NSW: Functioning during the Initial Period of an Owners Corporation

This article is about functioning during the Initial Period of an Owners Corporation on a NSW strata committee.

The initial period for an owners corporation of a strata scheme commences the date the strata plan is constituted, which is the same date the strata plan is registered and ends on the day when there are owners of lots in the scheme (other than the original owner) whose sum on unit entitlements is at least one third of the aggregate unit entitlement (section 4 Strata Schemes Management Act 2015 (the Act)).

This means that if the original owner maintains ownership of at least two thirds of the aggregate units entitlement the scheme will remain in its initial period. This can be the status of the scheme for months or years.

An owners corporation in its initial period does not need to hold its first annual general meeting (section 14), however, within 14 days of being constituted, the owners corporation must estimate how much money it will need to credit to its administrative fund (section 79(1)). An owners corporation must hold an annual general meeting once in each financial year (section 18). Accordingly, owners corporation’s in their initial period are still required to function as an owners corporation under the Act including to hold meetings, raise levies, take out building insurance.

There are some options open to owners corporations as to the way they function under the Act, such as the option to elect a strata committee (section 29(4)), which an owners corporation in their initial period may take advantage of for light-touch management and governance of the scheme. In general though, the same obligations apply to owners corporations whether or not they’re in their initial period.

There are restrictions on owners corporations in their initial period. These include:

• Not altering common property;
• Not incurring a debt for an amount that exceeds the amount available in the administrative or capital works fund
• not appoint a strata manager or building manager for a term extending beyond the initial period, borrow money or give securities (section 26).

Furthermore, under an initial period the owners corporation cannot change the by-laws so that an obligation is imposed on one but not all owners in the scheme (section 140). One of the effects of this requirement is that it will preclude individual lot owners from carrying out works to the common property to improve their lot under a common property rights by-law. It does not preclude owners corporations from changing the by-laws that regulate the scheme. For that purpose, a general meeting of the owners corporation must still be held in accordance with Part 7 of the Act.

There may be penalties for original owners who do not carry out the functions of an owners corporation at the end of the initial period. An example is orders that the original owner pay compensation for failing to estimate and determine sufficient levies during the initial period (section 89).

Given the above, owners corporations in their initial periods should be mindful to ensure that they are functioning and comply with the Act and regulations thereunder.

Gemma Lumley & Allison Benson
Kerin Benson Lawyers
E: [email protected]
P: 02 4032 7990

This is general information and should not be considered to be legal advice. I recommend you obtain legal advice specific to your individual situation.

This post appears in Strata News #530.

Have a question about about functioning during the Initial Period of an Owners Corporation or something to add to the article? Leave a comment below.

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This article has been republished with permission from the author and first appeared on the Thoughts from a Strata Lawyer website.

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