confusion in strata and community scheme legislation by removing unnecessary duplication. Recommendation 1. Combine strata scheme management laws with strata schemes development laws. The same approach should also be taken with community scheme laws. COMPETING INTERESTS OF STAKEHOLDERS (Question 8) The Discussion Paper notes that owners and developers of strata schemes often have competing interests and that this is a reason to limit the rights of a developer to participate in the management of a strata scheme. The existence of competing interests between owners and developers of strata schemes does not justify further restrictions being placed on the ability of developers to be involved in strata schemes following the first AGM. If a developer retains ownership of units in a strata scheme following the scheme s first AGM, that developer should hold voting rights proportionate to its unit share, subject to existing restrictions in the law only. The developer has a wealth of knowledge about the construction and structure of the building that is invaluable to the proper management of a strata scheme. The value of this knowledge should not be overlooked. Recommendation 2. A developer that retains ownership of units in a strata scheme following the scheme s first AGM should hold voting rights proportionate to its unit share, subject to existing restrictions in the law only. TERMINOLOGY AND PLAIN ENGLISH (Question 9) Strata and community schemes legislation is generally considered to be overly complex and difficult to understand, particularly for owners and those involved in the management of strata schemes. We would support measures to adopt a plain English approach to strata and community scheme legislation. This would reduce Owners Corporations reliance on lawyers to understand their strata management responsibilities and would reduce the cost of strata management. 8 P a g e

9 In particular, the concept of common property could benefit from greater clarification and simplification in the strata scheme legislation. This issue will be addressed in full later in this submission. Recommendation 3. The Government should adopt a plain English approach to strata and community scheme legislation with more detailed clarification of critical components of the legislation. 9 P a g e

10 Chapter. 2 - Governance Chapter 2 - Governance Chapter 2 Governance\ AWARENESS OF RIGHTS AND RESPONSIBILITIES (Question 10) The Discussion Paper correctly identifies that there can be difficulties with allowing owners with no experience or expertise to serve on the Executive Committee of a strata scheme. Our members have identified this as a particular issue in the governance and management of large strata schemes, that is schemes of 100 units or more. Apathy about the management of a building from the majority of owners in large strata schemes can result in the formation of Super Owners Corporations. In Super Owners Corporations, often just a few people with no experience sometimes only 3-5 people out of owners will be responsible for making complex decisions about the management of a building worth tens of millions of dollars. The decisions of owners with no experience or expertise can place the building at risk and very little can be done to stop them. Introducing mandatory training for members of the Executive Committee of large strata schemes would result in better building management. Mandatory training should be run out of the Department of Fair Trading, be paid for out of each strata scheme s administrative fund and cover: the basics of running a strata scheme, including building management; the legal obligations of the Executive Committee, including an explanation of office bearer s insurance; and information about defects, including seeking defect inspections and defect rectification. We propose that mandatory training should be completed by a percentage (depending on the size of the strata scheme) of the members of an Executive Committee before that committee is considered properly formed and able to carry out its functions. However, an exception to mandatory training should be made for members of an Executive Committee that have relevant industry experience, in order to ensure that they are not deterred from serving on the committee. In relation to large strata schemes, to avoid the situation where a group of owners who have completed mandatory training become permanent members of the Executive Committee, there should be a limit of 3 years consecutive service for each committee member. Committee members would be allowed to serve again, but not for more than 3 years at a time. If it then becomes difficult to form a properly constituted Executive Committee, the duties of the committee should be assumed by the Strata Managing Agent until enough committee members have completed mandatory training. 10 P a g e

11 Recommendation 4. Make training compulsory for a percentage (depending on the size of the strata scheme) of members of the Executive Committee, with an exception for those with relevant industry experience, before that committee is considered properly formed and able to carry out its functions. PARTICIPATION (Questions 12 and 13) As outlined above, our members have indicated that there can be widespread apathy among owners in strata schemes about the governance and management of their building. Reforms to the voting process Reforming voting processes in strata schemes is important for overcoming apathy and ensuring that decision making is not always dominated by a small group of powerful owners. The Property Council supports implementation of the following voting reform options proposed in the Discussion Paper: 1. Limit the numbers of proxies that can be held by an individual to no more than 5% of the total number of lots in the strata scheme. 2. Introduce a system of pre-meeting postal voting, or absentee voting, for those who cannot attend a meeting. This change should be accompanied by a requirement for meeting papers to include explanatory notes for all motions and to identify the person who submitted the motion. 3. Make voting compulsory for all owners. 4. Provide the option of secret ballots on certain issues. In addition to these voting reforms, we propose that no proxy holder, or individual owner, should be allowed to hold more than 5% of all voting rights when voting for an Executive Committee. However, we note that this 5% limit on voting rights should only apply to large strata schemes as it may not be an appropriate limit in smaller strata schemes. The proportion of voting rights able to be held by an individual when voting for an Executive Committee should be contingent on the size of the strata scheme, with a sliding scale determining the proportion of voting rights allowed for different sized schemes. This sliding scale should also apply to limits on the number of proxies. Increasing participation on committees We understand that some owners may be deterred from participating on the Executive Committee of an Owners Corporation due to the risk of legal liability. Office bearers liability insurance should be compulsory in all strata schemes. Compulsory insurance should encourage more owners to participate in strata management and increase the pool of potential Executive Committee members. 11 P a g e

12 In addition, due to the level of time, knowledge, expertise and commitment required to run a large strata scheme, Executive Committee members of large strata schemes should be paid for their time. Paying these committee members will result in the right people with the right set of skills and training managing the building. It will also allow a certain level of accountability to be expected for the actions of these committee members. Recommendations: 5. Reform voting processes to overcome apathy in strata schemes by: a) Limiting the number of proxies that can be held by an individual owner to no more than 5% of the total number of lots. b) Introducing a system of pre-meeting postal voting/absentee voting. c) Making voting compulsory for all owners. d) Providing the option of secret ballots on substantive issues. e) Limiting the number of proxies or voting rights that can be held by an individual owner to no more than 5% of all voting rights when voting for an Executive Committee. f) The 5% limits in a) and e) above should only apply to large strata schemes. Limits on voting rights should be contingent upon the size of the strata scheme, with a sliding scale determining the proportion of voting rights allowed in different sized schemes. 6. Make office bearers liability insurance compulsory in all strata schemes. 7. Allow payments to be made to Executive Committee members of large strata schemes for their service. COMMUNICATION (Question 14) We understand that requirements to post notices and other documents to owners in a strata scheme can be cumbersome and expensive for Owners Corporations. We support reforming strata laws to allow Executive Committees and strata managing agents to send notices and documents by or other technology - only if an owner, tenant or other person associated with a strata scheme elects to receive them in this way. The Discussion Paper rightly acknowledges that paper based processes must also be retained, as not all owners or strata schemes will be comfortable with or equipped to use this technology. Recommendation 8. Allow Executive Committees and Strata Managing Agents to send notices and documents by - or other technology - only if an owner, tenant or other person associated with a strata scheme elects to receive them in this way. 12 P a g e

13 TRANSPARENCY (Question 16) Committee membership To ensure that entrenched power cliques do not prevent different views and interests being represented on the Executive Committee, a 3 year limit should be placed on the consecutive holding of office for committee members in large strata schemes. Committee members would be allowed to serve again, but not for more than 3 years at a time. Motions As mentioned above in relation to the introduction of pre-meeting postal voting, we support the introduction of a requirement for all motions to be accompanied by an explanatory note and to identify the person who submitted the motion. This will allow all owners, whether they are able to attend the meeting or not, to cast a fully informed vote. Unanimous resolution to deal with community association property According to our members, the community schemes legislation does not adequately cater for staged community developments. Requiring a unanimous resolution to deal with community association property in a community scheme poses a major risk to large-scale staged developments. The nature of staged development means that future community association property needs to be added to the community scheme after it has been created. It is currently very difficult to do this. The current process requires that future community association property be subdivided into community lots and a conversion process be used to convert the land into community association property. This conversion process requires a unanimous decision of all owners in the scheme. The requirement of a unanimous resolution can put the whole development at risk, as one dissenting vote can bring the conversion process to a halt. A more sensible and appropriate way to deal with community association property would be by special resolution. Recommendations 9. Place a 3 year limit on the consecutive holding of office for Executive Committee members in large strata schemes 10. Require all motions to be accompanied by an explanatory note and to identify the person who submitted the motion. 11. Allow community association property to be dealt with by way of special resolution rather than unanimous resolution. 12. Introduce greater flexibility around staged community developments, including the ability to more easily create community association property in the latter stages of the development. 13 P a g e

14 ACCOUNTABILITY (Question 18) In our previous submission to the Strata and Community Title Review, the Property Council recognised that the management of large strata schemes is complex and requires a different set of skills to the management of small (for example 1-5 unit) schemes. We noted that the market is shifting towards professional management services for large schemes, and that most developers of large schemes appoint professional managers (either an individual or management organisation). These professional strata managers are more likely to have the requisite knowledge and experience to effectively manage large strata schemes. For this reason, we recommend again that large strata schemes be required to appoint professional strata managers. Recommendation 13. Mandate the appointment of professional strata managers for schemes of 100 lots or more. 14 P a g e

15 Chapter 3 Managing the Built Environment RENEWAL OF STRATA SCHEMES (Questions 20 and 21) Reform principles The Discussion Paper rightly acknowledges that the current termination procedures in the NSW strata laws are too restrictive and must be reformed in order to facilitate the replacement of an unproductive or unliveable building once it inevitably reaches the end of its useful life. The Property Council shares this view. In our previous submission to the NSW Strata and Community Title Review, the Property Council highlighted the fact that the existing law requiring all owners to unanimously agree to the termination of an existing strata scheme is strangling the development of new commercial and housing stock, which is essential for Sydney s inevitable future growth. In a system where one dissenter can frustrate the will of all other owners, many buildings are being pushed past their realistic lifespan, and we risk the emergence of buildings that are unsound and unsightly. The Property Council applauds the NSW Government s push to reform the way that strata schemes are terminated, as it will better facilitate the regeneration of buildings and enable urban renewal to meet urgent growth needs. To achieve these overarching objectives, the Government s reform agenda must embrace these key design principles: 1. A reasonable threshold A fair and sensible approach would require a majority decision, rather than a unanimous one, for the termination of a strata scheme. Based on overseas practice we advocate a threshold of no more than 25% against termination. 2. Fair compensation For owners who oppose termination, fairness remains the key principle. Several international models have an allowance for owners who oppose termination to secure independent market valuations of the redevelopment value of the land before selling their share to the Owners Corporation. 3. Consumer protection Many owners do not have the resources or expertise to undertake redevelopment themselves. A new model should allow owners to engage a developer to undertake and manage the redevelopment process. 4. Preserve control A Renewal Plan should be required on all proposals to renew a strata scheme. It would require a staged process that sees owners consulted and would allow them to retain control of each step in the process. 5. Phased introduction Suitable transitional arrangements would need to be made to account for the interests of existing owners and investors in strata buildings. Legislation should allow for new termination provisions to apply after 12 months for new buildings and 2 years for existing buildings. 15 P a g e

16 In addition, a new termination regime must apply to new and existing buildings, as well as residential and commercial buildings. While it would be easier to introduce a new regime just for new buildings, it is aging strata buildings that pose the most immediate challenge to achieving urban renewal. Alternative termination proposal Renewal Plan We are pleased that the Government has recognised the merits of the Property Council s Renewal Plan process in the Discussion Paper as an alternative method of strata scheme termination. As outlined in our previous submission to the Strata and Community Title Review, adopting the Property Council s Renewal Plan process for all strata buildings, regardless of age or use, would give owners confidence that an effective and transparent process is in place to terminate strata schemes. A summary of our Renewal Plan process is provided below. The Renewal Plan Process Termination (owners retain an interest) Notice Renewal Plan Certification Approval Pre-Termination Termination (owners retain no interest) The Property Council s Renewal Plan model should be preferred to the OCN model outlined in the Discussion Paper. While both models contain similar design principles and provide transparent processes for the collective sale and co-operative redevelopment of strata schemes, the Property Council model provides a more efficient process. Our model also contains strong consumer protection measures and embodies all of the signature design principles outlined above. 16 P a g e

17 Reform Package 1. Introduce the Property Council s Renewal Plan model to provide an effective and transparent process to guide owners through the process of dissolving a strata scheme. 2. Provide for strata schemes to be dissolved if not more than 25% of owners vote against the proposal, instead of the existing requirement of unanimous agreement. 3. Ensure fair terms are provided to all owners who do not support termination, including fair processes for conflict mediation. Recommendations 14. The existing requirement of unanimous agreement to terminate a strata scheme should be removed and replaced with a threshold of 75% in favour of termination, regardless of the scheme s age or asset type. 15. The Property Council s Renewal Plan process should be adopted for the termination of strata schemes and should apply to both the collective sale and cooperative redevelopment of strata schemes. COMMON PROPERTY (Questions 24 and 25) Definition of common property We agree with the Discussion Paper that it is not always clear what is common property and what is an individual lot in a strata scheme. The identification of common property becomes even more complex in large strata schemes. Confusion as to what is common property and what is not common property is a major cause of disputes in strata schemes. Disputes arise about who is responsible for the maintenance of a particular item and whether an owner needs to seek permission to make alterations to particular property. The Property Council believes that including explicit definitions in the strata schemes legislation for wall, floor and ceiling would help to dramatically reduce these disputes by clarifying and simplifying the meaning of common property. In addition, Memorandum No AG and Memorandum No AG released by the NSW Land and Property Information in October 2011 provide some guidance as to what is and what is not generally considered to be common property. Where appropriate, these memoranda should be incorporated into new and existing strata plans subject of course to an individual scheme s strata plan and by-laws. 17 P a g e

18 Absolute obligation to maintain common property and take action for defects The absolute obligation imposed on Owners Corporations to maintain and repair common property by section 62 of the Strata Schemes Management Act 1996 is an unnecessarily strict obligation that should be amended to give Owners Corporations greater flexibility. Section 62 imposes a strict duty which forces Owners Corporations to spend money on building maintenance, regardless of the surrounding circumstances, as the Owners Corporation will be exposed to liability if it does not. In our members experience, this risk of liability often results in Executive Committees of Owners Corporations spending large sums of money on expert reports and legal advice in order to understand how to discharge their obligations. These costs can outweigh the cost of the relevant maintenance or repair work, and are an unnecessary expense for owners in a strata scheme. Further, due to the strict nature of the duty, an Owners Corporation is prevented from raising as a defence that it has taken all reasonable steps or used its best endeavours to perform its duties under section 62, that it acted with due diligence/expedition or to claim contributory negligence. The Property Council supports a shift from an absolute duty to maintain common property to a qualified duty in order to avoid outcomes like those stated above. In addition, section 62 needs to be changed immediately to relieve Owners Corporations from the absolute obligation to take action for defects which includes trivial, minor and technical defects. An Owners Corporation should not be obliged to initiate action to pursue technical defects that have not caused damage or loss to the building, or that would be ultimately unsuccessful, simply to avoid exposing themselves to personal liability. An Owners Corporation should be able to take into consideration the surrounding factors including the severity of the defect and whether or not there is significant or disproportionate cost involved in the repair. Recommendations: 16. Clarify the definition of common property by including explicit definitions for wall, floor and ceiling in the strata schemes legislation. 17. Memorandum No AG and Memorandum AG should be incorporated into new and existing strata plans as appropriate. 18. Amend section 62 of the Strata Schemes Management Act to introduce a qualified obligation to maintain common property. 19. Amend section 62 of the Strata Schemes Management Act to relieve Owners Corporations from the absolute obligation to take action for defects. 18 P a g e

19 DEFECTS (Questions 31 and 32) Maintenance schedule The Property Council supports the suggestion that developers should be required to provide a maintenance schedule for consideration and adoption at the first AGM of new strata schemes. In our joint industry submission on the review of the Home Building Act 1989 earlier this year, we strongly supported the proposal for the introduction of a mandatory maintenance schedule for all strata buildings. 1. Process for establishing maintenance schedule In that submission, we noted that while building users and operators are best placed to implement and manage maintenance, the building contractor will typically be best placed to identify the appropriate maintenance required for the building. On that basis, it is logical for building contractors to be tasked with the preparation of a maintenance schedule for the initial term of the operation of a strata scheme. The maintenance schedule should be constructed by the building contractor as follows: a) Plant maintenance i. Schedule of maintenance tasks and indicative timing for servicing of lifts, air conditioning chillers/peripherals, and ESD/sustainability plant (photovoltaics, black water systems etc) and any other operation plant forming part of, or attached to, the building; ii. Schedule of consumable items and indicative date for replacement based on life expectancy of consumables; iii. Identification of any warranties issued by plant designers/suppliers/installers and the respective expiry dates for such warranties; and iv. Identification of any contractors/maintenance providers that must perform plant maintenance so as to maintain existing warranties. b) Building maintenance i. Schedule of maintenance elements and indicative timing for servicing, maintenance and cleaning of structural/building fabric elements including roof material, roof plumbing, awnings, louvres or attached moving components, windows, seals, externals doors etc; ii. Detailed description of the nature of cleaning and servicing required, particularly with respect to moving components such as louvres, high maintenance components such as varnished timber finishes and particularly where buildings are located in harsh environments (for example, hot/cold climates, seaside locations etc); 19 P a g e

20 iii. Schedule of consumable items and indicative date for replacement based on life expectancy of consumables; c) Soft facilities management i. To the extent necessary, a disclosure of any information relevant to the provision of soft facilities management services that will improve the longevity or operation of the strata building. Such information may relate to the softness/sensitivity of finishes such as marble, issues with respect to the placement or operation of garden irrigation systems, operation or cleaning issues related to waste management/refuse systems etc. Unless the Owners Corporation disagrees with any component identified in the proposed maintenance schedule or the timeframes for provision of such services, the maintenance schedule should become binding for its term. We consider that a 6 year schedule would be appropriate. 2. Duty to comply with maintenance schedule While the building contractor is best placed to draft and propose the maintenance schedule, the Owners Corporation is best placed to oversee and manage compliance with the maintenance schedule. To ensure compliance with the maintenance schedule, the Owners Corporation should be required by law to budget for the provision of maintenance in accordance with the maintenance schedule. This makes sense for consumers in the event that a defect arises, and the building owners commence action against the contractor, the owners will only succeed against the builder if they can demonstrate that the defect is a consequence of a breach of contract or of statutory warranty and is not a result of fair wear and tear. Accordingly, the building owners will preserve their interests and indirectly collate evidence of their maintenance of the building, by complying with the maintenance schedule and retaining evidence of such compliance. Defects as a compulsory agenda item The Property Council also supports the inclusion of defects as a compulsory agenda item at the first AGM of all strata schemes. In the first 12 months of a new strata scheme, developers hold retention money from builders and/or sub-contractors that can be used to repair defects. Therefore the earlier that defects and defect rectification issues are discussed, the better. 20 P a g e