Owner Corporations – Limits/Conditions on Spending by Owners Corporation

06/09/2024

Watson & Watson have been advising Lot Owners and Strata Schemes for many years and are aware that many Owners Corporations and Lot Owners take their responsibilities seriously and as a result, the Strata Scheme is conducted in a professional manner to protect the Strata Building. 

In December 2023 there were amendments to the Strata Schemes Management Act which made an amendment to Section 102 of the Strata Schemes Management Act 2015 (“SSMA 2015”).

One of the recent amendments in December 2023, was a change to Section 102 “Limited on Spending by Owners Corporation”.  Section 102(1) now limits on spending by Owners Corporation by the introduction of an amended Section 102(1) which became law as at 11 December 2023.  An Owners Corporation must be aware and properly comply with the requirements.  Section 102(1) states:

“An owners corporation must obtain at least 2 independent quotations for proposed expenditure for an item or matter that is more than the amount prescribed by the regulations for this section”.

Currently the amount prescribed is $30,000. 

Independent quotations from persons who are not connected with each other.

In our view, the principles of good practice apply to the Strata Committee so that the Owners Corporation obtains a truly independent quotation.  One needs to consider for example, the connection with the Strata Manager or other influential persons making the decisions. 

We have recently been involved in some circumstances including significant sums required for rectification works.  Significant sums may have a different meaning depending on the number of Lots.  For example, if there was a quotation of $300,000 where there were 100 Lots, it would be a significantly different burden for the Lot Owners where there was a quote for $300,000 in for example, a complex where there only 10 Lot Owners. 

Often we are approached by Lot Owners where there are strong Committees making recommendations and decisions which are not independently considered by many of the Lot Owners.  There is a significant burden on the Strata Committee and its Members to consider the effect of the decisions and recommendations.  The Strata Committee undertaking these tasks is a role that often has no thanks associated with achieving things and often, has angst when the proper consideration has not been given and there are unexpected results.  In our view, if it does not feel right or look right then further investigations are required. 

Recently we have advised a Lot Owner in a relatively small complex where:

1. One quote was obtained from one Consultant for an investigation in relation to water ingress issues, there was an initial report that cost less than $10,000.
2. The initial report was discussed in a Committee Meeting but not provided to the Lot Owners. The initial Consultant suggested further investigations be undertaken.  The fee paid for that further investigation was in excess of the $30,000 limit. 
3. There was a Committee Meeting early in 2023. There were many works estimated to be approximately $1,000,000 and later in 2023, a further Building Consultant was requested to review the initial report and estimated that the costs of undertaking the work as set out in the original report, was in excess of $5,000,000.
4. We pointed out the Strata Building was managed by a well-known and competent Strata Manager company.  However the Strata Manager was not au fait with the amendment to Section 102 of the Strata Schemes Management Act 2015 and denied its applicability.  We wrote to the Owners Corporation in relation to the history and suggested that there would need to be a second quote in accordance with Section 102 of the SSM Act 2015, before the Owners Corporation should approve a Scope of Works.  As it happened, Motions were included in an EGM.  Thereafter a second opinion was obtained by a separate independent company, which considered that the building issues in the initial report were exaggerated and recommended further investigations and design to come up with more cost effective repairs, having regard to the issues.
5. The Owners Corporation have now changed the Strata Manager company.  Also there were some changes in the Strata Committee.  Further a significant number of independent Owners are on a sub-committee to consider the ongoing rectification. 

There is a great difficulty for the Owners Corporations as there is a relatively small pool of Consultants or Builders who undertake rectification works relating to for example, waterproofing issues.  On one hand it is easy for a Technical Consultant to say replace “everything” and just to be sure, there needs to be proper consideration of the alternatives and risks.

It is of interest to note that requirement for two quotes is for $30,000 expenditure.  In our opinion, the Owners Corporation cannot avoid this responsibility by dividing the required rectification works into separate stages to overcome the requirement.

In many cases, there will be a need for separate stages, each which needs to have at least 2 quotes for example, in matters we are involved in:

1. Obtaining quotes from the Consultants to provide the advice as to requirements for the rectification works.
2. The Consultancy fees relating to supervision/certification of the rectification works.
3. The scope of works that are required and the Contractor to be engaged.

This may cause difficulties in management of the process.

If you are an Owners Corporation seeking advice as to your obligations and best way forward, contact Richard Watson experienced Accredited Specialist by the Law Society of New South Wales since 1995 specialising in the Building and Construction and Strata fields.  If you are on a Strata Committee, we suggest that you put in independent intellectual input into the decisions that are being made and if you are concerned, raise your concerns.

If you are a Lot Owner suffering as a consequence of action or inaction by an Owners Corporation, contact us to obtain advice for an appointment to discuss your important issues by contacting Richard Watson Principal or his Personal Assistant Shereen Da Gloria to discuss your matter and seek timely advice.

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