Introduction

The effective management of strata schemes in New South Wales (NSW) is crucial for maintaining common property and ensuring the smooth operation of the community living environment. Typically, this responsibility falls to the owners corporation, which comprises all lot owners within the scheme.

However, situations can arise where an owners corporation fails to fulfil its duties adequately, leading to dysfunction within the scheme. In such circumstances, the Strata Schemes Management Act 2015 (NSW) provides a mechanism for the NSW Civil and Administrative Tribunal (NCAT) to appoint a compulsory strata managing agent, transferring some or all of the owners corporation’s functions to an external professional. This guide explains the concept of compulsory strata management, the grounds upon which such an appointment can be made, the application process, and the implications for owners corporations and lot owners.

Understanding compulsory strata management 

Compulsory strata management requires a professional strata management company or strata managing agent to oversee and take responsibility for a strata property’s administrative and operational aspects. This framework:

• Partly or fully transfers the powers and functions of the owners corporation to the compulsory manager
• Ensures that the strata property is adequately maintained
• Protects owners’ interests by centralising decision-making and accountability

By entrusting these responsibilities to a compulsory manager, the scheme benefits from consistent oversight and specialist expertise.

Functions of a strata managing agent

As per Section 237(3) of the Strata Schemes Management Act 2015 (NSW) the NCAT can empower the compulsory strata managing agent to exercise:

• all or some specified functions of the owners corporation;
• all or some specified functions of the chairperson, secretary, treasurer, or strata committee of the owners corporation; or
• all functions other than the specified functions of the owners corporation, or its members mentioned above.

Therefore, the powers and functions of an appointed strata manager depends upon NCAT’s order and varies from case to case.

Appointment of a compulsory strata manager

Who can apply for appointment of a compulsory strata manager?

Under Section 237(8) of the Strata Schemes Management Act 2015 (NSW), the following parties may apply to NCAT for the appointment of a compulsory strata manager:

• A person subject to a non-complied order under the Strata Schemes Management Act 2015 (NSW) imposing a duty on the owners corporation, its officer, or the strata committee
• Any individual with an estate or interest in a lot, or a leaseholder of a lot in the strata scheme
• An authority holding a positive covenant that imposes a duty on the owners corporation
• A person to whom the owners corporation owes money under a court order

When can NCAT appoint a compulsory strata manager?

Under the Strata Schemes Management Act 2015 (NSW), NCAT exercises its discretion to appoint a compulsory strata manager only after confirming at least one of the following scenarios:

• Unsatisfactory management: the current strata management is not functioning or not functioning satisfactorily
• Non-compliance: the owners corporation has failed to comply with a court or tribunal order
• Neglected duties: the owners corporation has failed to perform its statutory duties
• Judgment debt: the owners corporation owes a judgment debt

The failure of an owners corporation to comply with NCAT orders also is a primary reason lot owners seek the appointment of a compulsory strata manager. PBL Law Group recently acted in a matter where, following consent orders for substantial rectification works, disputes arose over the owners corporation’s compliance. The owners corporation’s continued failure to properly implement the required works led our clients to file an application for a compulsory manager to take over the scheme’s functions and ensure the court-ordered repairs were finally completed as required.

When is a strata scheme “not functioning” or “not functioning satisfactorily”?

NCAT may appoint a compulsory manager if a strata scheme is not functioning or not functioning properly. Consequently, understanding these terms is essential.

Under strata legislation, “function” encompasses any power, authority, or duty of the strata management or owners corporation. When the managing body fails to exercise its powers or breaches its duties, the scheme is deemed not functioning or not functioning properly.

Although there is no exhaustive list, the following behaviours typically indicate a failure to function:

• Inability to pass resolutions due to lack of consensus, unnecessary internal disputes, or entrenched voting blocks
• Continued neglect of property with ongoing failure to maintain and repair common areas or vested private property
• Acrimonious relationships between management and lot owners
• Improper or unlawful decision-making, reflecting poor governance
• Frequent termination of strata managers, signalling instability and breakdown in management continuity

How easy is it to obtain an order for compulsory strata management?

Orders for compulsory strata management significantly curtail the powers of the owners corporation or strata management. As observed in Coote v Sharpe, Wentzel & Owners Corporation Strata Plan 55434, imposing a compulsory strata manager is a “draconian” measure that removes the established democratic process. During the compulsory appointment period, the manager:

• Operates and controls the strata scheme
• Effectively becomes the owners corporation

Therefore, these orders are not lightly granted.

However, any finding of dysfunction must be based on objective evidence. Applicants should supply relevant documentation, such as:

• Accounting records
• Witness statements
• Historical records of management issues
• Minutes of meetings
• Email correspondence

When has NCAT ordered for compulsory strata management?

Each application is adjudged based on its unique facts. Nonetheless, an analysis of recent NCAT decisions reveals a clear pattern in which Tribunal orders appointing a strata managing agent have been granted:

• Failure to maintain common property
  The owners corporation neglected essential repairs, engaged an engineer without a strata committee resolution, and retained unauthorised legal representation.
• Neglect of statutory obligations
  The corporation failed to hold the Annual General Meeting (AGM) and repeatedly ignored previous NCAT orders.
• Financial mismanagement and poor governance
  Evidence showed mismanagement of funds, poorly run meetings, and a lack of transparency that kept owners out of the loop.
• Unlawful exclusive use by by-law
  An owners corporation granted a lot owner exclusive use of common property without proper authority.
• Denial of lot owner access and delays in repairs
  The corporation refused a lot owner’s entry to their lot, stalled consent for common property repairs, delayed a requested letterbox installation, and neglected urgent sewerage tank issues.

When has NCAT has not ordered for compulsory strata management?

Orders for compulsory strata management are not passed lightly. NCAT has, on several occasions, decided against imposing such measures. These situations include:

• Disagreement over strata manager remuneration: A minority of lot owners opposed the remuneration decision but could not prove it was improper, unjustified or unlawful.
• Meeting irregularities resolved pre-hearing: Although meetings were not initially organised or conducted properly, the issues were corrected before the hearing.
• Inactive exploration of alternatives: The owners corporation resolved to explore alternatives to the management agreement but did not act on it. Since the majority were content with the existing arrangement, no dysfunction was established.
• Unauthorised visitor-parking bollards: The strata manager installed bollards without authorisation. This issue was capable of informal resolution, eliminating the need for compulsory management.

Conclusion

Compulsory strata management offers a significant remedy for dysfunctional strata schemes in NSW, ensuring properties are maintained and owners’ interests protected when the owners corporation fails in its duties. Understanding the grounds for seeking such an appointment and the NCAT process is crucial, as it’s considered a drastic measure that overrides the usual democratic management structure.

Given the stringent requirements for proving dysfunction and the legal complexities involved, navigating an application for compulsory management requires careful preparation and robust evidence. Seeking advice from specialist NSW strata title lawyers is essential to assess the viability of your case and effectively present it to NCAT. Contact PBL Law Group today for expert guidance on compulsory strata management and other strata disputes.