Strata title lawyer Frank Higginson cannot fathom why strata property owners are reluctant to play an active role in the management of what very likely is their biggest investment.
Higginson, who heads the community titles practice at Brisbane law firm Hynes Legal, believes it’s in the interest of strata owners to sit on body corporate committees, yet that responsibility usually falls to a handful of volunteers.
“A building might be an asset worth hundreds of millions of dollars yet it’s being administered by volunteers who may not necessarily be the best qualified to do so,” he says.
“Everybody’s got an interest in decisions being made. When it comes to any investment you make you’ve got to take an active interest in that investment.”
Owners of an apartment, townhouse or unit in a strata complex are legally members of the body corporate but it’s up to individuals as to whether they choose to play a role on the management committee.
Most busy owners are content to pay their annual levies – to cover costs such as council rates, insurance, utilities, cleaning and maintenance, and future contingencies – and let whoever is interested nominate for election to the committee at the annual general meeting.
Committee members represent all of the owners, not just their own interests meaning their say and opinion can directly affect your investment. When owners shy away from active involvement in the management of the strata scheme, this can be a recipe for rocky relations between owners and their representative committee. Particularly if the decisions reached within the meeting do not go in your favour or you disagree with the outcomes reached by the committee.
One solution, Higginson recommends, is to have a suitably qualified independent committee member who can exercise a role much like an independent non-executive director on a company board.
“Having someone with the right experience right from the start who is not beholden to anyone, who can deal with governance issues, can be very valuable,” he says.
The law of strata title, an Australian legal innovation, has developed over almost 60 years as a response to the rapid urbanisation of expanding population centres. Each state and territory has adopted its own variant of strata or community title, with different legislative frameworks and terminology, which allows for the multiple ownership of a building or collection of buildings.
While mostly taken for granted today, it is an ingenuous solution for individuals and families to own a residence within a larger complex with shared amenities and services. (Each residence is generally described as a “lot” or “unit”.)
“[A] strata title scheme implicitly involves a combination of both individual and collective ownership of property. The units in a scheme are capable of being owned independently of each other, while the residue of the estate is owned in common by all unit proprietors,” the Australian Property Law Journal explains.
The first strata title legislation in Australia was in Victoria in 1960, followed by NSW in 1961 and Queensland in 1965. Despite the variations in strata title legislation, there is one common thread that binds all owners, and that is the responsibility to manage their strata scheme.
The multiple ownerships are combined in a legal entity called the owners’ corporation — or body corporate, strata company or community association, depending on the state or territory. The role of an owners’ corporation is similar in each jurisdiction – essentially the “good management” of the strata scheme, common property and body corporate assets.
This role is usually exercised through an owners’ corporation committee – the nomenclature varies across jurisdictions – whose members are elected at each annual general meeting to represent lot owners. (Committees are optional in South Australia and Tasmania and in Victoria is optional for smaller complexes of up to 12 lots.)
As well as maintenance and repair issues, the committee has responsibility for enforcing and enacting bylaws, setting levies and managing insurance – most notably public liability and building insurance.
The best strata management solution, according to Higginson, is having a professional strata manager. Having a manager is optional, but leaving a committee fully in charge can be a case of “the blind leading the blind, and at some stage something will go wrong”.
“You can’t manage one of these things and do it properly without a manager. Across all of the states, the rules can be very thick. There’s so much record keeping, compliance, decisions about insurance – have we insured for the right things and for the right amount? Stuff comes up from left field all the time,” he says.
Higginson warns that just as important as the decision to have a strata manager is the choice of strata manager.
“Strata managers range from the one man band to strata management companies with national market shares, from people who have been doing it 25 years, to people who have had their shingle out for five minutes.”
Membership of Strata Community Australia (SCA), the peak industry association for body corporate and community title management, offers assurance of experience and expertise.
Strata managers are professionals who are responsible for the administration of owners’ corporations.They co-ordinate the affairs of lot owners including conducting meetings, collecting and banking levies, arranging property maintenance, advising on asset management, placing insurance and keeping financial accounts.
While strata managers perform a range of administrative and compliance duties on behalf of strata committees, there is also an element of acting as honest broker, or as the SCA puts it, “they also work to achieve consensus in decision making by the lot owners…[and] provide advice in handling ‘difficult’ or complex strata issues”.
However active the role of the strata manager, it is still up to the committee to make decisions. Seemingly mundane decisions, from approval for renovations to making by-laws for pet ownership, can be the most controversial and lead to simmering disputes and even court action.
It’s important that committee decisions be appropriately considered and documented.
Brisbane strata management company Archers recently published a guide to making “reasonable” body corporate decisions in the event that they are challenged. The guidelines include recommendations that:
- The committee has gathered as much information as possible before considering the decision
- There is a reasonable basis for the decision, supported by evidence and in many cases, expert advice
- The basis of the decision is fully and accurately documented
- There is an evaluation of the facts, and circumstances surrounding the issue in question
- There is confidence that enough evidence has been provided to consider the matter accurately
- The decision making process has been objective, meaning that the decision was not influenced by personal feelings or opinions in considering and representing facts
Insurance decisions are among the most important made by committees and their strata managers. This includes reinstatement and replacement insurance for all buildings and structures on the common property and for incidental costs of the replacement or repair of damaged common property. Owners’ corporations must also take out public liability insurance.
Strata insurance is compulsory in every state and territory.
At WFI, because we take the time to get to know your property, we can protect everything that matters. Whether it’s residential or commercial, you can tailor a plan to suit your strata insurance needs – as we know that every property is different.
Get a quote today – visit wfi.com.au/strata-insurance. We’re good people to know.