Same Strata Manager - Strata Management Statement Invalid
The NSW Court of Appeal has held that a clause in a Strata Management Statement (“SMS”) requiring subsidiary owners corporations as members of the building management committee to engage the same strata managing agent was inconsistent with the Strata Scheme Management Act 2015 (“SSMA”) and, subsequently, contrary to section 105(5) of the Strata Scheme Development Act 2015 (“SSDA”).
The effect is that any SMS with these types of clauses may no longer be valid to require the subsidiary schemes (usually strata schemes) to have the same strata manager.
The development is a “stratum development” or as we call them Building Management Committees (“BMC’s”), with a number of subsidiary schemes (mainly strata schemes) within it. Clauses within the SMS required that the entire development use one strata manager to manage not only the BMC but also every subsidiary scheme (strata scheme).
A lot owner, Walker Corporation Pty Ltd (original developer and lot owner) and the Respondents (being three strata schemes within the BMC) were in dispute following three strata schemes passing resolutions that terminated the appointment of the strata manager and appointed a different strata manager (not being the one managing the BMC).
The application to the Supreme Court said that the owners corporations of three strata schemes had breached clause 8.11 of the SMS in terminating the appointment of the strata manager and appointing someone else. The Applicant also contended that by this conduct, two of the strata schemes breached a provision of their respective by-laws, which were in similar terms to clause 8.11.
Clause 8.11 of the SMS required the owners corporations as members to appoint and retain the same strata managing agent the BMC appointed as the managing agent.
The issue then becomes whether clause 8.11 was valid.
The Supreme Court found that Clause 8.11 of the SMS was invalid due to its inconsistency with the SSMA and SSDA, and also that the by-laws for the strata schemes were also invalid.
The applicants appealed to the Court of Appeal. The Court of Appeal dismissed the application and found that the Judge at first instance was correct. The Court (in confirming the earlier decision) considered the following issues:
The Court found that the lot owners were charged with the responsibility of approving strata manager appointments (SSMA), and it was the primary responsibility of the owners corporation to manage the strata scheme with all of the obligations to exercise the functions and powers including the power of delegation, for the benefit of lot owners. The Court said:
“Clause 8.11 (SMS) extinguished the right of the owners corporation, in general meeting, to appoint a strata managing agent of its choosing, and to terminate that agent’s services if that was considered necessary.”
Further, clause 8.11 was inconsistent with the jurisdiction that section 72 of the SSMA which confers on NCAT Tribunal power to review the performance of strata managing agents. As a result of these inconsistencies clause 8.11 and the relevant strata by-laws were held to be invalid.
2. BEYOND THE SCOPE OF POWER TO MAKE BY-LAWS
The Court also said that Clause 8.11 was invalid on the basis that it was not authorised by the provisions of the SSDA. The Court found that:
- Section 99 of the SSDA describes a strata management statement as a “management statement for the building and its site”. This management function of the building and the site does not extend to the “complete takeover of management of all of the function[s] which may be delegated by an [owners corporation] to a strata managing agent” under the Management Act”.
- The Court also found that clauses 4(1) and 4(2) in Schedule 4 to the SSDA do not support a strata management statement effectively prescribing the management arrangements for individual strata schemes forming part of the building.
- As clause 8.11 of the SMS was inconsistent with the provisions of the SSMA, it was invalid by reason of section 105(5) of the SSDA.
Now all of this sounds very legalistic, but the net result is that where provisions of an SMS dictate that all subsidiary schemes must use the same strata manager, then based on this case, they are invalid.
3. WHAT SHOULD AN OWNERS CORPORATION/STRATA MANAGER DO?
- Review your SMS to see if there is a clause requiring the same strata manager for the development.
- If so, consider having it either deleted or at least reviewed for compliance. To do this will require amendments to the SMS and strata scheme by-laws.
- Despite the SMS and by-laws being legally “invalid” in some cases, there may be no need to change the strata manager if they are providing adequate services, that is a matter for the owners corporation to consider. Depending on the appointment of the strata manager there may be the need to confirm their appointment at a future meeting.
Should you wish to discuss this decision further or obtain advice, please do not hesitate to contact us. Prepared by Ann Zheng and Colin Grace.
Walker Corporation Pty Ltd v The Owners – Strata Plan No 61618  NSWCA 125.