NSW: Compulsory Strata Management: How does it affect you and your scheme?

This article is about NCAT’s power to appoint a compulsory strata manager under Strata Schemes Management Act 2015 (NSW).

The NSW Civil and Administrative Tribunal (NCAT) has the power under section 237 of the Strata Schemes Management Act 2015 (SSMA) to make orders for the appointment of a strata managing agent, and to then specify the functions that are to be exercised or those which should not be exercised.

In the usual course of events an owners corporation is responsible for the management of the strata scheme, and it exercises those functions by decisions made at general meetings. The owners corporation has a broad range of functions ranging from financial aspects to maintaining and repairing the common property. However, sometimes lot owners have concerns about whether the owners corporation is in fact functioning as it should and if something can be done about it.

What does compulsory strata management mean?

The SSMA does not use the term “compulsory management” however that is generally what an NCAT ordered appointment of a strata manager is known as. Simply put, it means that there is an order from NCAT that appoints a specific strata managing agent on the terms outlined in the order.

An NCAT order appointing a strata manager takes away the democratic right that lot owners would otherwise have (assuming they are financial) to make decisions about the management of their scheme at a general meeting and, subject to the terms of the order, gives the strata manager the right to make these decisions for the scheme. Put simply, a compulsory strata manager, depending on the terms of their appointment can determine and raise levy contributions, determine what work is required to maintain and repair the common property, appoint contractors and commence and conduct legal proceedings on behalf of the owners corporation.

It is often described by NCAT as being “draconian” as the management is forced onto the lot owners. It is not an order that is made lightly and is usually reserved for rare cases.

When can an order for compulsory management be made?

The NCAT can make an order for compulsory appointment under section 237(3) where it is satisfied that:

1. the scheme is not functioning (or functioning satisfactorily);
2. the owners corporation has failed to comply with an order made under the SSMA;
3. the owners corporation has failed to perform one or more of its duties; or
4. it owes a judgment debt.

The Tribunal has a discretion as to whether it makes such an order and that discretion has to be exercised on principled grounds: Foo v Frew [2023] NSWCATAP 303.

What does “not functioning or not functioning satisfactorily” mean?

The owners corporation has the principal responsibility for the management of the scheme as set out under section 9 of the SSMA. This responsibility covers matters such as management and control of the common property, managing the finances, keeping accounts and records and other matters. It is these functions that the NCAT considers.

The principles in this area of the law are now well established. In Hoare v The Owners – Strata Plan No. 73905 [2018] NSWCATCD 45 at [199]–[200] it was said:

1. Such an appointment is a serious measure because it takes away the ability of an owners corporation to take care of its own affairs. It is tantamount to appointing an administrator for a period of time.
2. By reference to Bischoff v Sahade [2015] NSWCATAP 135, the circumstances in which a scheme is not functioning could include:
   1. failure to maintain the common property;
   2. conferring an unauthorised benefit on a lot owner;
   3. failing to act to prevent contraventions of the SSMA by lot owners or occupiers; or
   4. raising levies or defending legal actions that are not in the interests of the scheme.

3. There must be evidence that one or more of the grounds under section 237 exists, along with discretionary reasons for the appointment.
4. Disagreement alone among lot owners does not amount to dysfunction.
5. In Maple v The Owners – Strata Plan No. 8950 [2021] NSWATCD 108, it was noted that duration, frequency and severity of non-compliance are relevant factors.
6. Compliance improvements or changes can also influence the outcome.

In short, the cases suggest that there needs to be some serious form of dereliction in duty, rather than an isolated incident, as the goal of s 237 is to maintain the democratic system that the legislation establishes so that it is not enough if owners of lots just do not get along. Although, that can change if disputes become chronic, complex and litigious Moallem v CTTT [2013] NSWSC 1700.

Whilst it is a matter of degree, and there is also a temporal component, some of the potential indicators of a scheme not functioning (or not functioning satisfactorily) that may require further investigation could be:

• a failure (or inability) to pass resolutions to raise contributions;
• a continued failure to carry out required maintenance and repairs to common property;
• a long history of acrimony, deep seated discord and or violence in the scheme;
• where the general meeting is in deadlock so that the scheme cannot be managed in the usual democratic way;
• a pattern of strata managers terminating their appointment especially where the fact of such termination is an outward manifestation of deeper problems about the functioning of the scheme; and
• a pattern of improper decision making (i.e. decisions not made in accordance with the Act)

Who can apply for compulsory management?

Section 237(8) of the SSMA provides that an application can be made by:

• a person with the benefit of a non-complied-with order under the SSMA;
• anyone with an interest or lease in a lot in the scheme;
• an authority with a positive covenant requiring action by the owners corporation; or
• a judgment creditor.

What types of orders can be made?

If the discretion is enlivened, NCAT can appoint a strata managing agent to exercise all or some functions of the owners corporation, or even the functions of the chairperson, secretary, treasurer, or strata committee. The appointment is for a specified period, usually less than two years.

Allison Benson
Kerin Benson Lawyers
E: [email protected]
P: 02 4032 7990

This post appears in Strata News #753.

This article has been republished with permission and first appeared on the Kerin Benson Lawyers website.

Have a question or something to add to the article? Leave a comment below.

Read next:

• NSW: Q&A What is a compulsory appointed strata manager?
• NSW: When is a Strata Scheme Not Functioning Satisfactorily for the Purposes of Appointing a Compulsory Strata Manager?
• Understand Strata Management with this Five-Minute Guide

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