Australia: Developers of strata title schemes liable for inaccurate levy estimates in New South Wales

Amendments to the Strata Schemes Management Act will make it easier for the owners' corporation to claim compensation from an original owner, if levies and funds charged from lot owners are not adequately set.

The Strata Schemes Management Act Amendments will take effect 30 November 2016. These amendments will affect the many residents of New South Wales, currently living in a strata dwelling, all Owners Corporations and Strata Committees as well as developers and builders who plan on erecting a strata building.

New laws regarding levies
Currently there are two ongoing funds managed and maintained by the owners' corporations on behalf of all lot owners - the Administrative Fund and the Sinking Fund. Under the new legislation the "Sinking Fund" is to be renamed to the "Capital Works Fund".

Administrative Fund –The purpose of the Administrative Fund, as its name suggests, is to be used for the day-to-day administration of the strata scheme. Some examples of the Administration Fund expenditure are costs relating to cleaning, gardening and general maintenance.

Capital Works Fund (previously the Sinking Fund) –The purpose of the Capital Works Fund remains the same; namely to be used for large expenditure required for the repair and the upkeep of the building.

Each owner of a lot in the strata scheme will have a levy (usually due quarterly) which they must pay which will contribute towards the Capital Works Fund and the Administrative Fund.

Developer's duty to accurately estimate levies
If it is found that the levies, as prepared by the estimates given by the developer, during the Initial Period are insufficient to meet the expenditure of the owners' corporation, the developer may be found liable. The new amendments to the strata laws allow an owners' corporation to apply to the Tribunal for an order requiring the developer of the strata scheme to pay compensation to the owners corporation.

The Initial Period commences on the date the owners' corporation is established and ends on the date on which at least one-third of the units are owned by people other than the developer.

Owners' corporations will have 3 years from the last date of the Initial Period to make a claim in the Tribunal.

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