As part of our ongoing industry development, we will from time to time provide as an industry resource information we have found that adds value to the industry. This is one of these articles:

QUEENSLAND -V- THE WORLD - Western Australia
Author: Col Myers
Date: November,2010

This is the second last article in a series of articles that looks at the ability of developers to establish management rights in the various states of Australia , as well as New Zealand .

In previous articles, I have identified Queensland as the leading management rights state with over 2,350 management rights complexes compared with NSW with no more than 200, Victoria 25, ACT 5, South Australia 10 and Tasmania 5.

This article will look at restrictions on developers setting up management rights in Western Australia , where it is estimated that there are no more than 20 management rights complexes currently established.

Restrictions relating to Developers

·          The Strata Titles Act 1985 (Act) is the relevant legislation.

·          The Act states that a Strata Company may make by-laws, not inconsistent with the Act, for the control, management, use and maintenance of any lot or part of the common property, including any special facilities provided on the common property.  In addition, the Act allows the Strata Company to make by-laws for safety and security as well as the carrying out of any business or trading activity by the Strata Company, and the method of distributing and sharing any profit or loss.

·          The Act states that a Strata Company (Body Corporate) shall:

Ø       enforce the by-laws;

Ø       control and manage the common property for the benefit of all proprietors;

Ø       keep in good and serviceable repair, properly maintain and, where necessary, renew and replace common property or personal property vested in the Australia Company.

·          The Act also provides that a Strata Company may:

Ø       make an agreement with any proprietor or occupier of a lot for the provision of amenities or services by it to that lot or to the proprietor or occupy of that lot.

This section allows a Strata Company to enter into a Letting Agreement.

However, the critical section is Section 39A of the Act that gives power to a Strata Company to terminate certain Contracts for Services.

·          Firstly, this section applies to an agreement if it relates to the provision of services to the Strata Company or to the proprietors including the services of an agent in connection with the management of the common property or the performance of the functions of the Strata Company and either:

Ø       it was entered into by the Strata Company when any proprietor held 50% or more the aggregate unit entitlement of the lots, or

Ø       the State Administrative Tribunal has, by order made on the application of a proprietor, determined that the agreement is unfair to the proprietors of 25% or more of the aggregate unit entitlements of the lots.

·          This section states that there is implied in every agreement to which the section applies a provision that the Strata Company may terminate the agreement, by notice in writing to every other party to the agreement, after five years have passed since the agreement was entered into.  In addition, no cause of action against any person arises from the exercise of this power.  An agreement cannot exclude the operation of this section and to the extent that it purports to do so, it is of no effect.

·          The Act states that the State Administrative Tribunal may, on the application of any person made in respect of an agreement, by order extend the period of five years provided for, so far as it applies to that agreement, if satisfied that the agreement:

Ø       is fair to all proprietors, and

Ø       will remain fair to all proprietors during the extended period.

However, any extended period is not to exceed the term specified in the agreement or a period of ten years from the time when the agreement was entered into, whichever is the lesser.

·          The Act states that the original proprietor (developer), whether or not he is the proprietor at the time he does so, shall convene and hold the First Annual General Meeting of the Strata Company within three months after registration of the Strata/Survey-Strata Plan.  Fourteen (14) days notice is required to be given to each owner.

·          One particular section of the Act applies to the Developer where the plan has not been registered and the First AGM of the Strata Company has not been held or the Developer is still the registered proprietor of 50% or more of lots in the scheme or has votes at a General Meeting of the Strata Company equal in value to 50% or more of the aggregate unit entitlement of lots in the scheme.

This section compels the Developer to provide to each buyer details of every agreement for the provision of any amenity or service to the Strata Company or to any part of the parcel that:

Ø       the company or the original proprietor has entered into and that it is still in operation, or

Ø       the original proprietor in his own right or exercising the power of the company proposes to enter into,

including the terms and conditions of every such agreement, the consideration for it, and the estimated cost to the proprietor of the lot.

In addition, the Developer must provide particulars of any direct or indirect pecuniary interest that it has in any such agreement.

This section also provides that the Developer must provide details of every lease granted or to be granted to any person over common property as well as details of every licence, right of exclusive use and enjoyment, or special privilege granted or proposed to be granted to the buyer or any other person in relation to the common property.

Legislation re Terms of Agreements

·          Other than referred to above, the Act sets no limitation on the terms of agreements – including service contracts such as Caretaking and Letting Agreements.

·          One section of the Act provides that a Strata Company for a scheme or a proprietor of a lot in the scheme, may apply to the State Administrative Tribunal for an order terminating or shortening the term of an agreement for services to a Strata Company.

·          On the making of an application under this section, the State Administrative Tribunal may make an order if satisfied that the Agreement:

Ø       is unfair to the proprietors of 25% or more of the aggregate unit entitlement of the lots in the scheme, or

Ø       is for an excessively long term.

·          An order under this section may include an order for the payment of money by any party to the agreement to another party for the purpose of adjusting the position or rights of the parties consequentially on the termination or shortening of the term of the agreement.

The Ability to Top Up Agreements

·          Again, because the Act has no restrictions on the term of agreements, there is likewise no restriction on the ability to top up agreements by way of variation.

Financiers Rights

·          There is nothing in the Act that compels a Strata Company to enter into a financiers deed.  Consequently, a Strata Company can reject outright any request by a financier of a caretaker to enter into such a deed.

Legislation Relating to Use Of Proxies by Developers and Caretakers When Entering into or Extending Agreements

·          Section 50A of the Act provides that, subject to subsections (2) and (3), at a meeting of a Strata Company (or of a Council of a Strata Company) a person shall not vote as a proxy for another person on a motion relating to a Management Contract or arrangement with the Strata Company if the person (the proxy) has a financial interest in the contract or arrangement.

·          Subsection (2) states that the above subsection (1) does not apply if:

Ø       a notice of the meeting included notice of the motion and, where applicable, the particulars described in subsection (3), and

Ø       the instrument appointing the proxy expressly authorises the proxy to vote on the motion and specifies whether the proxy is to vote for or against it.

·          Subsection (3) states that where the motion relates to the Strata Company entering into or renewing a Management Contract or arrangement with a person, notice of that motion shall include:

Ø       the name of that person,

Ø       the duration of the proposed contract or arrangement, and

Ø       the remuneration that is payable under it.

·          Subsection (4) states that for the purpose of this section, the proxy has a financial interest in a contract or arrangement if the proxy or his or her spouse or de facto partner:

Ø       owns shares (whether beneficially or otherwise) in a company,

Ø       is a member of a firm, or

Ø       is a director or employee of a company or of a firm,

that benefits or will benefit directly from the contract or arrangement to which the motion relates.

·          A ‘Management Contract or Agreement’ under this section is deemed to mean a contract or arrangement, or a proposed contract or arrangement, for the provision to the Strata Company of services in connection with the Strata Company’s powers and duties under the Act.

In other words, it includes both a Caretaking and a Letting Agreement.