Understanding New South Wales’ modernised community title legislation

This piece of legislation brings community title legislation into alignment with strata legislation

The Community Land Management Act 2021 (Act) and the Community Land Management Regulation 2021 (Regulation) will be effective from 1 December 2021. This is a complete overhaul of community title legislation, which is aimed to better align with modernised strata legislation.The community title legislation affects four key areas:

Community title property
management

Committees and
meetings

By-laws, legal matters
and insurance

Fees and
finances

The community title legislation affects four key areas:

1. Community title property management
2. Committees and meetings
3. By-laws legal matters and insurance
4. Fees and finances

Community title property management

• An association has a duty to repair and maintain common property. The legislation provides for a member of the association to recover from the association, as damages for a breach of this statutory duty, any reasonable foreseeable loss suffered by the member as a result of a contravention of this duty
• The original owners of the scheme must prepare the initial maintenance schedule and hand it over to the association before the end of the “initial period”. The “initial period” expires when the original owner no longer owns at least one-third of the total units of entitlement
• A managing agent can only be appointed for a maximum of 12 months at the first annual general meeting (AGM) and a maximum of three years after that
• While the association committee can subsequently extend the length of the managing agent’s contract by up to three months if necessary, they cannot extend it beyond the date of the next AGM
• A managing agent contract appointed before 1 December 2021 will terminate three years after the term commenced (unless the terms of the agreement specify an earlier date) or six months after 1 December 2021, whichever is the later. “Roll-over”contracts will terminate on 1 May 2022
• A managing agent is not required to provide information on trust account transactions that took place more than five years ago
• Managing agents are not permitted to receive gifts, or other benefits, worth more than $60
• The legislation does not exclude the developer or those connected with the developer from being appointed as the managing agent during the first 10 years after the property’s plan is registered
• Facilities managers (previously called caretakers, building managers, resident managers and alike) must be appointed at a general meeting for a maximum of 10 years
• If the original owners implemented a facilities management agreement, this would expire at the end of the first general meeting unless disclosed in the association management statement
• A facilities manager appointed before 1 December 2021 will terminate 10 years after the term began unless the terms of the agreement specify an earlier date
• Managing agents and facilities managers must disclose any connection with the original owner or any direct or indirect financial interest in the scheme
• An association can acquire, dispose or otherwise deal with lots or personal property of the association
• Any electricity, gas and other utility agreements that were put in place after the association’s first AGM but before the commencement of this legislation will expire 10 years after the agreement commenced unless the terms of the agreement specify an earlier date
• Associations must consider a range of property rights and obligations before approving a “sustainability infrastructure resolution”
• A sustainability infrastructure resolution is a resolution to alter or erect or finance a new structure on association property for the specific purpose of enhancing sustainability and only requires approval by a simple majority vote at a general meeting
• Payments to or by an association only require a special resolution for approval rather than a unanimous resolution which was required under the previous legislation

Committees and meetings

• An association must hold their first AGM within two months of the “initial period” expiry. Due to a change in the definition of the initial period, some associations will have their initial period expire on 1 December 2021 with the commencement of the legislation
• An association that has its initial period expire between 1 December 2021 and 1 April 2022 will be able to hold its first AGM any time up to 1 June 2022 rather than being required to hold it within 2 months of the initial period expiry date
• Notice of the first AGM must be given at least 14 days before the date of the meeting
• Associations must hold an AGM once every financial year
• On each AGM agenda, the managing agent needs to provide a report detailing commissions they received in the last 12 months as well as an estimate of any commissions they expect to receive during the coming 12 months
• Each neighbourhood association AGM agenda must include an item to consider utility agreements
• If requested, lot owners must receive a copy of the association’s financial statements at least two days before the AGM
• Developers cannot vote on matters relating to building defects
• Facilities managers, onsite property managers and managing agents cannot exercise proxy votes that result in them gaining a financial interest or material benefit
• If a scheme has 20 lots or fewer, a person can only hold one proxy
• If a scheme has 21 development or neighbourhood lots or more, a person cannot hold proxies for more than 5% of the total number of lots
• If someone owns more than one development or neighbourhood lot within the scheme, they may appoint a single proxy for all of their lots
• A member of the association cannot exercise their voting rights if they were unfinancial at the date of the meeting notice and remained unfinancial at the time of the meeting
• A general meeting quorum is considered met if more than a quarter of association members, or a quarter of the total unit entitlement who are entitled to vote, are present in person or by proxy
• In small schemes where the one-quarter rule accounts for less than two people, a minimum of two members must be present for a quorum to be met
• If one-quarter of neighbourhood association owners who are entitled to vote agree that a motion or election vote should be carried out by secret ballot, this can go ahead
• Unfinancial owners cannot be appointed to the association committee
• An association or committee can pass a resolution to decide that a general or committee meeting will be held electronically. In these instances, voting can be completed via teleconference, video conference, email or other electronic means
• If a general meeting notice was issued before 1 December 2021, the decisions made at that meeting are deemed to be valid even if the meeting was held after 1 December 2021
• The association committee secretary must give each committee member and owner a committee meeting notice at least three days before each committee meeting
• Copies of committee meeting minutes must be given to each committee member within 14 days. If an owner requests the minutes, they must be provided within seven days
• If a committee member has a direct or indirect financial interest in any matter considered at the meeting, they must disclose this before the matter is discussed. The member in question cannot be present during the discussion and cannot vote on the matter unless the committee decides otherwise
• Any such disclosure must be recorded in writing in a disclosure book and should be available for inspection upon request
• Protection from liability is provided for committee members, who carry out their functions for the benefit of the association and with due care and diligence
• The quorum for an association committee meeting is considered met if half of the members entitled to vote are present
• Committee members who were unfinancial at the time the meeting notice was distributed and did not pay the amounts owed before the meeting are not entitled to vote and are not counted for the purposes of determining a quorum
• If more than 50% of a neighbourhood association’s lots are tenanted, the association must hold a separate meeting no earlier than seven days prior to the AGM to elect a tenant representative. This representative will become a member of the committee
• The neighbourhood association’s tenant representative cannot vote on decisions, act as an officer, or be counted towards the quorum. They can be excluded from the meeting when financial matters are being discussed
• A court may order that an owner or member who has successfully taken legal action against an association is exempt from contributing to costs and financial penalties relating to the legal action

3. By-laws, legal matters and insurance

• A property rights by-law cannot be made or changed during the initial period and cannot be made without the written permission of each person entitled to use the restricted property
• An association cannot seek legal services without first seeking approval at a general meeting unless the matter in question is urgent and the costs do not exceed $15,000, the matter is not urgent and the costs do not exceed $3,000, or the matter is regarding recovering unpaid contributions or interest
• If the association is required to give its committee members and owners a cost disclosure for legal services, they must do this within seven days of making the disclosure
• An association can make by-laws relating to the management, administration, control, use or enjoyment of lots. However, they cannot be harsh, unconscionable or oppressive. They also cannot restrict a person under the age of 18 from occupying a residential lot
• An association can pass a by-law that limits the number of adults who can live in a lot (in relation to how many bedrooms the residence has), except adults related to one another. This applies to short term rental accommodation as well
• A managing agent must provide the association with at least three insurance quotes from different providers
• The association must obtain a valuation of any building or structure that requires insurance once every five years
• The method of calculating the minimum amount for which a building must be insured requires allowing for a 24-month lead time in the event of total destruction
• If an association receives money from an insurance claim relating to building damage or destruction, they must use the funds to repair, restore or rebuild the building immediately. The only exception is if the association decides not to do so by way of a unanimous resolution
• Damage to property, death or injury now has a minimum insurance cover amount of $20,000,000
• An association may take out “additional” insurance for “misappropriation of money or other property of the association”.

Fees and finances

• Each association scheme must have an administrative fund and capital works fund (previously called a “sinking fund”)
• If an association uses money from either fund for a purpose that should have been met from the other fund, they must decide how much money must be reimbursed to the fund. This must happen within three months after the expenditure
• The association must decide how much money needs to be deposited into each fund within one month after the association is formed and then at each AGM thereafter
• Levy contribution notices must be sent out at least 30 days before the payments are due
• If a levy contribution is not paid within one month of the due date, it will accrue simple interest at the annual rate of 10% unless otherwise decided at a general meeting
• If the annual budget is projected to be more than $250,000, an association must have its accounts audited. If the budget is lower than $250,000, the association has the option of doing so
• Associations are required to provide a simplified financial report called a ”Statement of Key Financial Information”
• The New South Wales Civil and Administrative Tribunal (NCAT) can order owners to pay overdue levies, interests and any expenses relative to the recovery of the money
• Recovery action for overdue levies cannot begin until 21 days after a notice about the recovery action is sent out
• The association can agree to a payment plan for levy arrears at a general meeting.

Disclaimer: this Factsheet provides general information in summary form on various legislative and regulatory compliance matters. The contents of this factsheet do not constitute legal advice or other advice on any specific matter and should not be relied upon for that purpose. Any user of this factsheet requiring or seeking legal advice is responsible for obtaining such advice from their own engaged lawyers and any user should do so before taking (or not taking) any action in reliance on any information contained in this factsheet.

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