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Posted 01 April 2015
Category: Strata and Community Title Developments
Despite legislative restrictions on developers retaining control of new apartment buildings, developers can continue to control buildings after completion.
Some strategies for retaining control are:
It remains to be seen whether the government will change the law as part of the recent strata law reform review to curtail the ability of developers and others to control owners corporations such as by prohibiting proxy farming.
Once the above strategies are put in place, there is not much individual lot owners can do through the owners corporation to obtain control away from the developer. However, the developer needs to be aware that its ongoing control in part rests on contracts existing between the owners corporation and the strata manager, and between the owners corporation and the building manager.
Under these contracts, the strata manager and the building manager owe contractual duties to perform the services set out in the contracts. In addition, the strata manager owes fiduciary duties to the owners corporation and has statutory obligations under the Property Stock & Business Agents Act 2002.
The strata manager’s fiduciary, contractual and statutory duties will over-ride the developer’s control over the agent. For example, a strata manager may have a contractual, fiduciary or statutory duty to advise an owners corporation about building defects. If the strata manager tries to protect a developer’s interest by providing mis-information, then the strata manager may be liable for misleading and deceptive conduct and conflict of interest.
Executive committee members also owe fiduciary duties to their owners corporation. Committee members nominated by a developer have no duty to the developer however they have fiduciary duties to the owners corporation.
The failure of the strata manager, the building manager and the executive committee to perform their legal duties may be grounds for making an application for a compulsory strata manager under section 162 of the Strata Schemes Management Act 1996 because the owners corporation’s management is dysfunctional or the owners corporation is failing to perform its duty to repair and maintain common property.
Upon appointment of the section 162 strata manager, the appointment of the developer-related strata manager is terminated and the section 162 strata manager can make decisions without the need to obtain general meeting special resolutions.
For more information on section 162 strata managers, please see “Democracy Rules, OK? Well, Not Quite: Strata Managers and Section 162 Appointments”.
***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.