Question: I purchased an apartment without carrying out any due diligence. There is no transparency or access to information. The developer owns units in the building and strata management company is owned by the developer. What can I do?
I purchased an apartment without carrying out any due diligence and have since found some issues. No strata company has ever been formed. The developer owned 9 of the 10 lots and has since sold a few to other owners.
On settlement, no minutes of meetings and statements of accounts were provided, because none exist. A “proposed” strata levy was mentioned in the sale contract.
After settlement, a strata management company, owned by the developer, has been in contact to collect strata levies from me. If the building had a strata manager, why was this information not provided before settlement?
I’m concerned the collected levies won’t go into the correct fund to maintain the building as there seems to be a conflict of interest and no transparency. I suspect the developer doesn’t contribute to levies.
What can I do? I don’t know the other owners and I’ve contacted the developer about forming a strata company but have never received a response.
Answer: I suggest that you obtain legal advice because something does not sound right.
The non-existence of a strata company
Upon registration of the strata titles scheme, (‘Scheme’) a strata company automatically comes into existence. If you purchased a lot in a scheme and the developer owned 9 out of 10 lots, and someone else owned the other lot, the strata company must have existed for 2 or more years. From the facts you mention, it does not seem that you have purchased a lot off the plan.
Accordingly, the statement by the developer that no strata company existed does not seem correct. It is possible that no annual general meeting (‘AGM’) has been held and no strata council has been appointed.
I suggest that you obtain legal advice because something does not sound right. If a lawyer obtains all the facts from you there may be a logical explanation, or they can advise you on how to protect your rights.
Information that must be provided to a purchaser in a Scheme
Under s. 156 of the Strata Titles Act 1985 (WA) (‘Act’), if you buy into a Scheme, you should receive the following documents and information from the seller, which we assume was the developer, before you signed the contract, namely:
- The name and address of the strata company.
- The minutes of the last AGM. The strata company can state that it does not keep minutes, but in your case, the explanation was that no minutes exist because no strata company was formed.
- The latest statements of account prepared by the strata company. The strata company can state that it does not prepare account statements, but in your case, the explanation was that these documents do not exist because no strata company was formed.
- The amount and due dates of levies determined in the previous 12 months payable by you.
In other words, you should have received minutes of the last AGM and the latest statements of account. The minutes of the last AGM should contain a resolution concerning the levies payable.
Even if there was no strata company, or the developer owned more than 50% of the lots (which was the case), or the first AGM has not been held, the developer as the seller had to give you the following documents (s.157(4)):
- a statement of the estimated income and expenditure of the strata company for 12 months from the settlement date;
- the details of each contract for the provision of services entered into for the strata company;
- details of any benefit or remuneration received or to be received by the developer or an associate of the developer from any contract entered into for the strata company.
From these documents, you should be able to work out the levies payable and what the contract is between the strata manager and the developer.
The availability of minutes of meetings and statements of account
The Scheme developer must, in 3 months after the registration of the scheme, convene an AGM (s.77(1)). If the developer has failed to convene an AGM, you as an owner can convene the AGM (s.77(3)). If this is the case, I suggest you approach the strata manager to assist you to convene an AGM.
Your Scheme seems to have been in existence for a few years, and there should be several AGM minutes. A strata company must keep proper accounting records of its income and expenditure and prepare an account statement for each financial year (s.101). The strata company must keep records of all AGM minutes and statements of account (s. 104).
As a member of the strata company, you can apply to inspect the AGM minutes, and account statements (s.109). The strata company must make them available to you or face a penalty of $3,000. The best way to contact the strata company would be through the strata manager.
Concerning the strata manager owned by the developer
The developer must disclose in writing to the strata company details of any remuneration, benefit or other direct or indirect pecuniary interest that the developer or an associate of the developer has in any strata management contract entered into or arranged by the developer for the strata company (s. 79).
Consequently, if the developer receives any benefit from the agreement with the strata manager, it should be disclosed to the strata company. The disclosure should include information of the value of the remuneration or benefit (s.79(2)(b).
If the developer fails to disclose the benefit or remuneration, it can be ordered by SAT to pay some or all of it to the strata company (s.200(2)(d)).
The strata manager is under statutory duties to act honestly, in good faith and with reasonable care, skill and diligence in performing its functions. The strata manager must further disclose any conflict of interest to the strata company.
Any disclosures made by the developer and the strata manager should be available for inspection from the strata company (s.104(c)(vi)).
In practice, these records are generally kept by the strata manager, and you can request an inspection from the strata manager.
If the strata manager contravenes the Strata Titles Act 1985 (WA) (‘Act’) by not acting honestly, in good faith or with skill, diligence and care, there is a process in s.151 of the Act to terminate the contract with the Strata Manager.
Payment, receipt and administration of levies collected
The strata company must determine the amount the owners should contribute by resolution and levy the contributions according to the owners’ unit entitlements unless the by-laws provide differently (s.100). Generally, levies are determined by a resolution taken at an AGM. Since you became a member of the strata company at settlement, you should have received notice of any AGM held to determine the levies payable.
Ask the strata manager for the AGM resolution determining the amount the owners had to contribute by levies (s.104(1)(d)(iv). Check whether the levy you are paying is proportionate to your unit entitlement unless the by-laws prescribe a different calculation method.
To verify whether the developer or any other owners are paying levies, you can request the current balance of the administrative fund from the strata company (s.104(1)(d)(ii) and other documents in possession or control of the strata company, which may include the developer’s levy account (s109(6)). By considering these documents, you should be able to establish whether the developer is paying levies as it should.
The strata manager must pay all levies it receives into a separate bank account for the strata company (s.148(1)(a), and it must be able to account separately for money it receives or pays on behalf of the strata company (s.148(3)). If the strata manager fails to do this, it is breaching the Act, and the strata company can terminate its contract and recover any damages it suffered from the strata manager.
What can you do if you establish that the developer is not paying levies as it should
Contributions levied become due and payable to the strata company per the resolution taken regarding the levy. If the developer does not pay its levies, the strata company can recover it through court proceedings.
If the strata company, controlled by the developer does not take any steps, the council of the strata company must convene an Extraordinary General Meeting (‘EGM’), if you and other owners entitled to 25% or more of the unit entitlements request an EGM in writing. You can table a motion at the EGM that action be taken against the developer because it does not pay its levies. The developer cannot vote against the resolution because it is not entitled to vote for as long as it owes levies to the strata company.
The council must act honestly, with loyalty and in good faith in their capacity as councillors (s.137). If they breach this duty to favour the developer, you can bring proceedings against them. The same applies to the strata manager. If the strata manager breaches its duties, you can terminate its contract and commence proceedings for any damages suffered by the strata company.
I recommend that you discuss your situation with a lawyer because there are several things that concerns me regarding your matter.
Eduard Ferreira
Douglas Cheveralls Lawyers
E: eduard@dclawyers.com.au
P: 08 9380 9288
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