Submission: Strata and community title law reform

This submission does not address every issue raised in the NSW Fair Trading ‘Strata and community title law reform’ discussion paper. Instead, it is focused on:

1. strata government – including by-laws, tenant participation, pets, smoking, and clothes drying
2. urban renewal – specifically, the housing implications of terminations of strata schemes
3. common property – including repairs, alterations and safety
4. overcrowding
5. consequences of unpaid levies

Throughout the submission we refer to the Strata Schemes Management Act 1996 (NSW) as ‘the SSM Act’; we state no preference as to the title it might be given, or whether it should be amalgamated with other pieces of strata and community title legislation, as a consequence of the present review. We also refer to the Residential Tenancies Act 2010 (NSW) (‘the RT Act’). Page references relate to the discussion paper.

1. Strata government

In both the discussion paper and in general discourse, strata schemes are referred to as the ‘fourth tier of government’. We think the description is apt, particularly because strata by-laws can have a significant effect on the way people conduct themselves and live their lives.

But if strata schemes are the fourth tier of government, they are oligarchies – or, to be precise, plutocracies. Only property-owners have a say in this tier of government. Tenants, who comprise half the population of strata schemes and who are subject to strata scheme by-laws, have no say in the making of those by-laws or their enforcement. This offends the usual democratic principle that the subjects of government should be able to participate in their government.

This is not merely a problem in terms of abstract political theory; it is a practical problem. One of the basic claims for democratic government is that it is more effective because persons participate in it. We believe that the substance of strata by-laws, and residents’ knowledge of, and voluntary compliance with, by-laws would be improved if all residents had the opportunity for participating in the government of strata schemes.

We acknowledge that some activities in strata government are properly the domain of owners only, such as decisions about managing funds, maintaining and improving the common property, and appointing agents and other contractors. And it should be said: we detect no great groundswell of enthusiasm amongst tenants for assuming responsibility for these activities – but we do submit that tenants may be a source of relevant information on these matters, and it may be to the advantage of owners corporations to hear them.

We also acknowledge that more democratic participation in strata government does not guarantee against by-laws that are unreasonably oppressive, inequitable or contrary to public policy. For this reason the SSM Act provides restrictions on the making of by-laws in certain respects; we submit that these restrictions should be maintained and enhanced. In particular, we submit that that there should be restrictions on by-laws relating to the keeping of animals, the drying of clothes on balconies, smoking, and discrimination.

We submit that the measures listed below would provide for a degree of participation by tenants in strata government that is appropriate – and even mutually advantageous – to the interests of tenants and owners, and guard against unreasonably oppressive, inequitable or unsound by-laws.

Restrictions on by-laws

We submit that the restrictions at s 49(1)-(3) of the SSM Act should be retained, and new restrictions introduced in relation to the following matters:

• The keeping of animals (p 54). We consider that by-laws prohibiting the keeping of animals, without regard to the circumstances of each case (for example, the type of animal; the size, location and facilities of the lot; the size and facilities of the strata scheme) unreasonably interfere with the freedom of responsible adults to decide whether to have a companion animal, and deny many the pleasure and acknowledged health benefits of animal companionship. We submit that the narrow restriction currently at s 49(4) should be replaced with a broader restriction on by-laws that unreasonably restrict the keeping of animals. The broader restriction should be to the effect that:
  • by-laws may restrict the keeping of animals, provided that the by-laws also provide that the owners corporation may consent to the keeping an animal, and that the owners corporation must not unreasonably withhold or refuse its consent; and
  • in any event, no by-law can restrict or prohibit the keeping of an assistance animal (including, but not limited to, a guide dog or hearing dog).
• Smoking (p 55). We understand that tobacco smoke damages the health of smokers and those who inhale it second-hand, and that the odour of smoke and the sight cigarette-butt litter in common areas and public places is unpleasant. However, it is our view that as long as smoking remains a legal activity, by-laws that prohibit smoking inside a lot unreasonably interfere with persons’ private engagement in a legal activity. We submit that any question of damage or nuisance from a person’s smoking within a lot should be dealt with under a generally stated by-law against nuisance, or under the law of tort. We submit that the SSM Act should provide that by-laws may restrict smoking on common property, and in other respects may restrict smoking only to the extent that it causes damage or nuisance.
• The drying of clothes (p 56). Because of the general public interest in energy conservation, it is sound public policy to allow the passive drying of clothes on clotheslines and racks on balconies. We submit that that the SSM Act should provide that no by-law may restrict the drying of clothes on balconies.
• Discrimination against tenants. We submit that the SSM Act should provide that no by-law may discriminate between owners and tenants as classes of occupier.

Participation by tenants in activities of the owners corporation

The SSM Act should allow tenants to participate in the activities of the owners corporation as they relate to what we call ‘conduct by-laws’, as discussed below. In other respects, the SSM Act should allow tenants to observe and, with the permission of the Chairperson, speak at meetings of the owners corporation (pp 12-13).

‘Conduct by-laws’

We submit that the SSM Act should make specific provisions for by-laws that relate to the conduct of persons within a strata scheme – to be known as ‘conduct by-laws’. The provisions specific to conduct by-laws should be as follows:

• Conduct by-laws include, but are not limited to, by-laws relating to:
  • the keeping of animals;
  • smoking;
  • the playing of music and causing of noise;
  • the use of common property and facilities.
• Any lawful occupier of a strata scheme may move the adoption, amendment or repeal of a conduct by-law by the owners corporation.
• When a motion relating to a conduct by-law is before a meeting of the owners corporation, any lawful occupier is entitled to speak to the motion, and to vote on it.  

Documentation of by-laws

The discussion paper makes a number of suggestions about the documentation of by-laws (pp 9-10). We support requiring owners corporations to maintain an up-to-date, consolidated document of by-laws currently in effect, which must be provided to all occupiers when they commence occupying, and upon request. We submit that the current requirement that amendments to by-laws be registered with Landlord and Property Information should be maintained – and to facilitate compliance, the current registration fee should be dropped.

Enforcement of by-laws

The discussion paper states that under the current provisions for penalty orders for breach of by-laws, less than three applications for a penalty order are received each week – and that there would be many more instances of breach of by-laws than that. The discussion paper suggests that the low numbers of applications may be because of a lack of knowledge and understanding of the enforcement process. We suggest, on the other hand, that the low number may also be the result of alternative dispute resolution, or even just tolerance. We therefore caution against assuming that the low number of applications is a problem.

We oppose the suggestion to allow owners corporations to impose fines (p 52). If such a change were to be made, we submit that it must be accompanied by changes providing for ‘conduct by-laws’, as submitted above, and for all lawful occupiers to be entitled to be heard and to vote on the decision to issue a fine for contravention of a conduct by-law.

We oppose the suggestion to encourage or require owners corporations to appoint a ‘compliance officer’ (p 52). The appointment of such an officer may discourage other occupiers from seeing compliance as their business and from responding informally – and possibly more effectively – to problems as they arise. It might also encourage occupiers to report treat every perceived breach, however slight, as a matter for the compliance officer and for formal enforcement proceedings.  

2. Urban renewal

The discussion paper suggests that changes to the law regarding the termination of strata schemes are necessary to facilitate urban renewal (pp 22-27). In particular, the discussion paper suggests that strata schemes should be able to be terminated without the unanimous consent of all the owners in a scheme – that is, by a majority only (the paper presents various alternative thresholds). The discussion paper also presents alternatives for the termination process itself: either a ‘collective sale’ process, or a process of making a ‘renewal plan’ under which the existing owners corporation participates in the redevelopment.

We submit that before any question of thresholds and termination processes can be considered, some more basic questions need to be considered first. We are concerned that facilitating the termination of strata schemes may have serious implications for persons individually and for housing policy – especially as the NSW State Government is also reviewing the planning system with a view to facilitating urban renewal. We submit that these implications should be considered by the NSW State Government outside the present review by NSW Fair Trading.

Notwithstanding potential problems with maintenance, older strata buildings represent important stocks of relatively affordable housing, both for owner-occupiers and for tenants, particularly in the inner and middle suburbs of Sydney. We are concerned that facilitating the termination of such strata schemes, without the State Government also committing to a stronger affordable housing policy and additional investment in social housing, may result in thousands of households losing relatively affordable and – in the case of owner-occupiers – secure housing.

We have identified two groups of people who we believe would be particularly vulnerable to adverse effects from the changes suggested in the discussion paper.

The first are older, lower-income owner-occupiers. From our analysis of data from the 2011 Census, we calculate that there are about 29,000 older, lower-income owner-occupiers[1] living in strata schemes in the inner and middle rings of Sydney[2]. Of this group, two-thirds (66 per cent) have incomes of less than $600 per week.

These residents may have lived in their strata schemes for many years, and have deep links to the local area. They may also have no assets other than their strata unit and, if they were forced to sell their unit because of the termination of their scheme, they may not be able to afford to buy again in the same area. This is a real possibility, especially if the market for units in the scheme is limited (because the scheme is run-down, and there are insufficient funds for repairs, there may be few or no prospective purchasers other than developers).

In the event of the termination of their schemes, these older, lower-income owner-occupiers may be faced with choosing between buying again out of their area, or renting locally. Buying and moving may mean losing their social and cultural links and connections to local services, such as medical assistance. Renting would mean at least some time spent in the private rental market, which offers very little security of tenure. These persons could apply for social housing, but may be ineligible because of the income and/or assets criteria; even if eligible, waiting times for most types of social housing dwellings in the inner and middle rings of Sydney are between five and 10 years, or more than 10 years.[3]

For a group that has enjoyed low housing costs and high security, and expected to continue to do so in their old age, these may appear to be a very unsatisfactory set of housing options indeed.

The second group are older, lower-income private tenants. From the 2011 Census data, we calculate that there are about 14,000 older lower-income private tenants in strata schemes in the inner and middle rings of Sydney. Of this group, almost 5,000 live alone, and of these, about two thirds (66 per cent) have incomes of less than $600 per week.

Unlike owner-occupiers, these residents do not enjoy secure tenure, and the available Census data do not disclose the affordability of their housing. We acknowledge that the supply of rental accommodation in inner and middle Sydney would probably – eventually – be increased as a result of the redevelopment of older strata schemes. Nonetheless, we are concerned that when a strata scheme is terminated, these residents would face an unsatisfactory set of housing options like those faced by older, lower-income owner-occupiers. It is likely that they would not be able to rent affordably in the local area, whether during the redevelopment, or afterwards when the redevelopment of their particular scheme is complete – as the new premises will almost certainly rent for substantially more than those in the old scheme, and these renters have little prospect of increasing their incomes. They would therefore have to move away, or try to rent unaffordably locally while waiting for social housing.

These vulnerable groups of strata residents – and other residents who may be adversely affected by urban renewal – need more than legislated safeguards in a reformed strata scheme termination process. They need a better set of housing options – better than those presented by our current planning and social housing systems and tenancy laws. 

The planning system makes provision for the development of affordable rental housing, but its approach is mostly permissive and voluntary (per the Affordable Rental Housing SEPP, and some voluntary planning agreements); there is legislative provision for a mandatory approach (under s 94F of the Environmental Planning and Assessment Act 1979 (NSW)), but the State Government has restricted this approach very narrowly to only a handful of sites in Sydney. The whole of the planning system is now under review by the State Government; it has flagged that there will be a high-level ‘Housing Supply and Affordability Planning Policy’, but there is no indication yet that it will strengthen the mandatory provision of affordable housing – or even its permissive, voluntary provision.

The social housing system is stuck in a state of no net growth, and has been for more than a decade. Given that the population is growing, no net growth means the social housing system is declining relatively. As indicated by the waiting times cited above, the social housing system is no longer directed to serving people who simply need affordable housing: in most cases, an applicant must experience a crisis before they are served.  Most social housing allocations (70 per cent) are now made on a priority basis, rather than a wait-turn basis (30 per cent); five years ago, those proportions were reversed.[4]

Our tenancy laws enshrine insecurity by failing to give even the modest assurance that a tenancy may be terminated on reasonable grounds only. Landlords continue to be allowed to give termination notices without grounds and, under provisions that commenced with the new RT Act, there is now no discretion for the Consumer, Trader and Tenancy Tribunal to decline to order termination on the basis of a no-grounds notice. This is an injustice to the tenant receiving the notice, and makes tenants as a class needlessly insecure in their homes.

The urban renewal contemplated by the discussion paper may expose thousands of people to these flaws in our housing system, and place the flawed system under further stress. We submit that the NSW State Government should review the housing implications of proposals to facilitate urban renewal, including those relating to strata scheme terminations, with input from all interested State Government agencies, non-government organisations and members of the public, with the objective that all persons who are unhoused by urban renewal should have access to affordable, secure alternative housing in the location of their choice.

3. Common property

Repairs

The discussion paper states that the most common enquiry made of Land and Property Information and NSW Fair Trading by strata residents is about distinguishing common property from the property of an individual lot and hence who is responsible for repairs. We can add: this type of enquiry is also very commonly made of TAASs by tenants in strata schemes.

Under their residential tenancy agreements, tenants have rights to premises that are fit for habitation and provided and maintained in a reasonable state of repair. In relation to repairs and maintenance, s 63(1) of the RT Act provides:

(1)  A landlord must provide and maintain the residential premises in a reasonable state of repair, having regard to the age of, rent payable for and prospective life of the premises.

Where the need arises for repairs to common property, the appropriate course of action for a tenant is deal with their landlord, per the contract, rather than directly with the owners corporation – with which the tenant has no contractual relationship – and for the landlord to deal with the owners corporation to get the repairs done. There should be no question of a tenant being denied their contractual right to repairs because of the owners corporation fails or refuses to do repairs to common property. In practice, however, this happens all too often.

We submit, therefore, that the law should provide a clear and strong obligation on owners corporations to properly repair and maintain common property – at least as strong as the obligation on landlords – and a process for occupiers to effect repairs to common property in a timely manner where the owners corporation fails to do so.

In particular, we submit that the obligation under section 62(1) of the SSM Act is appropriate. We further submit that it would be made more effective if the SSM Act also included provisions, along the lines of the urgent repairs provisions at ss 64-65 of the RT Act, that allowed individual occupiers (or, alternatively, individual owners) to effect repairs where the owners corporation has been notified of the need for repairs and failed to do them in a reasonable time.

The discussion paper suggests changing the owners corporation’s obligation to introduce an element of ‘reasonableness’ (p 29). This would reduce the standard of the obligation and we do not support such a change. In the event that the obligation is changed, we submit:

• as regards the safety and serviceability of common property, there should be no reduction in the current absolute standard; and
• in other regards, the ‘reasonableness’ of the state of repair of the premises should be considered with reference to the age of the building and the prospective life of the scheme only. In particular, we strongly oppose allowing as a consideration the availability of funds for repairs. To do so would encourage owners corporations to make inadequate provision for repairs and thereby set their own low standard of obligation, which would in turn justify making inadequate provision.

An obligation in the above terms might be expressed as follows:

The owners corporation must maintain the common property such that it is:

(a) safe and serviceable; and

(b) in reasonable repair, considering the age of the building and the prospective life of the scheme.

Alterations by owners

The discussion paper suggests that owners should be allowed to make alterations to common property adjoining their lot, provided certain conditions are met (pp 30-31).

As submitted above, we support allowing owners to make necessary repairs to common property under provisions like those under the RT Act relating to urgent repairs. We submit that these provisions could also accommodate alterations other than repairs.

We do not support, however, the suggestion in the discussion paper that an alteration to common property made by an owner should be the responsibility of that owner and their successors in title. This has the potential to greatly increase confusion and disputes about the respective obligations of owners and owners corporations, especially if alterations are not very precisely documented.

Safety

Strata schemes have a legal form (lots of airspace owned by individuals, surrounded by walls, windows, balconies and walkways owned by the owners corporation common) and a physical form (multi-storey buildings) that have distinct implications for safety. In particular, the incidence of children falling from windows in strata units is an urgent problem.

We strongly support the recommendations of the February 2011 report of the Children’s Hospital, Westmead (CHW) Working Party for the Prevention of Children Falling from Residential Buildings. In particular, we support the recommendation that the Act be amended to require owners corporations to have all common property openable windows fitted with safety devices (window guards, durable and sturdy mesh screens, locks, window opening limiters) or other permanently affixed devices on windows located above the ground floor (that is, where window sills are more than three metres above an external surface below) to allow occupants to limit openings to a maximum of 100 millimetres.

These safety devices, of course, are not a substitute for the proper monitoring of children, and there are other precautions that responsible parents can and should take to keep children safe from falls, such as the placement of furniture away from windows. Rather than being a substitute for responsible parenting, window-safety devices would be used by responsible parents to optimise their efforts to make their premises safe. The amendment proposed would ensure that all occupiers of strata units at risky heights – whether tenants or owner-occupiers – would have access to these devices; then it would be up to them to use them to make their premises optimally safe.

4. Overcrowding

The TU shares with other strata stakeholder concerns about overcrowding, particularly where premises are let in lodgings. Our concern is particularly for the lodgers in overcrowded premises, who are exploited by unscrupulous owners and head-tenants, and whose safety is at risk because of overcrowding.

We note, however, that overcrowding in lodgings in not confined to premises in strata schemes: there are many houses and flats on unsubdivided titles that are let in lodgings and overcrowded, and are similarly exploitative and unsafe.

We consider that preventing and responding to overcrowding in premises let in lodgings is properly a matter of public health, and as such is the responsibility of the local council – and not something about which each owners corporation should be allowed to make up its own mind.

The discussion paper notes that councils may prescribe maximum numbers of persons occupying as a condition of development consent (p 32). In addition, we note that under the Local Government (General) Regulation 2005 (Sch 2, cl 1), a council may determine the maximum number of occupants to be accommodated in each bedroom, or the whole premises, of a ‘place of shared accommodation’. When the new Boarding Houses Act 2012 (NSW) commences, ‘places of shared accommodation’ will include all ‘registrable boarding houses’, being premises let in lodgings that provide beds for five or more residents (ss 4 and 5). Such premises may include premises in strata schemes. This means that an expansion of the role of local councils in relation to overcrowding in strata premises let in lodgings is already pending.

We do not support allowing owners corporations to prohibit short-term rental arrangements, either by by-law or by an order specific to a particular unit (p 32).

5. Consequences of unpaid levies

The discussion paper suggests making provision for the Tribunal to order a tenant to pay rent to the owners corporation, rather than their landlord, in satisfaction of debts arising from unpaid levies (p 10). We submit that such a change should be accompanied by an amendment to the RT Act prohibiting the landlord from giving a rent increase during the period of the Tribunal’s order. We are concerned that without such an accompanying amendment, affected landlords would increase rents so that their debts are paid off faster, at their tenants’ expense.

We strongly oppose the suggestion that owners corporations should be allowed to withdraw access to common facilities from a tenant while their landlord is in arrears of levies (p 9). This would punish the tenant for the landlord’s wrongdoing, without any direct consequences for the landlord. It may be that there would be an indirect effect, if the tenant terminated their tenancy and moved out, but this too would be at a cost to the tenant (that is, the financial and emotional cost of moving).

Footnotes

1. Defined as persons who live in owner-occupied (without a mortgage) flats and apartments, aged 60 years and over, receiving incomes of less than $60,000 pa.

2. As defined in Housing NSW’s Rent and Sales Report. Inner ring LGAs: Ashfield, Botany Bay, Lane Cove, Leichhardt, Marrickville, Mosman, North Sydney, Randwick, Sydney, Waverley, Woollahra. Middle ring LGAs: Auburn, Bankstown, Burwood, Canterbury, Canada Bay, Hunters Hill, Hurstville, Kogarah, Ku-ring-gai, Manly, Parramatta, Rockdale, Ryde, Strathfield, Willoughby.

3. Housing NSW Housing Pathways Expected Waiting Times Overview – June 2012, accessed 13 November 2012 at www.housingpathways.nsw.gov.au/How+to+Apply/Expected+Waiting+Times

4. Shelter NSW (2012) ‘NSW Housing Factsheet’, accessed 13 November 2012 at www.shelternsw.org.au/index.php?option=com_docman&task=doc_download&gid=227&Itemid=114