Understanding the Initial Period of a NSW Strata Scheme: A Guide for Developers & Owners Corporations

Introduction

The initial period of a strata scheme in New South Wales is a critical stage that shapes the foundation for how the scheme will be managed and maintained. During this time, unique rules and obligations apply to both developers and owners corporations, directly influencing the future of the strata community.

Understanding the responsibilities, restrictions, and legal requirements of the initial period is essential for anyone involved in a new strata scheme. This guide provides clear and practical information to help developers and owners corporations navigate their roles and ensure compliance with NSW strata laws.

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What Is the Initial Period in a NSW Strata Scheme

Commencement & Duration of the Strata Initial Period

The initial period of a NSW strata scheme begins on the day the strata plan is officially registered with NSW Land Registry Services. This registration formally constitutes the owners corporation and converts the developer’s land into individual lots and common property.

This critical phase has a defined start and end point. According to Section 4 of the Strata Schemes Management Act 2015 (NSW), the initial period concludes only when the developer, also known as the original owner, sells enough lots to other parties.

The end of the initial period is determined as follows:

• It ends on the day that the sum of unit entitlements for lots owned by parties other than the developer is at least one-third of the aggregate unit entitlement for the entire strata scheme.
• This means the period can last for several months or even years, depending on how long the developer retains ownership of more than two-thirds of the unit entitlements.

The Developer’s Unique Role as the Original Owner

During the initial period, the developer holds a special and powerful position within the new strata scheme. As the original owner of all, or a majority of, the lots, the developer effectively constitutes and controls the owners corporation.

This allows them to make decisions that can have a lasting impact on the strata community. The significance of this level of control is highlighted in the case of Bondlake Pty Ltd v the Owners – Strata Plan No 60285 [2005] NSWCA 35, where the court noted that legislation imposes restrictions during this time to protect future lot owners from potentially burdensome dealings undertaken by a developer before the owners corporation comes under the control of those new owners.

Key Developer Obligations During the Strata Initial Period

Managerial & Administrative Duties for Your Strata Scheme

During the initial period, the developer is required to exercise and perform the functions of the chairperson, secretary, and treasurer for the owners corporation. This responsibility continues until these roles are officially filled, which typically occurs after the first annual general meeting. While these duties can be delegated to an agent in writing, the ultimate responsibility remains with the developer.

A crucial administrative task is to maintain and update the strata roll. The developer must ensure the details of their company nominee, including name and contact information, are correctly noted. This is important because a corporation’s voting rights can only be exercised by the company nominee listed on the strata roll.

The developer must also convene an inaugural general meeting after the strata plan is registered to achieve the following objectives:

• Appoint a strata managing agent
• Determine levies
• Confirm insurance coverage

Financial Responsibilities for Your Strata Scheme

The developer must secure all necessary strata insurance cover for the strata scheme as soon as the plan is registered. Construction policies often lapse once an occupation certificate is issued, making it vital to arrange for appropriate strata insurance to cover the new owners corporation.

Furthermore, the developer is responsible for determining the initial estimates and levies for the administrative and capital works funds. These levies must be adequate to meet the actual and expected expenditures of the strata scheme. Under Section 89 of the Strata Schemes Management Act 2015 (NSW), if the levies set by the developer prove to be insufficient, the developer can be held liable for the shortfall and may be ordered by the Tribunal to pay compensation to the owners corporation.

Document Handover Requirements for the First AGM

As stipulated by Section 16 of the Strata Schemes Management Act 2015 (NSW), the developer must deliver a comprehensive set of documents to the owners corporation no later than 48 hours before the first annual general meeting. This ensures a smooth transition of control and provides the new owners with all necessary information for managing the strata scheme.

The essential documents that must be handed over include:

• All plans, specifications, occupation certificates, and other certificates related to the parcel or any building on it
• Planning approvals, “as built” drawings, compliance certificates, and fire safety certificates
• The certificate of title for the common property, the strata roll, and all notices and records relating to the strata scheme
• The initial maintenance schedule and any building inspection reports prepared under Part 11 of the Act
• Any valuation of the building, along with maintenance and service manuals
• Copies of all service agreements for utilities and building contracts, including any variations

Restrictions on the Owners Corporation & Developer

Limitations Under the Strata Schemes Management Act

Under Section 26 of the Strata Schemes Management Act 2015 (NSW), the owners corporation is prohibited from taking certain actions during the initial period unless authorised by the NSW Civil and Administrative Tribunal (NCAT). These restrictions are intended to protect future lot owners from long-term commitments made by the developer and to prevent decisions that could unfairly burden the strata scheme before new owners can take control.

The restrictions include:

• Altering common property: This prevents the developer from making changes, such as removing features or erecting new structures, that are not part of a strata development contract.
• Incurring excessive debt: The owners corporation cannot incur a debt that is greater than the amount available in its administrative or capital works funds.
• Appointing long-term agents: Any appointment of a strata managing agent or building manager cannot extend beyond the first annual general meeting (AGM).
• Borrowing money: The owners corporation is not permitted to borrow money or provide securities during this time.

Additionally, Section 132A of the Strata Schemes Management Act 2015 (NSW) ensures that any utility agreements for services like electricity or gas expire at the conclusion of the first AGM. Section 140 also prohibits by-law changes that confer a right or impose an obligation on some, but not all, lot owners, thereby preventing the creation of unfair advantages.

Limitations Under the Strata Schemes Development Act

The Strata Schemes Development Act 2015 (NSW) introduces further restrictions on dealings involving common property during the initial period. These rules, primarily outlined in Section 36, aim to preserve the common property for the benefit of all future owners in the strata scheme.

The owners corporation is generally prevented from executing dealings that dispose of or alter common property, including:

• Registering a strata plan of subdivision that includes or creates common property.
• Converting individual lots into common property.
• Transferring, leasing, or creating an easement over common property.

However, these actions are permissible under specific circumstances. The restrictions do not apply if:

• The developer owns all lots in the strata scheme, or
• The owners corporation has obtained an order from NCAT authorising the dealing.

Reduced Voting Power for Developers in Strata Meetings

To safeguard the interests of other lot owners and prevent undue influence, a developer’s voting power is significantly reduced on certain motions. This measure applies when the developer’s total unit entitlement is 50% or more of the aggregate unit entitlement in the strata scheme.

In these cases, the value of the developer’s vote is reduced by two-thirds. This reduction applies to several key decisions, including:

• Building defects and rectification work.
• The appointment of a strata managing agent.
• The election of officers for the owners corporation or members of the strata committee.
• Any matter requiring a special resolution.

Consequences for Breaching Strata Initial Period Rules

Legal Remedies for Lot Owners & the Owners Corporation

If an owners corporation breaches its statutory duties while under the developer’s control, both individual lot owners and the owners corporation itself have legal recourse. Action can be taken against the developer for violations of the Strata Schemes Management Act 2015 (NSW), particularly concerning Sections 26 and 140.

The available remedies are specific to the type of breach:

• Breach of Section 26: When a developer causes the owners corporation to contravene restrictions, such as incurring excessive debt or improperly altering common property, lot owners can sue for damages to recover any loss they have suffered. If the breach involves incurring a debt, the owners corporation can recover associated costs like fines from the developer, but not the principal debt itself.
• Breach of Section 140: In situations where by-laws are improperly changed to benefit some owners over others, both the owners corporation and individual lot owners have the right to sue the developer for damages for any loss resulting from this breach of statutory duty.

Potential Defences Available to Developers

A developer facing claims for a breach of Section 26 or Section 140 of the Strata Schemes Management Act 2015 (NSW) is not without a defence. To avoid liability, the developer must successfully prove one of the following circumstances:

• They did not have knowledge of the contravention.
• They were not in a position to influence the conduct of the owners corporation in relation to the breach.
• They exercised due diligence in an attempt to prevent the contravention from occurring.

It is important to recognise that pursuing these specific remedies under the Act does not prevent the owners corporation or lot owners from seeking other available legal actions.

Penalties for Failing to Meet First AGM Obligations

Significant penalties were introduced in 2025 to hold developers accountable for their obligations related to the first annual general meeting (AGM). Developers can face substantial fines for failing to meet these critical requirements for the strata scheme.

A developer may be fined up to $11,000 for a breach, with an additional penalty of $220 for each day the offence continues. These penalties apply if the developer:

• Fails to hold the first AGM within two months after the initial period ends.
• Fails to provide the required set of documents and records to the owners corporation before the meeting.

The End of the Initial Period & The First AGM

How the End of the Strata Initial Period Is Triggered

The initial period of a NSW strata scheme concludes on a specific trigger related to the sale of lots. This critical phase does not have a fixed duration and can last for months or even years, depending on how quickly the developer sells the properties.

According to the Strata Schemes Management Act 2015 (NSW), the period officially ends on the day that the sum of unit entitlements for lots owned by parties other than the developer is at least one-third of the aggregate unit entitlement for the entire strata scheme. Once this threshold is met, the developer’s direct control over the owners corporation ceases.

Convening the First Annual General Meeting

Once the initial period ends, the developer has a legal obligation to arrange the first annual general meeting (AGM) for the new owners corporation. This meeting is a pivotal event, as it marks the formal transfer of control from the developer to the lot owners.

Under Section 14 of the Strata Schemes Management Act 2015 (NSW), the developer must hold this meeting within two months after the initial period has concluded. At the first AGM, the new owners have the opportunity to:

• Elect a strata committee
• Review budgets
• Make key decisions about the future management of their strata scheme

Conclusion

The initial period of a NSW strata scheme is a foundational phase governed by strict rules that define a developer’s obligations, from financial management to document handover, and imposes significant restrictions to protect future lot owners. Understanding these legal requirements is essential for ensuring a compliant and smooth transition of control to the new owners corporation at the first annual general meeting.

For tailored guidance on navigating the complexities of strata law, contact the owners corporation strata lawyers at PBL Law Group for transparent and actionable insights into your specific strata transactions. Our strata lawyers are equipped to assist with every aspect of strata management and compliance in NSW.

Frequently Asked Questions