22 November 2023

Second Reading Speech

Mr ANOULACK CHANTHIVONG (Macquarie Fields—Minister for Better Regulation and Fair Trading, Minister for Industry and Trade, Minister for Innovation, Science and Technology, Minister for Building, and Minister for Corrections) (10:40): I move:

That this bill be now read a second time.

I am pleased to introduce the Strata Legislation Amendment Bill 2023. The bill implements 31 recommendations from the 2021 statutory review of the Strata Schemes Development Act 2015 and the Strata Schemes Management Act 2015. The bill delivers the first tranche of reforms to implement the review recommendations, providing immediate benefits to people who live in strata and community land schemes. The review, the first since the inception of the Acts in 2015, found that both Acts were generally working well. However, the review also found that the Acts could be improved, and made 139 reform recommendations. The review report was tabled by the former Government in November 2021, but unfortunately stakeholders have been waiting nearly two years for action.

Despite the clear need for reform and the fact that the review report was tabled in 2021, the former Government failed to implement almost all of the review's recommendations. That is simply not good enough. This Government has acted quickly to assess the recommendations and move forward with implementation. I will stress this point for the House: In its first 6½ months, this Government has done more work on strata reform than those opposite did in two years. The Government understands the need for action on reforms that will improve the governance, accountability and effectiveness of strata schemes.

The reforms proposed in the bill will improve the lives of residents living in strata and community land schemes. Why is that so important? There are more than 85,000 strata schemes in New South Wales. That is an increase of almost 9,000 schemes since the development Act and the management Act commenced in 2016. There are now also more than 968,000 strata lots, up more than 162,000 on the numbers in 2016. More and more New South Wales households are choosing to call strata-titled properties their home and we expect that trend to continue. Strata impacts not only residential owners but also commercial, retail and industrial owners and retirement villages. I am proud to say that strata as a form of title is a New South Wales invention dating back to 1961. Since then, we have exported this innovative form of ownership and housing tenure across the globe.

Before I turn to the detail of the bill, I will run through some key features of strata and community land schemes. As most people would understand, strata schemes are a form of community living, typically where an apartment building or a collection of townhouses has been divided into lots. Each person who buys a lot within the scheme owns the inside of the lot and shares ownership of the common property with all other owners. Common property includes roofs, driveways, external walls and gardens. Lot owners automatically become members of the owners' corporation, the legal entity comprising all lot owners. The owners' corporation is collectively responsible for the repair and maintenance of common property and for making key decisions affecting the scheme. To assist in decision-making, the owners' corporation elects representatives to a strata committee. Owners pay levies toward an administrative fund and a capital works fund for longer-term expenses. To assist in the running of their schemes, owners' corporations may also create rules, known as by-laws, that all people living in the scheme must follow.

In contrast, community land schemes, which are regulated separately under different but comparable legislation, involve subdivisions where a lot owner owns and maintains any buildings constructed on their lot. Lot owners share the use and maintenance costs of other facilities. Community land schemes range from rural subdivisions that can be used for sustainable eco-developments, with shared dams and communal farmland, to large residential communities with private roads and extensive recreational facilities such as swimming pools, marinas and golf courses. The Strata Schemes Development Act 2015 and the Strata Schemes Management Act 2015 work together to provide the regulatory framework for the creation, variation, termination and management of strata schemes in New South Wales. The Community Land Development Act 2021 and the Community Land Management Act 2021 do the same for community land schemes.

The bill amends all four Acts and ensures that community land scheme laws remain in step with strata laws. The bill introduces a mix of straightforward reforms to improve liveability and the overall governance and accountability of schemes. It also contains more pressing reforms. Those pressing reforms are much more complex and will empower owners to democratically decide on how best to manage, vary and terminate the strata scheme they share in a flexible and transparent manner. The Government has brought forward the strata reforms in the bill. The bill is just the beginning. The remaining reforms recommended by the review report will be included in a draft bill for consultation in 2024. They include reforms on embedded networks, sustainability infrastructure, repairs and maintenance and further improving the governance of strata schemes.

Following public consultation, the Government intends to bring a further bill to the Parliament to implement those remaining reforms. The Government will not rush those important reforms. They are complex and significant and we need to consult with residents, stakeholders and industry to get them right. The Government has also recently appointed Mr John Minns as the Strata and Property Services Commissioner. It is abundantly clear that the Government is committed to improving the outcomes for those who live and work in strata schemes. Further, the reforms in the bill will give everyone the confidence to live and invest in strata buildings as the Government moves to increase housing supply and improve the quality of the construction industry.

I now turn to the specific provisions of the Strata Legislation Amendment Bill 2023. As I have noted, the bill introduces some of the more urgent recommendations identified in the statutory review and realigns the current laws with the purposes for which they were originally enacted. To that end, schedule 1 to the bill amends the development Act to restore the balance and create flexibility in the strata renewal regime. Strata renewal was one of the most significant reforms introduced by the 2015 laws. That process allows for the collective sale or redevelopment of a strata building where there is less than unanimous support from owners. Through an intentionally rigorous, staged process, an owners' corporation can develop a plan for the collective sale or redevelopment of their scheme, which must be supported by the owners of at least 75 per cent of the strata lots. In this way, owners are empowered to make decisions about their scheme's future.

The regime's ultimate safeguard is the Land and Environment Court's oversight. Before a collective sale or redevelopment can proceed, the court must be satisfied that the renewal plan was developed in good faith, owners are being properly compensated and it is just and equitable in the circumstances that the scheme's renewal plan be approved. Those provisions were designed to recognise and protect the interests of all owners, particularly those who do not agree with the majority. A key concern was to ensure that vulnerable members of the strata community are protected from intimidation and that their objections and concerns are actually heard.

However, time has shown that not all dissenting owners are vulnerable. We are seeing examples where the collective will of the majority is to pursue the renewal of their scheme, but those owners are being held to ransom by rival developers who are manipulating the protections for their own commercial gain. Such conduct is highlighted by a well-publicised case at Macquarie Park in Sydney's north-west. There, the vast majority of strata owners wanted to pursue a collective sale proposal that had been progressed through a tender process. A rival developer, who had been an underbidder in that tender, bought the lots in the strata scheme and dissented to the renewal proposal.

Using the protective provisions in the existing law, this developer was able to disrupt the process and draw out legal proceedings. This resulted in the owners' corporation incurring substantial costs. However, under current law, those costs could not be passed on to the dissenting developer. The owners' corporation was ultimately forced to withdraw its application for the court to approve the strata renewal plan and the winning developer has abandoned its proposal to purchase the scheme. Today this scheme's proposal remains at a standstill while rival developers continue to hold units in the complex. Even though more than 75 per cent of owners want to pursue a collective sale, the future of the building is in limbo until the current safeguards are revised to prevent this kind of underhanded manipulation.

Unfortunately, this type of conduct is not uncommon. We are also seeing situations where competing developers are adopting a blocking position as dissenting owners, while privately negotiating with other owners in the face of a renewal proposal. Elsewhere, there are reports of dissenting owners who also own neighbouring property seeking to preserve that property's views by objecting to a redevelopment proposal. The strata renewal regime was intended to overcome barriers of the previous termination process, where a single owner could veto the decision of all others to sell or redevelop.

We must remember that while strata owners own their unit, they also own a share in the building and decisions about the building must be made collectively. However, we are now seeing the legislation that was intended to support the collective will of strata owners being used against them to thwart the decisions endorsed by the significant majority of owners about the future of their scheme. This is not what was intended by the 2015 reform. The bill addresses the shortcomings in the current regime with new disclosure requirements relating to conflicts of interest. It will close the loopholes that some developers have been able to use improperly.

Under current laws, only those owners involved in the strata renewal committee charged with developing a strata renewal plan must disclose conflicts of interest. A meeting of the owners' corporation then decides whether that committee member can still play a role in developing the renewal plan. It is now very clear that good faith and disclosure obligations should apply to all owners, not only those on the strata renewal committee. The bill will require all owners to disclose any direct or indirect pecuniary or other interest they have in a strata renewal proposal at key decision points throughout the process. I note that just because an owner has disclosed an interest does not mean they cannot have a say in the process. Their voice will still be heard, but the process is more transparent.

The changes in the bill mean the Land and Environment Court will now have to consider potential conflicts of interest for both strata renewal applications and objections to renewal proposals before making an order to approve a plan or endorse an objection. These new disclosures also support changes in the bill relating to costs of legal proceedings. Currently, there is a presumption in section 188 that the owners' corporation will pay the reasonable costs of a dissenting owner in strata renewal proceedings. However, as the Macquarie Park case highlights, the absence of a cost burden for dissenting owners is having the unintended consequence of protracting disputes.

The bill amends section 188 to make it abundantly clear that the court can award costs against dissenting owners acting unreasonably. In particular, where a dissenting owner has a conflict of interest that makes it inappropriate for the owners' corporation to pay their costs, the court must order the dissenting owner to pay their own costs and any levy contribution for a part of the costs of proceedings. The court can also award costs against a dissenting owner who has not acted in good faith. It is important to note that the bill does not remove the presumption that the owners' corporation pay a dissenting owner's costs of renewal proceedings. That critical protection is still in place. This amendment targets unjustified and frivolous actions, but it remains critical that owners can still raise objections and have their concerns heard.

The strata renewal process relies on balance. Strata owners need to have the means and flexibility to innovate and seize opportunities. At the same time, transparency is crucial to ensure owners have comprehensive and detailed information to make informed decisions, and the court has all information available when making orders endorsing a strata renewal plan. The bill restores that balance. The review also recommended reforms to the strata renewal process. To be effective, the strata renewal process needs to be fair and transparent, but it also needs to be workable. Since the regime began in 2016, only 21 schemes have notified the Registrar General of having reached the required 75 per cent owner approval of a renewal plan. Only one of those schemes has fully completed the renewal process and had its renewal plan approved by the Land and Environment Court. In part, this is because some schemes that start on the strata renewal journey ultimately reach unanimous support from owners.

With unanimous support, the Development Act provides a simpler administrative termination process. The Registrar General has seen a marked increase in administrative terminations since the strata renewal reforms commenced, averaging around 74 per year, more than double the number in the years immediately before the reform commenced. However, consultation feedback has attributed the low uptake of strata renewal to the complexities of the staged process. One barrier is the risk of a renewal plan inadvertently lapsing because of a minor discrepancy or procedural error. Owners' corporations and developers have been hesitant to embark on the renewal process because, currently, a renewal plan could lapse if the prescribed steps are not properly followed. Once a plan lapses, a scheme is blocked from pursuing the same or a substantially similar proposal for at least 12 months.

The bill gives the Land and Environment Court the power to approve a renewal plan even if there is a procedural irregularity in its development. This amendment will make the process more workable and encourage schemes to pursue renewal plans without the fear of inadvertent lapsing. However, flexibility will not come at the expense of the protective measures fundamental to the regime. Amendments to section 182 of the development Act give some leeway for the court to approve a plan where the process has not been followed strictly, but the court can only do so if it is satisfied that the procedural irregularity has not and will not cause substantial injustice.

More flexibility is created by amendments to section 166 of the development Act, which extends the period of operation for the strata renewal committee that is elected to develop a renewal plan for the strata building from 12 months to two years. This change is needed as it generally takes longer than 12 months to develop the comprehensive and detailed strata renewal plan necessary for owners to make an informed decision. This change mitigates the risk of a renewal committee being inadvertently dissolved if the owners' corporation does not pass the resolution to extend its operation in time.

The change also supports existing requirements for owners to be given comprehensive information about the proposal. Where the collective will of a significant majority of owners is to sell their strata scheme, it is critical that there is an appropriate mechanism to exercise that collective will. This is particularly important as strata buildings age and the costs of repair, maintenance and retrofitting continue to rise. The bill creates the flexibility needed to boost confidence in the strata renewal regime and encourage owners and developers to use the process as it was intended.

A further important reform in the bill relates to making it easier to keep pets and assistance animals in strata and community land schemes. It would come as no surprise to anyone here that pets provide a range of benefits to their owners. They provide love, affection and companionship. They improve the mental and physical wellbeing of their owners. They also help connect communities and promote opportunities for human interaction. Australia has one of the highest rates of pet ownership in the world. That is why the Government is committed to ensuring that residents living in strata and community land schemes do not miss out on the benefits of pet ownership just because they live in a unit or townhouse or another form of strata or community living.

The amendments proposed in the bill align closely with this Government's election commitment to make it easier to have pets in rentals. Currently, owners' corporations cannot make by-laws or decisions that prohibit the keeping of a pet on a lot, except where the keeping of the pet unreasonably interferes with another resident's use and enjoyment of their lot or the common property. The Strata Schemes Management Regulation 2016 sets out some circumstances of unreasonable interference. They include, for example, where the pet attacks another person or animal, or endangers the health of another resident. The bill extends these laws, and the benefits of pet ownership, to community land schemes. These changes will start in community land schemes once regulations have been developed, in consultation with stakeholders, to set out circumstances of unreasonable interference.

In addition, the bill will prohibit an owners' corporation or association from charging a resident a fee or bond for the keeping of a pet on the lot. It will also prohibit an owners' corporation or association from requiring residents to obtain insurance for an animal kept on the lot. This amendment responds to a number of cases where owners' corporations have imposed a high fee or bond on the keeping of a pet. For example, in one case a strata scheme charged residents hundreds of dollars in fees to consider an application to keep a pet or to allow visitors to bring a pet to their home.

Imposing fees, bonds or insurance requirements undermines the intent of the current laws and results in unjust outcomes for people who have pets. They are costly and may force a resident to give up their pet or pose a barrier to people buying a pet.

These costs are unreasonable and unnecessary. Owners already pay levies to finance the administration of their scheme and the cost of insurance for any damage to common or association property. Further, a scheme can already seek remedies if an owner damages common property. The bill will reduce the barriers and costs for people living in strata and community land schemes who want to have a pet. It will ensure that all strata and community land scheme residents do not miss out on the benefits of pet ownership. The bill also strengthens the protection for persons with assistance animals, which play an important role.

TEMPORARY SPEAKER (Mr Clayton Barr): It being 11.00 a.m., pursuant to standing and sessional orders, debate is interrupted for question time and the routine of business. I set down resumption of the debate as an order of the day for a later hour.