NSW Strata Reforms to Impact Developers


The relationship between developers and strata scheme communities is set to change under the NSW strata reform, with the Government’s position paper revealing an intent to increase developer responsibility.

The Strata and Community Title Law Reform Position Paper was released late last year, with reforms expected to be put in place early this year. It is now likely the changes will be delayed till October of this year.

Due to the significance of the proposed reforms, stakeholders have asked the government not to rush the reforms and to instead concentrate on getting them right.

The reforms deal with a number of broad issues in strata living, such as governance, budgets and levies, and by-laws.

However, a significant number of these reforms will affect developers.

These include:

    1. A lowering of the level of owner consent required to terminate or renew a strata scheme from 100% to 75%;
    2. The requirement for an independent defects report  to be obtained (paid for by the developer/builder) within 12-18 months of the occupation certificate being issued;
    3. A bond or bank guarantee, equivalent to 2 percent of the contract amount for the building work, will be held in trust until the identified defects have been rectified;
    4. The rights of the developer and those connected to the developer will be restricted when it comes to voting on matters relating to the building defects;
    5. The developer must provide a maintenance schedule and any documents necessary to enable or to assist in running the scheme and maintaining the buildings to the owners corporation;
    6. A change to subdivision and BMS requirements;
    7. The requirement for unit entitlements to be determined by independent valuation, not by the developer;
    8. The right for owners corporations to take the developer to the Tribunal if unrealistic levies are set;
    9. A 3 year limit on the term of strata management contracts;
    10. Managing agents with links to the developer or conflicts of interest will have to disclose the details and will no longer be eligible to be on the committee.

The purposes of these reforms are to encourage better practice around building defect management, improve dispute resolution processes in strata communities, and increase transparency in strata management.

Concern has been raised, however, that placing higher obligations and further costs on developers will result in higher property prices as developers pass these costs on to buyers.

Priscilla Hyde, Senior Developer Consultant at SSKB strata managers, says the reforms will place serious pressure on developers.

“We understand the driving need to hold developers accountable as serious incidences of defects came to light after the Global Financial Crisis with many owners left high and dry. However, the new requirements and higher costs for developers will ultimately result in the purchaser paying one way or another”.

She noted the benefits of lowering the termination of scheme test to the 75% voting threshold, saying it “will facilitate necessary new development where a scheme has reached the end of its effective building life”.

The other reform areas are mainly being introduced to bring NSW into alignment with other state legislation.

Priscilla hopes that “further reforms will resolve some of the outstanding issues and challenges faced by both owners and developers in the strata community”.

 



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