NSW: Q&A When are Pecuniary Interest Disclosures Required?

This Q&A is about pecuniary interest disclosures in NSW strata properties.

Table of Contents:

• QUESTION: Is it a conflict of interest if a committee member is employed on a permanent basis as the building’s cleaner?


• QUESTION: A member of our EC, the treasurer, has commenced working two days a week at our strata company. Is this a conflict of interest?


• QUESTION: Our Strata Manager is the child of a lot owner in our scheme. Does this constitute a conflict of interest and should it have been declared?


• QUESTION: If a committee member submits a motion they have a vested interest in, shouldn’t they abstain from voting? Should the strata manager enforce this?


• QUESTION: We have large contracts to be signed off at our next meeting. In NSW, can we ask the strata committee to declare their interest as one committee member hand picked the tender companies?

Question: Is it a conflict of interest if a committee member is employed on a permanent basis as the building’s cleaner?

A committee member would like to take over the cleaning contract for our building. The strata committee has requested they withdraw from the committee as this as a conflict of interest. What section of the Act refers to this?

Is it a conflict of interest if a committee member is employed on a permanent basis as the building’s cleaner?

Answer: As long as the interest is disclosed and recorded, the member could remain on the committee and be the paid cleaner too.

The relevant section is set out below in Schedule 2 of the Strata Schemes Management Act, 2015 (NSW):

18 Disclosure of pecuniary interests

1. If—
   
   1. a member of a strata committee has a direct or indirect pecuniary interest in a matter being considered or about to be considered at a meeting, and
   
   
   2. the interest appears to raise a conflict with the proper performance of the member’s duties in relation to the consideration of the matter, the member must, as soon as possible after the relevant facts have come to the member’s knowledge, disclose the nature of the interest at a meeting of the strata committee. Maximum penalty—10 penalty units.


2. A disclosure by a member at a meeting of the strata committee that the member—
   
   1. is a member, or is in the employment, of a specified corporation or other body, or
   
   
   2. is a partner, or is in the employment, of a specified person, or
   
   
   3. has some other specified interest relating to a specified corporation or other body or to a specified person, is a sufficient disclosure of the nature of the interest in any matter relating to that corporation or other body or to that person which may arise after the date of the disclosure and which is required to be disclosed under subclause (1).


3. Particulars of any disclosure made under this clause must be recorded by the strata committee in a book kept for the purpose and that book must be open at all reasonable hours to inspection by any person on payment of the fee determined by the strata committee.


4. After a member has disclosed the nature of an interest in any matter, the member must not, unless the strata committee otherwise determines—
   
   1. be present during any deliberation of the strata committee with respect to the matter, or
   
   
   2. take part in any decision of the strata committee with respect to the matter.
   
   
5. For the purposes of the making of a determination by the strata committee under subclause


6. , a member who has a direct or indirect pecuniary interest in a matter to which the disclosure relates must not—
   
   1. be present during any deliberation of the strata committee for the purpose of making the determination, or
   
   
   2. take part in the making by the strata committee of the determination.


7. A contravention of this clause does not invalidate any decision of the strata committee.


8. Without limiting subclause (1), a person has an indirect pecuniary interest in a matter if a person connected with the person has a direct interest in the matter.

Therefore, so long as the interest is disclosed and recorded, the member could remain on the committee and be the paid cleaner too.

Leanne Habib Premium Strata E: info@premiumstrata.com.au P: 02 9281 6440

This post appears in Strata News #640

Question: A member of our EC, the treasurer, has commenced working two days a week at our strata company. Is this a conflict of interest?

I have recently discovered a member of our EC, the treasurer, has commenced working two days a week at our strata company potentially in an accounts role.

Is this a conflict of interest?

I feel the member is now unable to act in the committee’s best interest as they are now on the payroll of the strata management company. I’m most concerned of all situations where we are unhappy with something strata has done. I also feel payments now can’t be approved by this member.

They have been a resident and EC member for about ten years and longer than I have been a resident. They are a productive member of the EC, taking on projects and work coordination and their bookkeeping skills produce great spreadsheets.

This seems something the manager should also have seen as inappropriate.

Answer: There is a conflict of interest only with regards to the appointment of the strata managing agent.

Section 71 of the Strata Schemes Management Act (‘the Act’) requires a Strata Managing Agent or Building Manager to disclose any direct or indirect pecuniary interests they may have in a property, and the current penalty for failing to do so is 50 penalty units (at $110 per unit, therefore being $5,500). However, an interest only arising from a prospective appointment is exempt. Furthermore, the Treasurer only works for the Strata Management company and not in the role of being the delegated Strata Managing Agent for the strata scheme, so this would not be considered an interest that must be disclosed.

Schedule 2, clause 18 of the Act, then requires members of the strata committee to disclose any direct or indirect pecuniary interests they may have in any matter if it appears to raise a conflict with the proper performance of their duties in relation to consideration of that matter. Failure to do so can result in fines of 10 penalty units ($1,100).

In this scenario, the committee member would disclose that they are in the employment of the strata management company (see subclause (2)(a). After they have disclosed this, the strata committee must then decide if the person making the disclosure can:

1. be present during deliberation of the strata committee with respect to the matter (i.e. the matter of appointment of the strata managing agent); and


2. take part (vote) in any decision on that matter.

Also, the person cannot be present during the deliberation of this decision or take part in voting.

Lastly, the disclosure must be recorded in the owners corporation’s disclosure book, and the strata committee must decide on the fee payable to inspect the disclosure book. The simplest way to determine the fee would be to make it be the same amount as the fee prescribed for inspection of the records, as the disclosure book would form part of the records.

In summary:

1. There is a conflict of interest only with regards to the appointment of the strata managing agent.


2. The interest should be disclosed, and then a decision should be made on whether the committee member can participate in decisions on that matter exclusively.


3. The committee may decide to preclude that person from authorising payments to the strata managing agent (if that is necessary, as most Strata Managing Agents have authority to make payments, including to themselves). If they are precluded, another person must be appointed to authorise those payments.

Tim Sara Strata Choice E: tsara@stratachoice.com.au P: 1300 322 213

This post appears in Strata News #574

Question: Our Strata Manager is the child of a lot owner in our scheme. Does this constitute a conflict of interest and should it have been declared?

I have just discovered that the strata management company for my 10 unit block is actually the family company of one of the owners in the block (the owner who has the greatest unit entitlement). The strata company is managed by this owners child. 

Does this constitute a conflict of interest and should it have been declared? I bought into the block just over 12 months ago.

Answer: There appear to be no obligations for the owner to disclose that their child owns the strata management company.

The Strata Schemes Management Act talks about “pecuniary interests”. A pecuniary interest is an interest that a person or company would have in a matter where there is a reasonable likelihood or expectation that they will have a financial gain or loss.

Section 71 of the Strata Schemes Management Act (‘the Act’) requires a strata managing agent (or building manager) to disclose any direct or indirect pecuniary interests it has in the strata scheme (other than an interest arising from being appointed).

In the example given, I would not consider there to be a pecuniary interest for the strata management company as the strata management company would not gain any profit/loss by the parents of the owner(s) of the company owning the apartment. It might be different if the owner(s) of the company owned the apartment.

An example of a pecuniary interest would be if the strata management company owned the lot and therefore gained financial benefit from it (such as from rent or capital gains). Perhaps they own a commercial lot in a commercial strata scheme, and have their office there and manage the building – that would need to be disclosed.

Schedule 2, clause 18 of the Act goes on to require any member of a strata committee to disclose any pecuniary interests in a matter being considered or about to be considered at a strata committee meeting if the interest appears to raise a conflict with the proper performance of their duties in relation to the matter being considered. The disclosure must be recorded in a special disclosure book and then the strata committee can then decide whether that committee member who made the disclosure should be allowed to vote on the matter concerned or even be present during discussion of it (they also can’t be present or vote while the committee considers whether they can be present or vote in future on that issue).

However, the appointment of a strata managing agent can only occur at a general meeting of the owners, not at a strata committee meeting. The disclosure requirements would only come up if there was a matter on the agenda of a strata committee meeting in relation to the strata managing agent (such as to consider tendering those services).

Interestingly, this same obligation does not apply to owners voting at a general meeting. Schedule 2 of the Act is made explicitly about strata committee meetings only.

Therefore, there appear to be no obligations on a lot owner to make a similar disclosure at a general meeting (in other words, no requirement for the owner to disclose that their child owns the strata management company).

For example, an owner of a lot who submits a motion to renovate their apartment can still vote on that motion. There’s no requirement for them to abstain.

Putting the law aside, transparency in strata living is important and contributes towards a better community, so regardless of the law, I would still recommend anyone in this situation be transparent and disclose any interests to promote harmony. You may find that this was already done before you bought into the property (as you mentioned, you had done so 12 months ago in this specific example).

Tim Sara Strata Choice E: tsara@stratachoice.com.au P: 1300 322 213

This post appears in Strata News #539.

Question: If a committee member submits a motion they have a vested interest in, shouldn’t they abstain from voting? Should the strata manager enforce this?

Regarding the issue of a Strata Committee Member proposing a motion to the Strata Committee that they have a vested interest in, which constitutes a breach of conflict of interest: The legislation mentions that there is a maximum penalty of 10 units which as I understand it to be $1,100.00. ($110.00 per penalty unit).

The article is quite interesting but it doesn’t mention how a Lot Owner can instigate this action when a Strata Committee member has breached part 15 of Schedule 2 of the said legislation? Could someone provide the steps required in implementing this course of action?

Also, shouldn’t the Strata Manager have mentioned to the Strata Committee and in particular to the member that they abstain from voting on their motion? What happens if the Strata Manager fails to do so? Are they in breach of their statutory obligations? If so, what would these breaches be under which legislation?

Answer: The strata manager should have raised the conflict but the duty of disclosure lies with the relevant committee member.

Unfortunately, you probably could not attempt to invalidate the resolution, due to the bolded section below:

Also, yes, ideally, the strata manager should have raised the conflict but the duty of disclosure lies with the relevant committee member.

18 Disclosure of pecuniary interests

1. If–
   
   1. a member of a strata committee has a direct or indirect pecuniary interest in a matter being considered or about to be considered at a meeting, and
   
   
   2. the interest appears to raise a conflict with the proper performance of the member’s duties in relation to the consideration of the matter,
   
   the member must, as soon as possible after the relevant facts have come to the member’s knowledge, disclose the nature of the interest at a meeting of the strata committee. : Maximum penalty–10 penalty units.


2. A disclosure by a member at a meeting of the strata committee that the member–
   
   1. is a member, or is in the employment, of a specified corporation or other body, or
   
   
   2. is a partner, or is in the employment, of a specified person, or
   
   
   3. has some other specified interest relating to a specified corporation or other body or to a specified person,
   
   is a sufficient disclosure of the nature of the interest in any matter relating to that corporation or other body or to that person which may arise after the date of the disclosure and which is required to be disclosed under subclause (1).


3. Particulars of any disclosure made under this clause must be recorded by the strata committee in a book kept for the purpose and that book must be open at all reasonable hours to inspection by any person on payment of the fee determined by the strata committee.


4. After a member has disclosed the nature of an interest in any matter, the member must not, unless the strata committee otherwise determines–
   
   1. be present during any deliberation of the strata committee with respect to the matter, or
   
   
   2. take part in any decision of the strata committee with respect to the matter.


5. For the purposes of the making of a determination by the strata committee under subclause (4), a member who has a direct or indirect pecuniary interest in a matter to which the disclosure relates must not–
   
   1. be present during any deliberation of the strata committee for the purpose of making the determination, or
   
   
   2. take part in the making by the strata committee of the determination.


6. A contravention of this clause does not invalidate any decision of the strata committee.


7. Without limiting subclause (1), a person has an indirect pecuniary interest in a matter if a person connected with the person has a direct interest in the matter.

Leanne Habib Premium Strata E: info@premiumstrata.com.au P: 02 9281 6440

These articles are not intended to be personal advice and you should not rely on them as a substitute for any form of advice.

This post appears in Strata News #427.

Question: We have large contracts to be signed off at our next meeting. In NSW, can we ask the strata committee to declare their interest as one committee member hand picked the tender companies?

We are having our strata meeting telephonic hosted. Our last meeting was in November 2018. We have contracts to be signed off. They range from $1.9 million to $2.5 million plus $150 thousand for an engineer to oversee the rectification for ingress.

Lot owners are wondering if it legal for to ask the strata committee to sign a stat dec regarding their relationship with the contractors as one of the strata committee members hand picked the 3 tender companies.

Answer: Include as an item on the meeting agenda a requirement that prior to voting on the motion to appoint the contractors, each committee member give a declaration at the meeting that they do not have a direct or indirect pecuniary interest in the appointment of the contractor which would raise a conflict with the proper performance of the member’s duties.

Schedule 2 section 18 Disclosure of pecuniary interests of the Strata Schemes Management Act 2015 (SSMA) requires a strata committee member to disclose to the strata committee if it has a direct or indirect pecuniary interest about a matter being considered at the meeting and the interest appears to raise a conflict with the proper performance of the member’s duties. This would include the selection and appointment of contractors by the committee.

After a member has disclosed the nature of an interest in any matter it must not (unless the committee determines otherwise) be present during the deliberation or decision making on the matter. There is nothing in the SSMA which states the committee can require committee members to sign statutory declarations stating that they have no interest.

We recommend that you include as an item on the meeting agenda a requirement that prior to voting on the motion to appoint the contractors, each committee member give a declaration at the meeting that they do not have a direct or indirect pecuniary interest in the appointment of the contractor which would raise a conflict with the proper performance of the member’s duties pursuant to Schedule 2, section 18 of the SSMA.

Emma Smythies Bugden Allen Graham Lawyers E: emma@bagl.com.au P: 0412 046 966

This article does not constitute legal or other advice and should not be relied upon this way. Readers should take legal or other advice before applying the information containing in this publication.

This post appears in Strata News #355.

Have a question about when pecuniary interest disclosures are required or something to add to the article? Leave a comment below.

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