Introduction

Two-lot strata schemes, involving properties like duplexes or dual-occupancy houses, are unique in their blend of independence and interdependence among owners. This guide dives into the legal, financial, and administrative aspects of these schemes under the Strata Schemes Management Act 2015 (SSMA). It provides insights for current or prospective owners to effectively navigate the challenges and opportunities within two-lot strata schemes, emphasising the importance of understanding their intricacies for smooth management and cooperation.

Understanding Two-lot Strata Schemes

Two-lot strata schemes refer to property arrangements limited to just two lots, such as duplexes or houses divided into two. In these lot schemes, each house or unit is a separate lot, typically with minimal or no shared areas, known as common property. According to the Strata SSMA, strata schemes with 100 or more lots are termed ‘larger schemes’, while those with less than 100 lots, including two lot strata schemes, are classified as ‘other schemes’.

Two-lot strata schemes are increasingly common but present unique challenges compared to larger apartment or villa strata schemes. These challenges include the owners generally occupying detached or semi-detached dwellings, which limits common property and impacts their responsibilities regarding insurance, maintenance, and financial contributions. Additionally, with each owner having equal voting rights, it gets difficult to pass a unanimous resolution. The standard model by-laws may not be suitable for these schemes, necessitating the drafting of special by-laws. Moreover, the typical management structure and associated administrative costs might be viewed as unnecessary and excessive for two-lot schemes.

General Obligations of 2-lot Strata Duplexes in NSW

Reporting Requirements

Two-lot strata schemes in NSW, typically involving buildings on physically detached lots, are subject to annual reporting requirements. However, they can be exempt from reporting on capital works and combined building insurance, under certain conditions. These exemptions apply if the buildings are physically detached, there are no other shared structures, and all owners unanimously agree to forego building insurance and a capital works fund. This provides flexibility in managing the specific needs and agreements of two-lot schemes.

Annual General Meetings

In two-lot strata schemes, an Annual General Meeting (AGM) must be convened annually. Post-AGM, the scheme is required to complete its annual strata report within three months. For newly established schemes, the first AGM’s date doesn’t need to be included in the initial annual report. However, subsequent reports must specify the AGM date. This ensures regular and timely reporting, essential for the effective management and administration of two-lot strata schemes.

How can two-lot strata owners hold an AGM?

Holding an AGM in a two-lot scheme is a key process that allows the scheme to discuss finances and other relevant matters, as well as plan for the upcoming year. Here are the steps to follow:

• Pick a Date: Choose a suitable date, time, and location for the AGM in agreement with the other owner. If necessary, the meeting can be held online.
• Ensure Both Owners Attend: It’s important that an owner from each lot is present for the AGM to proceed. If an owner cannot attend, they can appoint a proxy voter by completing a proxy appointment form.
• Go Through the Agenda and Take Minutes: The AGM should cover a range of topics, including:
  • Attendance and Minutes: Verify the presence of an owner from each lot and consider a motion to accept the minutes from the previous AGM, if applicable.
  • Utilities and Repairs: Discuss decisions regarding utility providers for any common property and address any building defects within the scheme, especially if covered by warranty periods.
• Discuss Finances: Proper financial discussion involves:
  • Proposing and voting on a motion to accept the financial statements for the past period. For schemes exempt from a capital works fund, this pertains only to the administrative fund.
  • Addressing how to handle any unpaid or overdue levies.
• Share the Minutes and Keep Records: Distribute a copy of the meeting minutes to each owner within seven days of the AGM. Additionally, maintain records of the meeting agenda, financial statements, and other relevant documents for at least seven years.

Administrative Fund

In all strata schemes, including two-lot schemes, maintaining an administrative fund is a legal requirement. This fund is essential for managing routine expenses such as insurance and general maintenance. It ensures the property remains in good condition and funds are available for necessary repairs. Proper management of this fund is crucial for the upkeep and financial health of the strata scheme.

Capital Works Fund

In two-lot strata schemes under the SSMA, Section 74(5) allows, through unanimous resolution, for opting out of establishing a capital works fund if the buildings are physically detached. This exemption also negates the need for a 10-year capital works plan as per Section 80. Conversely, Section 76, relevant for schemes with more than two lots, mandates replenishing funds if money is transferred between administration and capital works funds. This indicates greater financial flexibility in two-lot schemes, recognising their simpler financial management needs compared to larger strata schemes.

Insurance

Under Section 160(4) of the SSMA, two lot schemes with completely detached buildings can unanimously decide to forego collective building insurance. This decision transfers the insurance responsibility to individual lot owners. Often, owners in such schemes choose a simpler method of sharing insurance costs equally, avoiding the complexities of a formal owners corporation. This approach ensures both lots are insured, while simplifying administrative processes.

Management and Decision Making

Managing a strata scheme with only two lots can sometimes be more straightforward, given the smaller scale and fewer parties involved. Nevertheless, there are still various administrative and safety requirements to keep in mind. Engaging an experienced Strata Manager can be beneficial as they can help keep you updated with these requirements and assist in resolving any disagreements between property owners.

The Strata Schemes Management Act (SSMA) provides specific guidelines for two-lot schemes:

• Strata Committee: No formal election needed; each lot automatically has one representative.
• Quorum: Both owners must be present for decision-making. This means that a quorum for a two lot strata scheme comprises of both the owners.
• General Management: Standard management and administrative duties under the SSMA apply, including compliance, reporting, maintenance, and record-keeping.

While many two-lot schemes might prefer less formal management structures, a balanced approach can be considered. Engaging a strata managing agent with a limited scope of delegated authority can be a practical solution. This arrangement provides professional assistance with specific functions while maintaining the simplicity and autonomy preferred in smaller schemes.

General Exemptions for 2 Lot Strata Schemes

A 2 lot strata scheme operates under some specific rules that sets it apart from larger schemes, reflecting the simplicity and smaller scale of managing just two lots. These differences include:

Strata Committee Selection

In two-lot strata schemes, the strata committee is automatically made up of one owner from each lot, bypassing the need for a formal election process. If a lot is jointly owned, only one of the co-owners can represent that lot on the committee. This approach simplifies committee formation in smaller strata schemes, ensuring equal representation from each lot.

Auditing of Accounts and Financial Statements

Under Section 95 of the SSMA, an audit of accounts and financial statements is required only for large owners corporations or those with annual budgets over $250,000. This regulation is particularly relevant for two-lot strata schemes, which often have smaller budgets and thus typically fall outside the auditing requirement. This exemption from the audit requirement provides financial and administrative relief for smaller schemes, which may not have the complex financial operations of larger strata schemes.

Individual Insurance

In two-lot strata schemes in NSW, owners can individually insure their lots and may be exempt from establishing a capital works fund if certain conditions are met. These conditions include the requirement that buildings on each lot must be physically detached from each other, and there should be no buildings or parts of buildings outside the lots. Additionally, a unanimous resolution must be passed by the owners to agree on not having building insurance for both buildings and/or to forego a capital works fund.

Annual Fire Safety Statement

In residential two-lot strata schemes, an annual fire safety statement is typically not required. However, owners should still ensure compliance with fire safety regulations relevant to their properties. Consulting the local council for specific fire safety requirements and guidelines applicable to the scheme is crucial for maintaining safety and legal compliance.

Conclusion

Navigating the complexities of two-lot strata schemes can be a daunting task, given their unique legal and administrative challenges. Understanding the nuances of reporting requirements, annual general meetings, financial management, and insurance nuances is crucial for owners to ensure compliance and optimal management of their properties. While this article provides a comprehensive overview, the intricacies of strata law often require personalised legal advice.

If you’re seeking expert guidance or have specific concerns regarding your two-lot strata scheme, PBL Law Group is here to assist. With our specialised knowledge in strata law and a commitment to providing tailored solutions, we can help you navigate these challenges with confidence. Don’t hesitate to reach out to us for a consultation to ensure your property is managed effectively and in accordance with the law. Contact us today to secure your investment and peace of mind in your strata scheme.