Subdivision of land is defined under the Environmental Planning and Assessment Act 1979 (NSW) as the division of land into two or more parts that, after the division, would be obviously adapted for separate occupation, use or disposition. The division may (but need not) be effected: (a) by conveyance, transfer or partition, or (b) by any agreement, dealing, plan or instrument rendering different parts of the land available for separate occupation, use or disposition.
There are 4 main types of subdivisions:
- Torrens title subdivision
- Community title subdivision
- Strata title subdivision
- Stratum subdivision
In large scale projects like a ski resort, it often involves Torrens title subdivision, followed by stratum subdivision then strata title subdivision.
The Strata Schemes Development Act 2015 (NSW) (SSDA) and Strata Schemes Management Act 2015 (NSW) (SSMA) regulate how subdivisions must occur.
Torrens title, stratum and strata title subdivisions
Torrens title subdivision involves the creation of new allotments from an existing allotment. A Deposited Plan (often referred to as DP) creates the legal identity of land. This may be achieved by boundary adjustments or site consolidations.
Strata title subdivision involves vertical and horizontal subdivision of a building to create:
- strata lots which can be owned by different and separate owners; and
- development lot which can be subdivided to create further strata lots pursuant to a development contract.
A Strata Plan (often referred to as SP) creates the boundaries and legal identity of each strata lot and development lot.
The Strata Plan must be lodged and registered at the same time with other documents such as the proposed by-laws. On registration of the Strata Plan, the owners corporation is constituted and the owners corporation may appoint a strata managing agent by way of a general resolution in a meeting. These do not apply in the event of subdivision of a development lot.
The by-laws are rules which regulates the management and operation of the strata scheme and the common property. The by-laws bind the owners corporation and each owner and occupier of lots and mortgagee in possession in the strata scheme pursuant to s135 of the SSMA. If there is a breach of by-laws, the owners corporation may issue a notice and make an application to the Tribunal to make an order against the offender to pay a monetary penalty under sections 146 and 147 of the SSMA.
There are model by-laws which can be adopted from the SSMA but can also be drafted by strata managers and lawyers provided they are compliant with Part 7 of the SSMA.
By-laws can be changed after they are lodged but will require a special resolution of the owners corporation and must be notified to the Registrar-General and recorded on the title before the change becomes effective.
Stratum subdivision are similar to strata title subdivisions. The main difference is that they define the boundaries of lots with reference to different levels above and below standard height datum, and they also do not result in the creation of a body corporate. Stratum subdivisions are used to create lots that separately define different component use areas within a building. When a stratum lot is subdivided by a strata plan, the lot is then known as a "stratum parcel".
Stratum subdivisions can potentially result in day to day operational complexities for the subdivided buildings. This is because there is inevitably a range of facilities and equipment within the building that are shared by two or more of the component use areas (known as "shared facilities") and these need to be managed in a just and equitable way. Well structured stratum developments usually focus heavily on design solutions to minimise shared facilities and equipment and to deal appropriately with them where they cannot be minimised. Where this has not occurred, then legal mechanisms have to be used to resolve potential difficulties. These include:
- the strata management statement (also known as the building management statement);
- easement and covenants; and
- if applicable, umbrella management agreements.
Where a subdivision involves a strata plan creating a stratum parcel then a strata management statement for the building and its site is usually lodged and registered at the same time as the subdivision plan. In very limited circumstances the Registrar General can dispense with the requirement for a strata management statement.
A strata management statement has effect as an agreement under seal containing mutual covenants on the part of the following:
- a body corporate for a strata scheme for part of the building;
- a proprietor, mortgagee in possession or lessee for the time being of any of the lots in such a strata scheme; and
- any other person in whom the fee simple of any part of the building or its site (being a part affected by the statement) is vested for the time being, or the mortgagee in possession or lessee of any such part.
Section 100 and Schedule 4 of the SSDA sets out the mandatory and optional matters in a strata management statement. For example, the statement must provide for:
- the establishment and composition of a building management committee (see below) and its office bearers;
- the functions of those office bearers in managing the building and its site;
- the manner in which a statement be may amended;
- the settlement of disputes; and
- the manner in which notices and other documents may be served on the committee.
Similar to the owners corporation, a building management committee is comprised of all owners, or their representatives, of component use parts of the building and site the subject of a stratum subdivision. It is effectively the body that makes decisions in relation to the shared facilities.
The function of the building management committee is to administer the common facilities within the building and ensure that sufficient funds are raised from its members to keep those facilities in proper repair and maintenance.
The committee may delegate its functions to other bodies such as the strata managing agent and/or a facilities manager.
Recent case: Walker Corporation v The Owners – Strata Plan 61618 [2022] NSWSC 1246
In September 2022 the NSW Supreme Court considered in Walker Corporation v The Owners – Strata Plan 61618 [2022] NSWSC 1246 the strata management statement and by laws for a mixed use building known as the "Finger Wharf" at Woolloomooloo.
Background
The Finger Wharf is subdivided into eight three dimensional leasehold lots, each subject to a 99-year lease from Transport for NSW (TfNSW). TfNSW remains the owner and landlord of the land (and water) upon which the wharf is located.
Of the eight leasehold lots, one lot is used for a hotel. The other seven lots are further subdivided into strata schemes, each of which is comprised of registered leases to:
- an owners corporation for the common property of the scheme; and
- a tenant (owner) for each lot in the scheme.
The building management committee is established pursuant to the building management statement for the wharf. Its nine members are TfNSW as the owner of the land, the leasehold owner of the hotel lot and the seven leasehold owner corporations.
The building committee appointed McCormacks as the building's "managing agent".
In the building management statement, it provides that:
Members which are owners corporations must ... appoint and retain under section 28 of the [1996] Management Act the same Strata Manager [managing agent] the Committee appoints under this clause (Article 8.11).
In the by-laws, it provides that:
The owners corporation must...appoint and retain under section 27 of the [1996] Management Act the same strata manager that the building management committee appoints under the strata management statement.
The owners corporation did not appoint McCormacks as the strata managing agent.
Decision
The appointment of a strata managing agent by an owners corporation requires an ordinary resolution of the owners corporation in a general meeting. The parties agreed that an owners corporation is unable to accept a corporate obligation (eg, a contractual undertaking) to make an appointment, as it "would be necessary for there [also] to be obligations enforceable on the individual lot owners to attend and vote".
The Court considered there to be nothing in the by-laws which "suggests that they impose any such voting obligation". Further, if they did, for reasons set out in relation to the challenged article in the management statement (below) they would be "inconsistent" with the other provisions of the SSMA.
The question that arose for the Court is whether:
... requiring the appointment of a particular person as strata managing agent by a constituent OC is part of the 'management ... of the building and the site'.
The Court determined that the terms of the SSDA were not "wide enough" to require the owners corporations to appoint the building management committee's managing agent as their strata managing agent, with two features standing out:
- The allocation of "shared expenses" for "shared facilities or services" that imply that where facilities or services are not shared they fall outside the purview of the building management committee. Not all expenditure by an owners corporation is treated as expenditure of managing the building as a whole, such that 'management ... of the building and the site' does not extend to a "complete takeover of management of all of the function which may be delegated by an OC to a strata managing agent under the SSMA".
- In considering the "particulars" (a natural instance which illustrates a wider principle) referred to in clause 2 of schedule 4, it is "natural" to consider the term "managing agent" to refer to a person who is to discharge functions of the building management committee under the strata management statement, rather than a strata managing agent who is to discharge functions of the owners corporation under a strata scheme.
The reference to "managing agent" in clause 2 of schedule 4 was read as a reference to an agent of the building management committee.
The Court also considered the building management committee's power to make "service contracts" (clause 4 of schedule 4). It was held that this phrase must be confined to services provided to the building management committee and does not include acting as a strata managing agent for an owners corporation.
Ultimately the NSW Supreme Court held that both the challenged article in the building management statement and the challenged by-law are invalid.
Conclusion
Any strata management statement or by-laws that include an obligation on an owners corporation to appoint the same managing agent as the building management committee or any other owners corporation is likely to be inconsistent with NSW strata legislation and invalid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
