Is your strata scheme functioning?
We recently acted for a lot owner/building manager in a Strata Application to the NSW Civil and Administrative Tribunal (NCAT) successfully seeking orders for the removal of the existing strata committee and the compulsory appointment of a strata manager to the scheme under s237 of the Strata Schemes Management Act 2015 (SSMA 2015) to effectively restore ‘function’ to the owners corporation.
UNILODGE AUSTRALIA PTY LTD & ANOR V THE OWNERS STRATA PLAN 54026  NSWCATCD
Section 237 of the SSMA 2015, allows NCAT to make an order appointing a person as a strata managing agent to exercise some or all of the powers of an owners corporation, in circumstances where the scheme is not functioning, or is not functioning satisfactorily.
On 29 April 2020, Principal Member Simon handed down her decision in the above case which can be viewed here.
Whilst the SSMA does not specify any particular matters to be considered when it comes to determining dysfunction, in this case, Principal Member Simon referred at  to the decision of Bischoff v Sahade  NSWCATAP 135 at  and noted that the main areas of dysfunction identified by the Applicants included:
- improper refusal to accept as valid, proxy and corporate owner nominee forms submitted prior to numerous general meetings, disenfranchising hundreds of lot owners and enabling the then current Chairperson and Strata Committee to gain, and retain, control;
- failure to repair a dangerous awning above a public footpath adjacent to the Strata Scheme, notwithstanding that the need to do so has been known since July 2015; and
- spending inordinate amounts on legal costs since March 2019.
THE IMPROPER REFUSAL OF PROXIES
At paragraphs  to  of her decision, Principal Member Simon referred to the written instruments, which had the effect of granting an irrevocable power of attorney, forming part of residential tenancy agreements (RTAs) entered into by lot owners and the additional terms of each RTA as being relevant to the treatment of proxies.
This included clause 15(a)(1) which empowered the ‘tenant’ to, among other things, complete, sign and lodge any proxy form, corporate owner nominee notification form, owner’s representative notification form and any other notice or document required under the SSMA 2015 or the Strata Schemes Management Regulations 2016 (NSW), so often as was necessary to allow the tenant to vote in the name of the “Landlord”, i.e. the lot owner who had leased their lot, at all meetings of the body corporate or the strata committee held during the term of the RTA.
Pursuant to the powers of attorney conferred by the RTAs, the tenant appointed various proxies on behalf of the relevant lot owners, and company nominees on behalf of various lot owners that are companies, in accordance with the requirements of the SSMA 2015, that is to cast votes at general meetings of the owners corporation (OC). However, at the three general meetings held on 14 June, 11 July and 14 August 2019, the proxy forms and company nominee forms from lot owners were rejected by the then current Chairperson.
In those circumstances, Principal Member Simon considered the decision of Ward J (as her Honour then was) in Quest Rose Hill Pty Ltd v White  NSWSC 939 (Quest v White), submitted by the Applicants to be directly on point.
In Quest v White, the plaintiff had leases with various landlords who owned lots in the building, pursuant to which the plaintiff operated a serviced apartment business by letting out (both short and long term) those leased lots to the plaintiff’s customers. Under the leases at clause 13.2, each relevant landlord had granted an irrevocable power of attorney to the plaintiff in the following form:
To better secure the performance by the Landlord of the obligations under this clause the Landlord irrevocably nominates and appoints the Tenant and each director and officer of the Tenant from time to time jointly and severally to be the attorney of the Landlord and to act, attend and vote as attorney in the Tenant’s absolute discretion on behalf of the Landlord (including to allow the Tenant the power to appoint and dismiss the Owners Corporation manager and to grant to the Tenant any leases or licences in respect of the Common Property that are reasonably required for the operation of the Tenant’s Business) at all or any meetings of the Owners Corporation or of the committee of the Owners Corporation to the exclusion of the Landlord if present.
A dispute subsequently arose in which the landlords challenged the right of the plaintiff to rely on the power of attorney given under the lease they had signed and sought to argue (unsuccessfully) at the hearing before Ward J that clause 13 was inconsistent and irreconcilable with the various provisions in the strata schemes legislation which applied at the time, i.e. Strata Schemes Management Act 1996 (NSW), and provided for the entitlement of lot owners to vote at general meetings and in the exercise of voting rights by proxy.
As noted by Principal Member Simon at  of Unilodge v The Owners Strata Plan 54026, Ward J rejected that submission in Quest v White and held at :
It seems to me that clause 10(3) of schedule 2, which provides for the manner in which a vote may be exercised, is permissive in its terms. It is open to a Landlord to appoint a proxy or an attorney to act on his or her behalf without in any way contracting out of the Act in breach of s 245. Similarly, I see no reason why the Landlord could not (subject to compliance with any procedural requirements under the Act) irrevocably appoint someone to attend and vote on his or her behalf at meetings of the Owners Corporation (and/or executive committee, if so permitted under the rules of the Owners Corporation). There must be many lot owners of strata title units within New South Wales who, for whatever reason, do not seek personally to exercise their voting rights (whether or not they choose to attend such meetings) from time to time or at all and wish to do so by appointing proxies for that purpose. If they do so by contract, they surely cannot all be said to be so doing in contravention of the Act.
In Quest v White, Ward J also accepted that proxies in strata schemes operate analogously to proxies under the Corporations Act 2001(Cth) and applied Palmer J’s decision in Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd (2005) 194 FLR 322 at  to hold at :
What clause 13.2 does, in my view, is to appoint Quest as the Landlord’s attorney (that expression including proxy) for the stated purpose(s). With that appointment would surely come the implied obligation on the parties to do what is necessary to enable the proxy rights so conferred to be validly exercised in accordance with any procedural requirements under the legislation. Therefore, to the extent that it is necessary for a Landlord or Quest to submit duly executed notices or forms to the Owners Corporation in order to comply with the statutory requirements for the valid exercise of a vote as proxy, that fact of itself does not seem to me to negate or contravene the Act. It simply means that further steps need to be taken before any vote is validly cast by the attorney acting as the Landlord’s proxy.
In light of the foregoing, and having considered the submissions and evidence of the parties, Principal Member Simon stated at  that she was satisfied (for the same reasons outlined by Ward J in Quest v White) the proxies and company nominee forms had been validly exercised by the tenant and concluded at  to  that:
- she was satisfied that the refusal to accept the “UniLodge” proxies and company nominee forms as valid, at three separate general meetings, amounted to an unwarranted denial of voting rights for those lot owners, the then Chairperson and Secretary was part of the decision not to allow the proxies, that this resulted in a disenfranchising of those lot owners of a vote in those meetings and that this demonstrated that the general meetings of the OC were not being conducted properly / the scheme was not functioning satisfactorily; and
- she was also satisfied that the resolutions passed at general meetings held on 14 June, 11 July and 14 August 2019 refusing to accept virtually all of the subject proxy forms and company nominee forms were invalid.
THE FAILURE TO REPAIR COMMON PROPERTY AND SPENDING ON LEGAL COSTS
Principal Member Simon also accepted that the scheme was not functioning satisfactorily because the owners corporation had failed to repair the scheme’s common property, in particular, the awning, that was situated above a public footpath which was adjacent to the Strata Scheme. In respect of this issue, Principal Member Simon observed at  to  that:
- section 106 of the SSMA required the OC to properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the OC;
- since July 2015 the awning had required repair and had not been repaired;
- a Notice of Intention to Give an Order was issued by the City of Sydney Council on 20 April 2017, warning of “catastrophic failure” of the awning, with the OC’s previous solicitors having advised the OC to embark upon the repair of the awing as required by the Council letter of April 2017;
- the situation of conflict in the OC had been the reason for the failure to finalise the repair to the awning which clearly required undertaking (and neither party denied);
- by 22 November 2019, all that was being done about the awning was to accept a fee proposal from a building engineer consultant to “carry out an assessment of the awning and preparation of a report’’ and in relation to the windows and façade (which also needed to be repaired), not to do any actual remedial work but only to “carry out an assessment” and “prepare a report” on the condition of the windows.
In light of the above findings, Principal Member Simon concluded at  that the serious and prolonged failure by the OC to carry out the urgent repair to the awning in these circumstances evinced that the scheme was not functioning satisfactorily.
Concerning the issue of the OC spending significant amounts of money on legal costs, in particular, since March 2019, i.e. an amount likely to exceed $700,000, Principal Member observed at  of her judgment that:
There can be no doubt that the dispute between the various factions of the Owners Corporation has caused an extraordinary amount of time and money to be spent in litigation on legal expenditure and proceedings. That is a clear indication that this scheme is not function[sic] satisfactorily and is in a high level of dispute paralyzing it in making decisions.
ORDERS MADE BY NCAT
Principal Member Simon ultimately held that the scheme was not functioning satisfactorily and that in the circumstances a compulsory strata managing agent should be appointed by NCAT to exercise all functions of the OC for a period of 2 years to “allow [Bright & Duggan] time to facilitate the maintenance required and move the parties towards non-compulsory management”.
Dysfunction in a strata scheme can arise for many reasons. Common examples include:
- the lack of maintenance and repair of the scheme’s common property
- the refusal to raise special levies to meet necessary repair and maintenance costs
- the strata committee’s inability or unwillingness to make decisions in relation to maintenance and repair of common property
- non-compliance with meeting and voting procedures at general meetings of the scheme or improper conduct of meetings.
If there is a need to restore function and good governance to your strata scheme, a strata managing agent may be appointed by the NCAT under section 237 of the SSMA 2015.
To obtain advice please contact Helen Kowal, Partner at Swaab on 02 9777 8321. View our Strata team https://www.swaab.com.au/ expertise/strata.