Strata schemes are a key part of New South Wales’ property sector. They define relationships between developers, Owners Corporations, and unit owners through specific regulations and obligations. The ‘initial period’ is a crucial phase in a new strata scheme.
This article explains the initial period’s significance for developers and strata property owners. We’ll explore its implications, duties, and restrictions, providing essential information for navigating strata dealings.
Whether you’re an experienced developer or a new strata property owner in NSW, this guide will clarify the complexities of the initial period.
The Initial Period of a Strata Scheme: Definition and Duration
The initial period begins when a strata plan is registered, creating the owners corporation and dividing the developer’s land into lots and common property. Initially, the developer owns all lots.
This period ends when the developer’s ownership drops below one-third of the scheme’s aggregate unit entitlement. If the developer keeps at least one-third of all lots, the initial period continues.
The length of the initial period varies. It can last months or years, depending on how quickly lots are sold and the developer’s retained ownership.
Developer and Owners Corporation Dynamics During the Initial Period
At the start of the initial period, the developer typically owns most or all lots in the strata scheme. This gives the developer significant control over the owners corporation, allowing them to make decisions that may have long-term effects.
To balance this influence, legislation restricts both the developer’s actions and the owners corporation’s activities during this time. These restrictions apply to the developer directly and indirectly through their control of the owners corporation.
The following sections will outline these specific restrictions, which are designed to protect the interests of future lot owners.
Developer Obligations During the Initial Period
During the initial period, developers in NSW must fulfil several key responsibilities:
- Maintain an updated strata roll, including company nominee details for voting purposes.
- Organise the first general meeting of the owners corporation after strata plan registration to appoint a strata managing agent, set levies, and confirm insurance.
- Perform chairperson, secretary, and treasurer duties until the first annual general meeting or until these roles are filled.
- Secure insurance, estimate costs, and set levies. Developers may be liable if levies are insufficient.
- Schedule the first AGM within two months after the initial period ends.
- Provide essential documentation to the owners corporation 48 hours before this meeting, including planning approvals, insurance policies, and building contracts.
Developers must provide these documents if they are in their possession, control, or reasonably obtainable.
Developer Permissions During the Initial Period in NSW
During a strata scheme’s initial phase, developers have specific rights under the Strata Scheme Development Act 2015 (NSW). They may:
- Register dealings related to common property
- Subdivide a lot or common property
- Convert one or more lots into common property
However, these actions are only permitted if:
- The developer owns all lots in the scheme and the owners corporation approves, or
- The NSW Civil and Administrative Tribunal (NCAT) authorises the action
These restrictions ensure a balance between developer flexibility and protection of future owners’ interests.
Owners Corporation Restrictions During the Initial Period
The Strata Schemes Management Act 2015 (NSW) imposes several restrictions on owners corporations during the initial period to protect future owners’ interests:
Section 26 Restrictions
The owners corporation cannot:
- Alter common property by removing essential features
- Incur debt exceeding available funds in administrative or capital works funds
- Appoint management or maintenance staff beyond the first annual general meeting
- Borrow money or offer securities
The Bondlake case illustrates these restrictions. An owners corporation breached Section 26 by entering a long-term caretaker agreement without sufficient funds, accumulating debt beyond available resources.
Section 132A Restrictions
Utility supply agreements made during the initial period must expire after the first annual general meeting.
Section 140 Restrictions
By-laws cannot be changed to confer rights or impose obligations on some, but not all, owners of lots during this period.
These restrictions effectively limit developer control over the owners corporation to ensure fairness for future owners.
Consequences of Initial Period Restrictions Breaches
When the owners corporation breaches restrictions under sections 26 and 140 of the Strata Schemes Management Act 2015 (NSW), remedies are available to lot owners and the subsequent owners corporation:
Section 26 Breaches
- Lot owners can claim damages for losses due to the contravention.
- For debt-related breaches, the owners corporation can recover from the developer any amounts incurred as a result (e.g., penalties), but not the actual debt.
Section 140 Breaches
- Both the owners corporation and individual lot owners can recover damages for losses.
Developer Defences
Developers can defend against alleged breaches by proving:
- Lack of awareness of the contravention
- Inability to influence the owners corporation’s conduct
- Due diligence in preventing the contravention
Pursuing these remedies doesn’t preclude other legal actions.
Initial Period Restrictions under the Strata Scheme Development Act 2015 (NSW)
During the initial period, the Strata Scheme Development Act 2015 (NSW) imposes restrictions on the owners corporation to balance developer influence:
- Common property dealings: The owners corporation cannot register these unless the developer owns all lots or NCAT authorises it.
- Lot subdivision or conversion: This is prohibited unless the developer owns all lots or obtains NCAT approval.
- Voting limitations: Section 15 of the Strata Schemes Management Act restricts the owners corporation’s voting on building defects and rectification.
- Developer voting power: If the developer’s unit entitlement is half or more of the total, their voting value is reduced by two-thirds for:
- Special resolutions
- Officer elections
- Strata managing agent appointments
- Certain motions where a poll is demanded
These measures protect individual lot owners from excessive developer influence.
Key Takeaways: The Initial Period in NSW Strata Schemes
Understanding the initial period is essential for all parties involved in NSW strata schemes. This guide has outlined:
- The definition and duration of the initial period
- Developer responsibilities and restrictions
- Owners corporation limitations
- Consequences of breaching initial period rules
These regulations aim to balance developer rights with lot owner protections. They ensure fair management during this critical phase of property development.
Both developers and strata property owners benefit from understanding these rules. They provide a framework for transparent and equitable strata transactions, safeguarding the interests of all parties involved.
For specific legal advice on strata matters, consult with an experienced strata lawyer.
