CAN A SCHEME CURRENTLY UNDER COMPULSORY APPOINTMENT BE CONSIDERED DYSFUNCTIONAL?

Most are well aware that the Tribunal has the power pursuant to section 237 of the Strata Schemes Management Act 2015 to appoint a strata managing agent to exercise the functions of the owners corporation in circumstances where the scheme is dysfunctional, often referred to as a compulsory appointment.

An issue arises where certain owners in a scheme, prior to the expiration of the term of compulsory appointment apply to NCAT for new orders under s237 on the basis that the owners remain unable to work together and are in effect, dysfunctional.

In a recent decision we appeared in, NCAT has made a ruling on whether an owners corporation can be considered dysfunctional and in need of further orders pursuant to section 237, while it remains under the previous compulsory appointment.

Facts of the Case

This is a large scheme within Sydney comprising 262 lots. Forty-One (41) owners joined the Applicant group, and seventy (70) owners joined the Respondent group opposing the further appointment.

Unsurprisingly, the Applicant lot owners and the Respondent lot owners had history on the various disputes arising over the years (including defect proceedings in the Supreme Court and in one instance police being called during an general meeting due to lack of civility between owners).

The Applicants lodged an application against the owners corporation with NCAT seeking another term of appointment by the existing strata manager under compulsory appointment before the previous term had expired. The Applicants submitted the owners were unable to work together and manage themselves.

The Applicants’ main arguments were that the owners corporation “was and will continue to be” highly dysfunctional and noting the extent of the challenges and defects facing the scheme, decisions would need to be made promptly which a group of owners as divided as this were incapable of dealing with.

The Respondents, represented by Madison Marcus sought to be joined as parties to the proceedings.

In opposition, we submitted on behalf of the Respondents:

1. S237(3)(a) is written in the present tense. It requires an assessment of the performance of the current management of the scheme, which is usually running well under compulsory appointment;
2. The Applicants were relying on evidence of dysfunction used 18 months ago when the initial orders were made. The same evidence cannot be relied on again in fresh proceedings;
3. There is a 2-year limit on compulsory appointments under s237(7) with the intention that every 2 years an owners corporation be given the opportunity to govern itself. Without the opportunity to govern itself, there is no way of knowing whether the scheme is dysfunctional or not;
4. The only exception where fresh evidence of dysfunction may be adduced during a compulsory appointment is of the general meeting which is required to be held 2 weeks prior to the expiry (s237(6)). If the owners on this occasion is unable to pass the necessary motions, then that may be validation of dysfunction. In this case no such meeting had yet been called; and
5. The newly appointed strata committee would not be left to rely on its own resources to manage, it could appoint a new strata manager to assist it appointed by owners to assist it with the day to day tasks.

The Tribunal’s decision

The Tribunal ultimately rejected the Applicants’ submissions in favour of the Respondents’, confirming for all future proceedings that it is very difficult for the to deem an owners corporation dysfunctional without first granting it the opportunity to manage itself.

Any evidence of dysfunction presented by the Applicants had already been considered by the Tribunal. Any new evidence provided by both parties confirmed that the scheme was satisfying its statutory obligations. 

The Tribunal held at paragraphs 56 and 67:

“There is insufficient evidence to satisfy me that the owners corporation would not be capable of dealing with the scheme’s complex issues when it returns to self-management, particularly as it will have the ability to obtain guidance and assistance from a voluntary strata manager.

It may well be that once the scheme re-enters self-management, it will struggle to manage its challenges satisfactorily. However, the owners have not had an opportunity to self-govern for over 18 months, and it is not yet known whether, or the extent to which, they will successfully manage the scheme when Bright & Duggan’s tenure ends. If problems occur there may well be grounds for a fresh application under s 237(1) but the owners should be given an opportunity to self-govern again before any such application is made. A possibility of future problems is not a sufficient reason to appoint a compulsory strata manager.”

The final sentence being the guiding principle for future proceedings of similar circumstances.

Final Comments

May this case be a guiding light for any owner currently living in a building under s237 orders, there is a light at the end of the tunnel, and you will have the opportunity to manage yourselves.

For other owners fearing what will happen to their building and the various challenges associated with self-governing, our only comment is to wait. Allow your scheme the opportunity to iron-out the challenges, and if and when that fails we can discuss options of new s237 applications being made.

Feel free to contact us to discuss this matter in more detail and the numerous other s237 applications we have been involved in recently.