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Posted 02 November 2022
A common source of frustration for owners corporations trying to ensure good building management is the long-term building management agreement negotiated by the developer and inherited by the owners corporation. Frequently, this involved sale of building management rights, with little if any regard to the owners corporation’s needs and best interests.
Decided cases suggest that the NSW Civil & Administrative Tribunal may be able and willing to terminate such agreements in the right circumstances and that an owners corporation stuck with one should consider taking legal advice to assess whether that is an option for them.
The Owners — Strata Plan No 64807 and Sunaust Properties Pty Ltd were in dispute in relation to a caretaker agreement which had a 10 year term, with 3 x 5 year options to renew, i.e. a total term of 25 years. At the time the dispute came before NCAT, the agreement was in its final option term and due to expire on 15 March 2026.
The owners corporation applied to NCAT for various orders, including an order terminating the caretaker agreement under Section 72 of the Strata Schemes Management Act 2015. Section 72(1) gives NCAT discretion to terminate a building management agreement and Section 72(3) sets out six grounds on which NCAT may do so, three of which were relied on by the owners corporation in this case:
At first instance, the owners corporation was successful and NCAT held (apparently for the first time) that it should exercise its discretion to make an order terminating the agreement on the basis that it was harsh, oppressive, unconscionable or unreasonable. NCAT considered the meaning of “harsh, oppressive, unconscionable or unreasonable” and found that the relevant agreement met the criteria on various bases, including:
This was overturned by the appeal panel, but on jurisdictional grounds and the decision remains useful in demonstrating the sort of circumstances which may lead to an order for termination of a building management agreement, where the same jurisdictional problems do not apply. Key points:
NCAT considered an additional jurisdictional point relating to building management agreements in place on commencement of the SSMA on 30 November 2016. Essentially, NCAT held that caretaker agreements commencing on or after 30 November 2016 are vulnerable to a termination order under Section 72, regardless of whether the caretaker has exclusive possession of a lot. The building manager had advanced a technical argument that the effect of transitional provisions under the legislation and a change in the definition of building manager was that NCAT’s power to order termination of a prior agreement was limited to circumstances in which the building manager was not entitled to exclusive possession of a lot.
In the circumstances, there will be building management agreements which are vulnerable to challenge. If your owners corporation has been stuck with a building management agreement with which it is having problems, it would be worthwhile taking legal advice, as you may have options.
***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.