This Q&A about mixed use developments and maintenance bills when there are multiple Strata Management Companies involved in NSW has been supplied by Yuhao Gu, Omega Legal.
Table of Contents:
- QUESTION: I own a lot in a mixed-use development. The Strata Management Statement (SMS) was registered in 1999. Does the 2015 Development Act require mixed-use developments review the SMS every five years?
- QUESTION: Our multi purpose building consists of 4 strata schemes. The balance between the voting rights and proportion of levies leads to stalemates and no decisions. Is there a solution?
- QUESTION: We are a mixed use development with residential and commercial in our building. Commercial does not wish to contribute their share to necessary exterior maintenance of the building. Are they legally obliged?
Question: I own a lot in a mixed-use development. The Strata Management Statement (SMS) was registered in 1999. Does the 2015 Development Act require mixed-use developments review the SMS every five years?
Answer: The Strata Management Statement must contain a provision/process for the SMS to be reviewed every 5 years.
Yes, it is our understanding that Strata Management Statement must contain a provision/process for the SMS to be reviewed every 5 years under the provisions of Schedule 4 of the Strata Schemes Development Act, 2015 (NSW) irrespective of the date of its registration but only in relation to the shared facilities:
Schedule 4, 2 (1):
a review process to ensure that the allocation of those costs remains fair with any such review taking place as soon as practicable after any change in the shared facilities or services (including any change in the use of those shared facilities or services), with at least one such review occurring every 5 years even if no such change has occurred.
Leanne Habib
Premium Strata
E: [email protected]
P: 02 9281 6440
This post appears in Strata News #603.
Question: Our multi purpose building consists of 4 strata schemes. The balance between the voting rights and proportion of levies leads to stalemates and no decisions. Is there a solution?
We live in a 20-year-old multi-purpose building consisting of a tavern, hotel accommodation, short-term tourist apartments and residential apartments. There are 4 strata schemes that make up the Building Management Committee (BMC) governed by a BMC statement. The BMC voting rights are 1 vote for each Strata, however, the residential strata pay the majority of the building costs as per the BMC statement ‘Relative portion of each strata lot’.
This is very restrictive when trying to reach an agreement and especially building maintenance where two of the stratas don’t agree, resulting in a stalemate and no decision. We have looked into amending the BMC Statement, but that appears prohibitive and will cost a lot in legal fees. There is a clause for dispute resolution.
Is it possible to amend the actual value of a BMC voting right based on the percentage being paid for each item being voted on; similar to unit entitlement apportionment?
Answer: Assess whether the issues constitute a dispute pursuant to which you may exercise the dispute resolution provisions in the Strata Management Statement.
As the number of votes are prescribed by the Strata Management Statement, the mechanism for amending the number of votes is likely to be the same as amending the statement generally, which you have already looked into and have found the legal costs to be prohibitive.
In any case, from a costs perspective, if agreement cannot be reached between the 4 members in relation to building maintenance, it could be assumed that the other 3 members are unlikely to agree to an increase in your voting power which would result in a decrease in their voting power.
If agreement is not able to be reached due to a voting deadlock, you should review the Strata Management Statement for a deeming provision which provides that a deadlock is deemed to be a dispute. Such a provision will usually direct the members to proceed in accordance with the dispute resolution provisions. Even in the absence of a deeming provision, you should assess whether the issues constitute a dispute pursuant to which you may exercise the dispute resolution provisions in the Strata Management Statement.
The fact that the residential stratum scheme is paying the majority of the “building costs” does not necessarily mean that it should have equivalent voting power. The amount the residential stratum scheme pays towards the building costs are prescribed as percentages in the shared facilities register. The percentages should have been calculated based upon a particular valuation method (which may differ depending upon the type of facility) and if you are concerned that the percentages are not reasonable or correct, you should start by looking into the method of valuation which has been used.
If your concerns relate to the lack of maintenance of the shared facilities, it may be best to start by obtaining a report from a consultant proving the necessary maintenance requirement are not being satisfied, the consequences of this (i.e. ongoing damage, safety issues, etc.), and the costs to implement the maintenance requirements (a quotation is better than an estimate). Often if maintenance is not being undertaken there is also insufficient funds in the sinking fund. Keep in mind that if the residential stratum scheme is paying the majority of the “building costs” it is probably required to pay the majority of the contributions into the sinking fund.
You will need to review the Strata Management Statement carefully to assess the requirements for placing a motion on the agenda to resolve to undertake the maintenance. If a majority do not vote in favour of the motion, you should then enquire into the reasons and assess whether the failure to resolve to undertake the maintenance work constitutes a breach of the Strata Management Statement.
If legal fees are prohibitive, it may be best for you to spend some time studying the Strata Management Statement in detail and seek to utilise the provisions within the statement to your advantage as opposed to attempting to amend or challenge the statement. You may be able to place the residential stratum scheme in the position where it will have a strong case to prove the other members are in breach of the Strata Management Statement.
As I have not reviewed the Strata Management Statement, I can only provide general comments however with the right legal advice and representation the residential stratum scheme may be able to procure the result it wants by establishing non-compliance with the Strata Management Statement and placing the other members at risk of paying costs if legal proceedings are instigated.
I do not suggest that you cannot, or should not, look into changing the number of votes allocated to the residential stratum scheme however, as I have attempted to explain above, this may not be the best course to adopt and there may be more cost effective means of achieving a satisfactory outcome to the issues you are experiencing.
Shane Williamson
Williamson Lawyers Pty Ltd
E: [email protected]
P: 0404 045 605
This post appears in the September 2022 edition of The NSW Strata Magazine.
Question: We are a mixed use development with residential and commercial in our building. Commercial does not wish to contribute their share to necessary exterior maintenance of the building. Are they legally obliged?
Does a commercial owner pay for maintenance works in a mixed used development?
We are an apartment building with 15 owners. The building has 3 levels. The top two levels are residential and are managed by one strata management company. The ground floor is commercial shops and residential and commercial car spaces. The commercial area is managed by a different strata management company.
Owners of the residential area have agreed to $450K of essential remedial and repainting of the building. The building is 16 years old and in its original state.
The commercial shops are all owned by one person. The quoted cost for their share of these essential works is only $5K but the owner will not contribute.
Is the commercial owner legally obliged to pay her share of the essential works?
Answer: There should be one strata management statement that ties the two strata plans together.
It will be surprising if the commercial owner does not have to pay. Normally for a mixed used development, the residential strata scheme and the commercial scheme are part of two different strata plans. However, there should be one strata management statement that ties the two strata plans together.
In your situation, ask your strata manager for a copy of the strata management statement. The strata management statement should set out how the costs for the maintenance and repair of your building are split between the residential and the commercial owners.
Yuhao Gu
Omega Legal
E: [email protected]
P: 0402 990 108
This post appears in Strata News #262
Have a question about mixed use developments and contributing to maintenance or something to add to the article? Leave a comment below.
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Does a BMC have to also approve a bylaw change after it has been voted in favour of by the OC at an AGM or EGM?
Even though the residential and commercial lots are in the same building, major works such as external painting are not automatically jointly managed.
The residential and commercial components of the building are completely seperate legal entities. The relationship between them is normally controlled by a building management statement (BMS) or strata management statement (SMS). Omega Legal are correct, you need to check this to determine if, and how much, the commercial lot are required to pay.
Unless a BMS or SMS says otherwise, the commercial and residential lots will each be privately responsible for arranging and funding the maintenance of the areas which are their property (as shown on the survey plan). This is true, even if another party potentially gains a benefit from that property.
For developments like the one you describe, it is common for the BMS or SMS to be silent about responsibility for external painting. If this is the case at your building, the residential and commercial lot owners are each independently responsible for painting their sections of the facade. In such circumstances, to have the full exterior painted you will need to either negotiate with the commercial lot and convince them to paint their section of the building (at their direct expense), or potentially take legal action to force them to paint if the building has become dilapidated.
Even if the BMS or SMS makes the external painting (or other works you are planning) a “shared facility” expense which is jointly controlled and funded, it will almost certainly require the commercial lot owner to vote to approve the works.
Developments controlled by a BMS or SMS comprise a substantial proportion of those for which we provide sinking fund/capital works plans and other services. In our experience, most lot owners and service providers do not understand the complexity of working with BMS or SMS systems.
It really does require specialist knowledge and experience to determine how these agreements impact the management and funding responsibilities of a strata scheme.
A building management statement is probably the instrument binding the two entities into shared costs for specific items. Most strata managers and unfortunately some legal assistants often neglect this document as the principal authority that sits outside the BCCM Act. It is noted on the title documents and needs a separate specialist consultant who understands the Land Act.