NSW: Defining the “unfinancial” owner and their voting rights

Being an unfinancial owner has consequences that extend well beyond losing the right to vote at a general meeting.

What is an “Unfinancial” Strata Owner?

A common misconception is that an owner is only unfinancial if they have not paid their strata levies. That is not correct.

An unfinancial owner is an owner of a lot in a scheme who has not paid:

• All contributions (levies) that are due and payable.
• Any other amounts that are recoverable from the owner by the owners corporation in relation to their lot.

This means an owner may be unfinancial even if all levies have been paid. An owner may also become unfinancial if they owe other amounts that the owners corporation is legally entitled to recover, such as:

• Approved interest on overdue amounts.
• Legal costs that are recoverable under the legislation.
• Other valid charges properly imposed.

When Can an “Unfinancial” Strata Owner Vote?

In most cases, whether an owner is entitled to vote or stand for election is determined by their financial status when notice of the relevant meeting was given and whether all outstanding amounts were paid before the meeting.

Restrictions on Voting and Committee Eligibility

An unfinancial owner faces the following restrictions:

• General Meetings: They cannot vote on ordinary or special resolutions at a general meeting (although they may still vote on a proposed unanimous resolution).
• Strata Committee Nominations: They are not eligible for election or appointment to the strata committee if they were unfinancial when notice of the general meeting was given and remain so at the general meeting.
• Committee Meetings: A person cannot vote at strata committee meetings if they are an unfinancial owner at the date the notice of the strata committee meeting is given, or if that person was nominated to the strata committee by an unfinancial owner, and the amounts owed to the owners corporation are not paid before the meeting.

Retained Rights of “Unfinancial” Strata Owners

However, an owner does not lose every right because they are unfinancial:

• They may still require a motion to be included on the agenda for a general meeting.
• If they are already a strata committee member, they do not automatically vacate office merely because they later become unfinancial.

Case Study: Donne v The Owners – Strata Plan No. 86457 [2021] NSWCATCD 118

You do not have to look much further than the case of Donne v The Owners – Strata Plan No. 86457 to see how strictly the legislation can operate.

In this case, the owner had paid more than was required into the capital works fund but still owed contributions to the administrative fund. The NSW Civil and Administrative Tribunal (Tribunal) considered whether the surplus in one fund automatically satisfied the shortfall in the other.

The Tribunal held that it did not. Until the contributions levied to the administrative fund were paid, the owner remained unfinancial—notwithstanding that they had overpaid into the capital works fund—and interest was charged on the outstanding contributions.

The Tribunal’s Ruling: Although the Tribunal ultimately ordered that the surplus be transferred to satisfy the outstanding contribution and relieved the owner from paying interest, it nevertheless found that the owner was unfinancial on the date of the last annual general meeting. As a result, the owner was not entitled to vote at the meeting, could not vote on the motions before the meeting, and was not eligible to nominate for election to the strata committee. The Tribunal therefore refused to invalidate the resolutions passed at the meeting.

Key Legislative Update (December 2023)

It should be noted that at the time of the hearing in Donne, the Strata Schemes Management Act 2015 did not allow unfinancial owners to nominate a person for election as a member of the strata committee.

This was changed in December 2023. Now, even if an owner is unfinancial, that owner can still nominate a person for election as a member of the strata committee.

Summary for Owners Corporations and Lot Owners

Whether an owner is financial is determined strictly by their position at the time of the meeting. Subsequent orders or adjustments to the accounts will not necessarily alter their voting eligibility retrospectively.

• For Owners Corporations: It is highly important to ensure that financial records are completely accurate before determining whether an owner is eligible to vote.
• For Lot Owners: It is equally important to understand that paying levies alone may not be sufficient to remain financial if other recoverable amounts remain outstanding.

This post appears in Strata News #801.

Fausto Di Palma
JS Mueller & Co Lawyers
E: enquiries@muellers.com.au
P: 02 9562 1266

This article has been republished with permission from the author and first appeared on the JS Mueller & Co Lawyers website.