All posts by Michael Teys

What might happen when strata buildings fall into the sea?

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Pacifica Collapse

The sky has barely cleared on the northern beaches of Sydney, where it seems the risk of this perfect storm has been well understood for some decades, and the blame game has already begun.

For strata-titled apartment blocks in the Northern Beaches at risk there’s an additional element to this all too familiar, post-catastrophe witch hunt. A Coastal Zone Management Plan, adopted by the Warringah Council in 2014, made owners responsible for protecting their property from the impact of coastal processes. It also noted that new developments needed to demonstrate both a low risk of erosion damage and measures to be taken to avoid it, such as piled foundations. In the case of a strata apartment block covered by such a plan, the entity responsible is the owners corporation.

The owners of the properties concerned will say the council is to blame, the council will say the owners are responsible, the insurers will say their policies don’t cover the risk and in any event land is not insured. Who knows where this might all end but with so much potentially at stake, if a strata apartment building fell into the sea or was condemned as uninhabitable be sure of this; the plaintiffs’ lawyers will cast the net for defendants wide and leave no stone unturned looking for someone to pay.

While lawsuits against strata committees of owners corporations are rare, the events of the last 72 hours raise the horrifying prospect that the defendants of last resort in this type of case might just be the strata committee members of any owners corporations that were involved.

Right now in New South Wales there is no immunity for strata committee members for personal liability for things done or not done in the exercise of their duties. There is also no doubt that at common law strata committee owners owe a duty of good faith to the entity they serve, to be honest, reasonable and prudent in all they do. Immunity has been foreshadowed in laws proposed to begin later in the year but that doesn’t help today.

Strata committee members will likely be covered for directors’ and officers’ liability but these policies are peppered with exclusions for circumstances and risks known or that ought reasonably to have known and where full disclosure has not been made or the appropriate remedial action taken.

When North American strata lawyers visit Australia for strata law conferences they are always staggered that our owners corporation are not limited liability entities and that strata committee members assume personal liability for their volunteer work. This is why.

Am I going to gaol for being on a strata committee?

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White-Collar-Crime1

A schedule I’ve just prepared comparing the responsibilities of committee members under new strata law with the current laws makes the point quite visually. The duties list before was small and now it’s big. These are not ‘things to be done’ type duties, rather, ‘you will be sued if you don’t’ type duties.

The soon to be imposed duties on elected committee members are hardly controversial and indeed are quite old fashioned; they’re just new to strata. There’s an obligation to act in good faith, to disclose conflicts of interest, to declare pecuniary interests, and to exercise due care and diligence when making decisions.

These are not things that should scare us. There’s immunity for doing the right thing and the new laws probably do no more than restate the common law that applies now anyway. By these standards, strata committee members are rarely sued, and no one can recall the last time one was sent to gaol.

In committing these things to the statute books there is however something about which we should be very afraid, and its not the loss of wealth or liberty. Accusations of committee members breaching their newly enacted statutory duties will become the new normal every time there’s a fight within.

Fights over dogs and cats will be elevated to questions about the exercise of good or bad faith. Alliances between different users of property will be attacked with allegations of non declared pecuniary interests, and every time someone wants to stop anything of significance because they don’t want to fund the additional levies there will be protests about process and the absence of due, care and diligence.

The result if we are not careful is that an already hard and thankless job might just become impossible. Such is the conundrum of this new form of living – if we are to be self governing as our legislators would have it then there must be standards but so far at least it seems no one wants to invest the time or money needed to reach these lofty heights.

Let’s see if these reforms change our ways.

New strata laws and tenants: A genuine attempt at inclusion?

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New strata laws for NSW to begin later this year make a token gesture towards including tenants in meeting about the management of common property. Like most forms of tokenism, they are bound to upset everyone concerned.

The starting point is this, owners must advise the owners corporation when they tenant a property. This is required because by-laws bind tenants and owners need to know who is using common property. The information is also needed for fire safety inspections purposes. There’s nothing token about any of this.

Where problems will arise is the extent to which the new laws seek to involve tenants in the affairs of the owners corporation. Where tenant notices have been given for more than 50% of lots a whole new procedure will kick in –

  • A tenants meeting must occur before the AGM
  • A tenant representative is to be elected to participate at the AGM and in subsequent committee meetings
  • The AGM agenda must be give to tenants or placed on a notice board if one is kept
  • The committee must make a determination about what information will be made available to tenants at the AGM and at committee meetings

This will come at a significant cost to owners corporations. It will also create more work and scope for error by strata mangers in meeting additional deadlines, and to what end?

Far from being inclusive, these new laws, with the ability to keep almost any useful information secret, will reinforce perceptions by tenants that they are second class when it comes to occupying strata property.

This reform will work for no one. It will alienate tenants. It will cost owners money and strata managers time. And it will hit small schemes harder than the large. It’s more likely that a half of a six pack is tenanted with notices properly given than 50% of a 100 plus lot building.

Tenants deserve respect, information, and a say,but these laws will not deliver that.

New strata voting regulations – Continuity and change, electrifying change

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You have continuity and you have change; a campaigning slogan used in Veep, a satirical US comedy about an American running for president that stands for nothing, accurately describes the new strata voting regulations released for public consultation last week.

Continuity comes in two forms:

  • The regulations maintain the right of a person to require paper and post as their method of participating in meetings. This will annoy the progressives that want to keep management fees down by using electronic communication methods.
  • The traditional methods of voting in person and by proxy (albeit with restrictions on proxy farming) stay as well, not surprisingly.

Change on strata voting practices comes in so many forms it will, if allowed to go unchecked, turn strata management on its head:

  • Voters will be able to participate in meetings by telephone, by video conferring and other electronic means.
  • Pre-meeting ballots will allow people to vote electronically and by voting websites and postal ballots are back after having been abolished in NSW over 30 years ago.
  • To these many choices add the option of secret ballots with two voting envelopes to protect the identity of the voter and you have a whole raft of new complexities and expensive procedures that no one will want to pay for.

The government has provided for voting choices but imposed none of them. It will be up to owners corporations to choose what methods they wish to use.

This will be the first test of reasonableness for strata entities under these new laws. At what price will owners corporations facilitate participation? Will strata managers do what they normally do and meekly accept that they must do more for no additional fee?

Continuity with change indeed.

Who else thinks there’s a smell in the corridors of power?

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Skunk, Wildlife, Portrait, Walking, Striped, Black

There is a smell in the corridors of the fourth level of government, strata, that is coming from the level above, local councils.

More than 200 residents of an apartment block in western Sydney will have to relocate indefinitely after the roof was torn off their apartment block, and their insurer has rejected their claim – because the building didn’t comply with the Building Code of Australia, despite, or perhaps due to, being developed by a controversial  Auburn councillor, certified by that same council and with strata management provided by another member of that council (story here).

To the east, ICAC (the NSW Independent Commission Against Corruption) has been told that millions of dollars in Botany Bay Council funds have been ‘misdirected’ by employees (more information here).  That same council is the centre of prolific strata development where allegations have been made of certification of property as being fit for occupation that could not possibly have met that standard when signed off.

The certification debacles are not limited to Sydney. Melbourne’s Lacrosse owners are being hit up for fines after their faulty cladding caught fire after being certified fit for use by the developer’s consultants, and there are cases in Canberra too where certification practices are being called into question.

I’ve seen enough. I know other strata and building professionals that have as well. Private certification of high rise residential buildings is a disaster; and lives and property wealth are directly at risk as a result.

The apartment markets are crashing; for unit owners the five stages of death and dying come next

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Two news articles in the past week herald the beginning of the long predicted inner city apartment market crash.

‘Melbourne CBD apartment values fall 30%, settlement fears rise’ wrote Michael Bleby, Australian Financial Review, 29 March 2016. A few hours later his colleague, Larry Schlesinger, reported ‘Melbourne developer turns to self managed super fund investors to fund apartment project’.

These twin themes, bad news on valuations and increasingly innovative yet desperate attempts to find alternative development finance, will repeat in the property press for some months or even a couple of years as this phase of the market plays out. The stories will come first as we have seen in Melbourne, then Brisbane, and then Sydney. It’s entirely predicable. The numbers never lie.

What happens next is also predictable; ‘off the plan’ purchasers will fail to complete their contracts as banks tighten lending criteria, developers will go broke, receivers will be appointed by the developers’ banks, new builders will be contracted to complete partially built buildings to a lesser standard than agreed with the purchasers. And those that settle will have defects to fix and will struggle to collect levies from owners with no equity left in their investment property.

There will be no winners, perhaps with the exception of the receivers and lawyers, but history suggests that the unit owners will be the biggest losers; some will lose deposits, some will be forced to settle and take big hits on value and others will be left to raise special levies to remedy defects in the absence of solvent developers to sue and government-mandated insurance to claim against.

But these are monetary losses. If the apartment investing class of 2016 only lose money, they will be lucky. There is much more at stake. Health, happiness, relationships and sadly even life itself will be at risk as investors ride the roller coaster of grief akin to the model put by the Swiss-American psychiatrist, Elisabeth Kübler-Ross, as the five emotional stages of dealing with the death and dying of a loved one.

First denial, ‘This can’t be happening. We worked so hard for this. We thought we were dealing with people we could trust. Our family home is at risk’.

Next anger. It will be directed to whoever they can find to blame, whoever they think made them make this investment; the agents that oversold, the bank that lent too much, the conveyancer that didn’t explain enough, the wife that insisted or the husband that was cavalier.

Bargaining follows. Little deals are done with one’s self, ‘It will all work out when the dust settles’,’ The government won’t let this happen’, ‘The media will bring us justice’. Bargaining buys time for us to deal with our loss.

Depression descends. Investors will become moribund, stop opening letters and bills from the strata manger, decline invitations to go to meetings with class action lawyers. Money will get too tight to mention.

And mercifully acceptance arrives, ‘This is my problem, no matter who’s to blame it’s up to me to do something. What are my options? They mightn’t be pretty, but there are always options’.

Savvy unit owners will be brave. They will face facts fast rather than wallowing in denial and false hope for too long while developers shift assets, wind up companies and let important time limits for making claims go rushing by. They will make realistic assessments of litigation prospects and strike hard while there might be something to be had, or they will save on legal costs to pay for their repairs. In litigation, there can be no half measures. But most unit owners won’t be savvy.

Responsibility is creeping up on hapless strata owners

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Buried Alive

There’s a thing happening in strata I’m going to call ‘responsibility creep’.

Ever so slowly strata entities are taking on more and more responsibility for things they aren’t able to handle.

Some of this responsibility creep is being forced on owners by higher levels of government, but much of it is self-imposed; well-intentioned, but nevertheless self-imposed. And the compliance burden is heavy.

The classic case of responsibility creep is for roads and parks transferred to strata and community titled entities by local government – under these arrangements owners pay twice – once in the form of rates to the council and once more in higher levies to their strata, as well as the administrative costs of risk of owning parks and roads.

Responsibility creep can come insidiously with calls for law reform. Take overcrowding for example. Strata owners complain of this happening in strata and the state government say “Okay, you can pass by-laws for that but you get to police the breach. Forget that this is the job of local councils with employees, budgets and accountabilities, and let’s give it to the people, so they can be responsible for who sleeps where.”

Over-zealous exercise of the by-law making power can also induce responsibility creep. In an over-the-top effort to regulate building work and renovations, all of a sudden an owners corporation can find itself second guessing local council development consent conditions and certifying work where others are paid to do this and enforce standards.

If strata management is getting too hard, and most think it is, then we need to call out responsibility creep whenever we see it.

Cut and paste by-laws are doing no favours for strata

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Experienced lawyers will tell you there’s danger in being confined by a bad draft. When a document is poor to begin with it’s hard to make it great. Sometimes it’s just best to start again with a blank piece of paper.

That’s what I did yesterday when asked to draft a by-law for a major renovation of a Sydney apartment. I’m happy with the result – it’s fresh, clear and tight. I’ve made it fair to both the owner and the owners corporation anticipating new strata laws later this year that will prohibit harsh and oppressive by-laws. I’ve also made sure it fits well with the conditions of the local council development consents without shifting the regulatory burden from the local council to the owners corporation.

By-laws, like other legal precedents, have a use-by date, not just because laws and community standards change but because there’s been more cutting and pasting of these documents than at a kindergarten’s craft time. Over time these precedents have become corrupted by different drafting styles and concepts.

New strata laws for NSW will force a one-off review of all existing by-laws within a year of the new laws commencing. Existing exclusive use and special privileges will be protected but everything else will have to be revisited and based on where I got to yesterday that will be for the common good.

Bill shock still Keeping electric cars out of strata

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In my book Growing Up: How Strata Title Bodies Might Learn to Behave one of the issues I look at is sustainability in strata. More often than not you’ll find that no matter how good an owner’s intentions are, it will always come down to the money.

As you see more Teslas and hybrid cars around the cities you’d be right to wonder ‘where are they going to charge that thing?’ While it’s early days yet I hear more and more about arguments in strata over whether people should be allowed to charge their cars using common electricity, and if so, how to charge them for it.

The first go that electric drivers had was estimating their usage and offering to reimburse their owners corporations. Nice in theory but it got complicated as soon as anyone else wanted to tap into common electricity.

It’s now possible to monitor a car-space AND automatically pay back the owners corporation. It saves the arguments over bills, but it’ll still going to come down to the electric car owner paying for the installation and getting the necessary by-laws written up.

With talk that we could be seeing driverless cars in North America in the next 20 years, what’s the next step for parking and power? I’m not sure but I can tell you it won’t be found in strata legislation, which is always lagging behind reality.

It’s all a good reminder that innovation isn’t going to come from stalled strata legislation, but from owners learning how to behave in strata.

A notice regarding ASIC disqualification

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This is a notice (edited for contact details) sent to clients, colleagues and peers today regarding a disqualification commencing as of January 29th 2016:

ASIC has disqualified me from being a director or officer of a company for a period of 5 years.

This follows the winding up of two companies of which I was a director within the last 7 years. One was wound up in 2010 and the other in 2014.

Neither company nor the events investigated are related to my work for you as a lawyer or my recent work as founder and director of Block Strata Pty Ltd. Block Strata was formed after these events took place.

I deeply regret my past commercial failings. However, I cannot change what has happened and must learn from my experience. Therefore, having co-operated fully with ASIC, I have resigned from all of my directorships and corporate roles and have decided not to appeal the disqualification.

The management of Block Strata Pty Ltd will continue under Jacqui Bartholomeusz’ directorship and a new licensee-in-charge, Paul Loccisano, will be appointed.

I will continue to serve Block Strata as its Legal Counsel and will maintain my private legal practice as a specialist in strata law.

If you have any questions, please contact me via michael@blockstrata.com.au or by calling (02) 9562 6500.

Want to get in touch? Contact me