Question: A committee member has major works required on their balcony. Should the committee request that the member step out during discussion of this matter?
A committee member has major works required on their balcony. The matter has been reported, and the works requested. Does the committee have the right to ask the member to step out of the meeting while it discusses and decides on their action? Is it a conflict of interest for that member to be present?
Answer: Yes, once a relevant pecuniary interest is disclosed, the member generally must not be present during deliberation or take part in the decision, unless the committee decides otherwise.
The fact that a strata committee is considering major works affecting a committee member’s own balcony does not, by itself, mean that the member has a conflict of interest.
The relevant test under the Strata Schemes Management Act 2015 (the Act) is whether the committee member has a direct or indirect pecuniary interest in the matter and whether that interest appears to conflict with the proper performance of their duties as a committee member.
If the committee has determined that the relevant balcony area is common property and the owners corporation is responsible for its repair and maintenance under section 106, the question then becomes whether the decision being considered gives the affected committee member a financial or economic interest that creates a conflict.
When does a conflict arise?
The principal provision is Schedule 2, clause 18.
Where a strata committee member has a direct or indirect pecuniary interest in a matter being considered, or about to be considered, by the committee, and that interest appears to conflict with the proper performance of their duties, the member must disclose the nature of that interest to the committee as soon as possible.
The disclosure must also be formally recorded.
A pecuniary interest is essentially a financial or economic interest. It does not necessarily require the member to receive money directly.
In this type of situation, a potential conflict may arise where the committee is deciding matters such as:
- The scope or extent of works to the affected balcony.
- Whether additional or upgraded works should be included.
- The amount of owners corporation expenditure associated with the works.
- Whether the owners corporation should bear costs.
- Whether the decision would otherwise provide a material financial benefit to the affected owner.
However, the mere fact that the works concern the committee member’s balcony does not automatically establish a statutory conflict. The decision being made must be considered.
What happens once a relevant pecuniary interest is disclosed?
Schedule 2, clause 18(4) is particularly important.
Once the relevant pecuniary interest has been disclosed, the committee member must not:
- be present during any deliberation of the strata committee concerning that matter; or
- take part in any decision of the strata committee concerning that matter.
Accordingly, where clause 18 applies, the member should not remain while the committee discusses and determines the matter.
This is not simply a matter of good governance or courtesy. It is the statutory requirement.
Can the affected member provide information?
Yes.
There is an important distinction between providing factual information and participating in the committee’s deliberation and decision.
The affected member may have relevant information about the balcony works, including the history of the issue, access requirements, previous repairs, reports, quotations or other relevant facts.
The committee may obtain that information before deliberations commence.
Once the committee begins considering what decision should be made, however, a member to whom clause 18 applies should withdraw and should not participate further in the discussion or decision.
This allows the committee to obtain the information it needs while maintaining an independent decision-making process.
Committee members’ duties
The conflict provisions should also be considered alongside section 37 of the Act.
Committee members are required to exercise their functions:
- with honesty and fairness;
- with due care and diligence; and
- for the benefit, so far as practicable, of the owners corporation.
A committee member is therefore required to approach committee decisions in the interests of the owners corporation rather than solely from the perspective of their own lot.
Does the committee have authority to make the decision?
Under section 36, a decision of the strata committee generally operates as a decision of the owners corporation.
However, the committee cannot determine a matter that legislation requires to be decided by the owners corporation in general meeting or by special or unanimous resolution.
If the proposed works go beyond repair and maintenance and amount to an improvement or enhancement of common property, section 108 may require a special resolution of the owners corporation.
The committee should therefore ensure that the decision falls within its authority before making it.
Avoiding disputes
Where major works affect the property of a committee member, transparency is particularly important.
The committee should ensure that:
- the affected member discloses any relevant pecuniary interest;
- the disclosure is recorded;
- the member does not participate in deliberation or decision-making where clause 18 applies;
- the decision is based on appropriate reports, quotations or other objective information; and
- the reasons for the decision are properly documented.
This helps protect both the owners corporation and the affected committee member from later allegations of bias, preferential treatment or improper influence.
It is also worth noting that Schedule 2, clause 18(6) provides that a contravention of clause 18 does not, of itself, invalidate a strata committee decision. That does not remove the obligation to comply with clause 18.
This information is general in nature and does not constitute legal advice. The particular circumstances of the scheme and the decision being considered should be assessed in each case.
This post appears in Strata News #811.
Abe Ayoubi
W: Senior Strata Manager (NSW)
E: abe.strata@gmail.com
Very helpful information – thank you.