A Guide on the General Obligations of Duplex Two-lot Strata Schemes in NSW

Introduction

Owning a duplex in New South Wales under a two-lot strata scheme brings a unique set of legal and practical responsibilities. Unlike duplexes on Torrens Title, duplexes on Strata Title are governed by the Strata Schemes Management Act ⁣2015 (NSW) (SSMA) and combine elements of‌ individual⁤ ownership with​ shared responsibilities, ⁢creating unique management considerations⁢ compared to ‌larger‌ strata complexes.

Understanding these strata obligations is essential for both current and prospective duplex owners to ensure compliance, maintain harmony, and effectively manage shared property interests. This guide provides a clear overview of the key requirements and challenges faced in two-lot strata schemes, helping owners make informed decisions about their property.

Interactive Tool: Check If Your Duplex Strata Scheme Meets NSW Legal Requirements

Understanding Two-Lot Strata Schemes

What Defines a Two-Lot Strata Scheme

A two-lot strata scheme is a property arrangement limited to only two lots. These commonly take the form of:

• duplexes
• dual-occupancy homes

where a property is divided into two separate residences.

Furthermore, in New South Wales, such small-scale property structures are governed by the Strata Schemes Management Act 2015 (NSW), which outlines the specific legal obligations for owners, even though the scheme involves only two parties. Despite their smaller size, these schemes must adhere to many of the same management and administrative requirements as larger strata properties.

Unique Challenges for Duplex Owners in a Strata Scheme

Owners in two-lot strata schemes often face a distinct set of challenges that are less common in larger developments. Indeed, the involvement of only two parties can lead to complications in management and decision-making.

Some of the most common difficulties include:

• Voting Deadlocks: With only two votes available, disagreements can easily result in a deadlock. If both owners have equal voting rights, any lack of consensus can prevent essential decisions—such as repairs, finances, or by-laws—from being made.
• Unequal Unit Entitlements: Unit entitlements determine each lot’s value as a percentage of the whole property and, consequently, voting power. When these entitlements are unequal, the owner with the larger share can often make day-to-day decisions unilaterally, creating a power imbalance.
• Limited Common Property: Many two-lot schemes consist of detached or semi-detached dwellings, which limits the amount of shared common property. This can lead to confusion around responsibilities for insurance, maintenance, and financial contributions for shared structures or land, which is a primary cause of common property disputes in duplex strata schemes.
• Excessive Management Costs: The formal management structure and administrative costs required under strata law can seem unnecessary for a simple two-owner arrangement, leading some owners to neglect their duties.

Key Management & Governance Obligations for Your Strata

Forming the Strata Committee Automatically

In a two-lot strata scheme, the strata committee is formed automatically, which simplifies the governance process compared to larger schemes. There is no requirement to hold a formal election for committee members.

Under Section 30(3) of the Strata Schemes Management Act 2015 (NSW), the committee automatically consists of one representative from each lot. The representative is determined as follows:

• Sole Owner: If a lot has a single owner, that individual is automatically the committee member.
• Co-owners: When a lot is owned by multiple people, they must nominate one co-owner to represent them. If no nomination is made, the co-owner whose name appears first on the strata roll becomes the committee member.
• Company Ownership: If a corporation owns a lot, it must appoint a company nominee to act as its representative on the strata committee.

This streamlined approach ensures equal representation for both lots without the administrative complexity of an election.

Holding Annual General Meetings & Meeting Quorums

All two-lot strata schemes are legally required to hold an Annual General Meeting (AGM) each year. The AGM is an essential process for:

• Discussing the scheme’s finances
• Planning for the upcoming year
• Ensuring that proper records are maintained

A key rule for these meetings is the quorum, which is the minimum number of owners required to be present for the meeting to be valid. According to Clause 17(2)(c) of Schedule 1 of the Strata Schemes Management Act 2015 (NSW), the quorum for a two-lot scheme is two, meaning an owner from each lot must be present.

This provision is designed to prevent one owner from making decisions in the other’s absence. If a quorum is not met, the meeting must be adjourned and rescheduled. At the reconvened meeting, the owner who is present will form a quorum.

Understanding Voting Rights & Unit Entitlements in a Strata Scheme

Unit entitlements are crucial in any strata scheme as they determine:

• Each owner’s voting power
• Their share of levy contributions
• Their portion of ownership in the common property

In a two-lot strata scheme, the allocation of these entitlements has a significant impact on decision-making.

When unit entitlements are equal, with each owner holding a 50% share, both owners must agree for any decision to pass. This is because neither owner holds a majority, making mutual agreement essential for matters like repairs, maintenance, and finances. However, this can also lead to voting deadlocks if the owners disagree.

Conversely, if the unit entitlements are unequal, the owner with the larger share holds the majority voting power. This allows them to pass ordinary resolutions for day-to-day matters—such as approving repairs or appointing a strata manager—without the other owner’s consent. It is important to note that for special resolutions, such as creating new by-laws, an owner with more than 25% of the unit entitlement can block the motion by voting against it.

Financial Obligations for Your Strata Scheme

The Mandatory Administrative Fund

All two-lot strata schemes are required to establish and maintain an administrative fund. This fund is essential for covering the day-to-day operational costs of the strata property.

The administrative fund is used to pay for recurrent expenses, which ensures the smooth management and upkeep of the scheme. These costs typically include:

• Insurance premiums
• General maintenance and cleaning
• Utilities for any common areas
• Other administrative fees

The Optional Capital Works Fund

While an administrative fund is compulsory, a capital works fund for major repairs and capital expenditure is not always mandatory for a two-lot strata scheme. Owners can choose to opt out of establishing this fund if certain conditions are met.

Under Section 74(5) of the Strata Schemes Management Act 2015 (NSW), a two-lot strata scheme is exempt from having a capital works fund if:

• The buildings on each lot are physically detached from one another.
• There are no other shared buildings or structures on the common property.
• The owners pass a unanimous resolution to not have a capital works fund.

If these criteria are met and the owners agree, they can also waive the requirement to prepare a 10-year capital works fund plan.

Auditing Exemptions for Your Strata Accounts

Two-lot strata schemes generally benefit from simplified financial reporting requirements and are often exempt from formal audits. This exemption reduces the administrative and financial burden on the owners.

According to Section 95 of the Strata Schemes Management Act 2015 (NSW), an audit of the strata scheme’s accounts and financial statements is not required unless its annual budget exceeds $250,000. Although it is not compulsory for schemes under this threshold, owners can still choose to have an audit conducted if they both agree it is necessary.

Strata Insurance Requirements

Compulsory Building & Public Liability Insurance

If the buildings in a two-lot strata scheme are physically attached, such as a duplex sharing a common wall, the owners corporation is legally required to hold building insurance for the entire structure. This obligation ensures that the shared property is adequately protected against damage.

In addition to building insurance, there are complex legal duties for an owners corporation which must also include other forms of mandatory insurance under Section 164 of the Strata Schemes Management Act 2015 (NSW). These requirements include:

• Public liability insurance
• Workers compensation insurance
• Voluntary workers insurance

These policies cover the owners corporation against claims and liabilities related to accidents or injuries on common property.

When You Can Opt for Individual Building Insurance

Owners in a two-lot strata scheme can choose to insure their own lots individually, but only under specific circumstances. This exemption from collective building insurance is outlined in Section 160(4) of the Strata Schemes Management Act 2015 (NSW).

To forego a combined strata insurance policy, all of the following conditions must be met:

• The buildings on each of the two lots must be physically detached from one another.
• There can be no other buildings or parts of buildings situated on the common property.
• The owners must pass a unanimous resolution to not have a collective building insurance policy.

If these three criteria are satisfied, each owner can then arrange and pay for their own separate building insurance policy.

Navigating Common Issues & Disputes in a Strata Scheme

Resolving Voting Deadlocks & Disagreements

Disagreements between owners in a two-lot strata scheme can quickly lead to a standstill, particularly when unit entitlements are equal. Since both owners must agree to pass resolutions, any conflict can result in a voting deadlock, preventing essential decisions about repairs, finances, or management.

If the strata scheme becomes dysfunctional because of persistent disagreements, an owner can apply to the NSW Civil and Administrative Tribunal (NCAT). NCAT has the authority to make orders to resolve the dispute, which may include:

• Appointing a compulsory strata managing agent to take over decision-making
• Ensuring the scheme functions correctly despite ongoing disputes

Managing By-Law Breaches & Maintenance Responsibilities

Addressing by-law breaches in a two-lot strata scheme is more straightforward than in larger properties. Under Section 146(4) of the Strata Schemes Management Act 2015 (NSW), a notice to comply with a by-law can be issued to an owner without requiring a formal resolution from the owners corporation.

To clarify maintenance duties, owners can create a special by-law that makes each lot owner responsible for the repair and maintenance of specific parts of the common property connected to their lot. This could include:

• External walls
• Windows
• The roof above their unit

This approach requires a special resolution to pass the by-law, which must clearly define each owner’s responsibilities.

Conclusion

Managing a two-lot strata scheme in NSW involves distinct obligations for reporting, meetings, finances, and insurance that differ from larger properties. Understanding these requirements under the Strata Schemes Management Act 2015 (NSW) is essential for owners to ensure compliance and effectively manage their shared property interests.

If you own property in a two-lot strata scheme and need help navigating its unique legal framework, it is crucial to consult with PBL Law Group’s experienced strata lawyers for tailored legal advice and support. For assistance with disputes or deadlocks between owners, our specialist strata dispute lawyers can provide the guidance necessary to resolve conflicts and ensure your scheme operates smoothly and lawfully.

Frequently Asked Questions