This article discusses majority lot owner strata spending control and how other owners can challenge questionable spending decisions.
Question: A majority lot owner holds over one fifth of the lots in our building. He gets away with unnecessary spending due to his lot entitlements. How do we stop this?
I live in Newcastle and my wife and I own a unit in a 90 unit complex. I recently attended a special meeting regarding budgets and the setting of levies to repay debt from a loan taken out for remedial fire repair works. There are several big spends in the future capital works budget for lobby redesign / painting / carpet upgrade etc that total $400K over 10 yrs.
This area is used by the building manager who owns around 20 apartments. He is also the treasurer. He has put forward motions for these spends and the majority of us wish to vote no to the spending as it is primarily for his benefit as he short term lets his apartments. He gets away with this unnecessary spending due to his lot entitlements.
What course of action do we have as the unnecessary spending has caused levies to increase by 50% and also caused some owners financial distress. Several owners have sold due to this situation.
Answer: In strata living, majority rules and so the voting for these works can be passed if sufficient votes are cast to enable the works to be undertaken.
In strata living, majority rules and so the voting for these works can be passed if sufficient votes are cast to enable the works to be undertaken. As such if owners do not wish for this spending to continue they need to make their voices heard and become involved e.g. attend meetings where decision are made, join the Strata Committee etc.
There are a number of other items that should also be considered as detailed below:
If decisions are being made at a Committee Meeting to which Owners object, then owners whose unit entitlement exceed one third of unit entitlement can object in writing to any decision being made at a Committee level, meaning this has to be considered at a General Meeting instead, as per Schedule 2 Section 9 of the Strata Schemes Management Act 2015. In addition Section 36(3) of the Strata Schemes Management Act 2015 specifies decisions that cannot be made by the Strata Committee for example a Special Resolution decision or any matter that the Owners Corporation has determined at a General Meeting must only be decided upon only at a General Meeting. This Section also stipulates that if there is any disagreement between the Owners Corporation and the Strata Committee, the decision of the owners corporation prevails.
At a general meeting if there is an addition to common property as part of the specified works this requires a Special Resolution vote, not just a simple majority as per Section 108(1) & (2)of the strata Schemes Management Act and so that needs to be carefully considered when works are approved, an agenda prepared and if the correct resolution is not passed then this would be open to challenge at NSW Civil and Administrative Tribunal for example.
The definition of a special resolution is under Section 5 of the Strata Schemes Management Act 2015 being it must be passed at a general meeting and if more than 25% vote against the motion, it fails.
In June 2019 a Supreme Court case handed down a decision that has an impact on the requirements for ordinary resolution vs special resolution in Glenquarry Park Investments Pty Ltd -v- Hegyesi [2019] NSWSC 425. Here is a link to an interesting article from JS Mueller & Co Lawyers: NSW: Replacing Items of Common Property Just Got Much Harder. In this, it is summarised that based on this decision ‘an owners corporation will only be able to authorise the replacement of an item of common property by ordinary resolution where it is reasonably necessary to replace that item because the item can no longer be kept in a state of good and serviceable repair’.
‘In other words, an owners corporation cannot replace an item of common property by ordinary resolution if the existing functionality of that item can be maintained without replacing it. They have specified that the effect of the decision in the case is that it will be more difficult for an owners corporation to replace items of common property that are old and worn but can still be maintained or repaired and do not have to be replaced in order to maintain their existing functionality as the replacement of those items must be authorised by a special resolution.
Another option that is available, but one that I consider a last resort due to the removal of the owners ability to make decisions for themselves, is seek an Order for the appointment of a strata managing agent under Section 237 of the Strata Schemes Management Act 2015. This section of the Act gives Tribunal the ability to appoint a strata manager to undertake all or specified functions of the Owners Corporation but this can only take place in certain circumstances that Tribunal will need to consider e.g. the strata scheme is not functioning or functioning satisfactorily.
This post appears in the June 2021 edition of The NSW Strata Magazine.
Robert Fothergill Strata Life E: Robert@thestratalife.com.au P: 02 9456 9917