New strata rules set to have big impact: Peter Chittenden

The past few weeks have been hectic for real estate with headlines about a possible shift in market sentiment as the major banks all increased their home loan rates and we also saw a drop in auction clearance rates below 65%.

And so somewhat lost among all of these headlines is the news about the passage into law of the long-awaited review of Strata Title Legislation in NSW.

The Strata Scheme Management Bill and Strata Scheme Development Bill have both passed the Legislative Council. The two bills contain more than 90 changes to how strata agreements are governed.

Long after the other headlines start to fade these changes are going to impact the market for many decades.

I think that the correctly described as a ‘once-in-a-generation reform’ to the state’s strata title laws after much debate will come into force from July 2016. The Minister for Innovation and Better Regulation (interesting title) Victor Dominello who has been responsible for the bills, said that the laws are an important step forward for the state.

He noted that more than two million people live and work in strata and that the new laws will cater for the needs of 21st century strata living.

“The new laws will modernise collective decision making processes, increase protections against unresolved building defects and improve out-dated regulation impacting on renovations,” he said.

The key changes have received a deal of publicity and have also attracted a lot of emotional comment but I think the case and need to renew many older buildings has been fairly established.

Across Sydney there are pockets of development from the 1960’s and 1970’s that fall a long way behind modern standards and amenity. If we fail to make it possible to redevelop these buildings then this paralysis can have a detrimental impact on urban standards and possibly create disadvantaged areas, where values fall and we see a cycle of neglected investment. In a dynamic city this sort of urban renewal is vital to the city’s livability.

Now of the nearly 100 changes in the updated legislation, most notable is the requirement that only 75% of owners will need to agree for an apartment building to be sold.

One of the other key points addressed is a move making it easier for owners to complete cosmetic and minor renovations to their apartments, again this is important to keep apartments modern and with the services and facilities that owners require without being consumed by over regulation and far too much red-tape.

The changes will also prevent proxy farming, and while the extent of proxy farming is hard to measure, it can often be used to set up long-term appointments and policies in a building that do not always work for the owners. This change should be a welcome move.

Then we see another key change, which has also attracted a great deal of industry comment, which will see the introduction of a defects bond to fix building defects early in new developments. In the past we have seen some poor quality buildings leaving the owners corporation with a major headache and on some counts big repair bills that sometimes came on top of big legal bills because of a disagreement with a developer or their insurance company.

The new bill has a requirement of developers to lodge a bond of 2% of the contracted price of the building as a form of security to fix any defective work.

Here again the changes should be welcome and should not be seen as a threat among well-regarded developers. The suggestion that the introduction of these bonds might further inflate prices is a bit of a bluff as experienced developers have to their credit always understood the importance of delivering quality buildings, and most already do so.

The new provisions have also taken on some house-keeping issues to tackle that can have an annoying or even detrimental impact on people’s daily lives. These include the addressing of the perennial issues of (illegal) parking, pets and smoke drift.

According to The Minister the over-riding objective has been to modernise our strata laws to better reflect the way people live and work in 2015 and beyond, and as everyone is aware the numbers of people living in strata developments is now massive and growing.

In some parts of Sydney in areas like Rhodes, Chatswood, the CBD, Zetland and Pyrmont, plus many other spots, the concentrate of apartments and the density of population really dictates that the rules need to be keeping up with the pace of modern development, and to date they have not.

It is more than 20 years since the last major amendments to strata law were made and over those two decades we have seen how and where many people live change dramatically. Today’s strata landscape is also much more varied than a three-level walk up building and now includes city high rises, sometimes very large scale buildings, townhouses, dual occupancies, offices, retirement villages, mixed use and tourism.

According to published figures there are currently over two million people, including 25% of Greater Sydney’s population, living or working in more than 75,000 strata schemes across NSW.

But what is a very interesting figure is the prediction that by 2040, half of all Sydneysiders will be living or working in strata and that single static alone underlines the urgency and importance of the current review. The new Strata Scheme Management Bill and Strata Scheme Development Bill follows a comprehensive community consultation, with over 3,000 individual submissions received.

With the bill soon to become law it’s a good idea to take a keen interest as the development industry and buyers are all going to be impacted for many years to come but I think the laws do go a long way to creating a better outcome for strata buyers and developers and their passage ends a long drawn out process.

Peter Chittenden is managing director for residential of Colliers International. He can be contacted here.