What happens when the term of the appointment of a Compulsory Manager is to expire? Matters to consider before the period expires

06/04/2018

We refer to our article 1 December 2015 relating to the appointment of a Compulsory Strata Manager to exercise the functions of the Owners Corporation such as when an Application is made to the New South Wales Civil and Administrative Tribunal (NCAT) by a lot owner(s) when the lot owner(s) is of the view that the Owners Corporation is not functioning properly.

Any such appointment is for a specified period.  During that specified period the Strata Manager’s obligation is to exercise the powers and the functions of the Owners Corporation in accordance with the appointment.

Not always does the appointed Strata Manager undertake those duties satisfactorily.  Often there is debate between the various lot owners as to whether the Strata Manager has properly and independently undertaken those duties.

At Watson & Watson we have acted for one party or another in many such disputes between lot owners some of which resulted in the appointment of a Compulsory Manager for a set period.

When the period expires the management of the Owners Corporation usually reverts back to the Owners Corporation.  However this is not always the case.

If the lot owners still cannot agree then that very disagreement often is the basis of a further application for appointment of the same or another Strata Manager to be appointed to carry out all the functions of the Owners Corporation.

Before the period of appointment expires there are steps that must to be taken by the Compulsory Manager and further steps that can be taken by the lot owners so as to have the management returned to the lot owners.

Under the Strata Schemes Management Act 2015 (SSMA Act 2015), NCAT has power similar to the power they had under the Strata Schemes Management Act 1996 in relation to appointment of a Compulsory Manager.

The SSMA Act 2015 sets out some events which are required prior to the end of the appointment.  The Strata Manager is required to cause a General Meeting of the Owners Corporation to be held not later than 14 days before the end of the Strata Manager’s appointment.

The Strata Manager must also on or before that meeting make arrangements to return to the Owners Corporation all documents and other records of the Owners Corporation by the Agent.  The records should be returned to the person that previously held the position of the Secretary.

We are aware of circumstances where this does not occur.

One particular case in which a Compulsory Manager was appointed was as a result of the Owners Corporations failure to maintain the common property in that they were unable to agree as to the works to be undertaken.

The appointed Strata Manager was appointed for one (1) year.  About six (6) weeks before appointment we were instructed on behalf of the majority of the lot owners.

It was clear on reading the Reasons for the Judgment that the appointed Strata Manager was to undertake an independent review of works to be undertaken.  The difficulty was that during the period of almost a year no maintenance had been undertaken at the property by the appointed Strata Manager.  There was no basic periodic maintenance which usually includes maintaining the gardens, general clearing of drains and general upkeep of the building. 

One does not know why periodic maintenance was not carried by the appointed Strata Manager.

Before the appointment there were disputes between the lot owners as to what was required.

Some of the work was clearly general maintenance which could have and should have been undertaken by the appointed Strata Manager at a reasonable cost on a periodic basis.

The appointed Strata Manager obtained tenders for all the works the subject of the disputes.  The tenders for the whole of the works were such that levies for one of the owners, was in excess of $200,000.

There was a real issue as to whether some of the costly works were necessary as part of the maintenance works.

There were also further issues having regard to the terms of various by laws as to who was responsible for the proper maintenance of various areas within the property some of which were costly.

It did not appear that any investigation had been undertaken by the appointed Strata Manager as to the duties of the Owners Corporation and the obligations of various owners in relation to specific areas.

On obtaining instructions and a brief review of the reasons for the appointment it appeared there was a clear obligation on the appointed Strata Manager to undertake an independent review; which did not appear to occur.

Approximately six (6) weeks before the expiration of the period the appointed Strata Manager indicated that it proposed to enter into a Contract with a builderfor the carrying out of various significant work by the Owners Corporation, some of which was not necessary and some of which should have been paid for by some of the particular lot owners pursuant to the terms of the by laws.

As a result of an approach by the majority of the lot owners in accordance with recommendations by us, we arranged for two appropriate Experts to attend the site and review the proposed works and inspect the site and form a view as to the reasonableness of what was proposed.  It became clear that the proposed works were not appropriate as proposed and some were unnecessary as a matter of maintenance issues and some were proposed in relation to works to be carried out on particular lots which were subject to by laws which required interpretation as to who was responsible for maintenance of those areas.  It does not appear that there was any consideration to these matters.

After a brief review we wrote a detailed letter questioning the needs and obligations and advising that our client would object to for example, the Strata Manager signing a significant Finance Agreement for the works to be carried out.

We gave further advice in relation to various other aspects for example:

1.        The obligations of the appointed Strata Manager to call a General Meeting; and

2.        What action could be taken in relation to that meeting?

We also advised as to an Application to NCAT in relation to Stay Application and the appointment of an alternative Compulsory Strata Manager.

Having regard to the obligations of the compulsory appointed Strata Manager to call a General Meeting to be held not later than 14 days before the end of the Strata Managers appointment, it is important for a review to be had as to the matter during the period of the appointment and to ascertain what is the best way forward.

Usually there are different views by different lot owners.  Some of the lots owners would be satisfied as to the conduct of the Strata Manager (sometimes unreasonably).  Some lot owners would like to have the conduct of the Owners Corporation returned to the Owners Corporation which would amongst other things save costs.  Some lot owners would wish to have a further Compulsory Manager appointed or extend the period of the Compulsory Managers obligations.

Having regard to the obligation of the appointed Strata Manager to call a General Meeting it is prudent to review the position approximately three (3) months before the end of the term to consider what steps should be taken. 

At this stage any lot owner could ask for particular motions to be put on the Agenda for the General Meeting of the Owners Corporation to be called by the compulsory appointed Strata Manager.

These motions should:

(a) Particularly deal with resolving the issues that caused the appointment having regard to the steps taken by the Compulsory Manager during that period.  In this particular case it would be wise to put a motion as to the particular works that need to be undertaken and the process to have that resolved.

(b) Deal with the appointment of a Strata Manager and the powers of that Strata Manager.

(c) Deal with administrative matters.

Proper care needs to be taken to cover the critical elements so as to achieve the desired outcomes in particular for the majority of lot owners.  Usually you find that the majority of the lot owners do not wish for the appointment of a Compulsory Manager.  If that is the case then this is the time for the majority of lot owners to properly consider how the Owners Corporation is to be managed and to achieve by way of motions at the proposed General Meeting.

If your Owners Corporation has had a Manager compulsorily appointed to take over the obligations of the Owners Corporation then we would ask that you consider the above.  If you have any queries please contact Richard Watson or his Personal Assistant Shereen DaGloria at Watson & Watson who are experienced in these issues.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.