Why are Strata Buildings' Legal Rights Being Restricted?

Or, when you shouldn’t be afraid of lawyers, legal advice, and legal actions …

We’ve seen a trend towards imposing specific restrictions on strata buildings’ ability to take legal action [and sometimes get legal advice or assistance] in some Australian states without much resistance from anyone.  Regardless of your opinion of lawyers, that’s a disturbing development without justification that disempowers strata owners and leaves unrecovered and unrecoverable strata losses in thier hands.

Introduction

It’s easy to criticise and take potshots at lawyers … I should know. 

But, legal advice and legal representation to enforce rights is a necessary and fundamental right of all citizens of democratic countries. 

The Law Council of Australia says:

‘the rule of law and human rights of all people are core tenet of our modern democracy and having access to justice, is an important part of protecting those rights’ … ‘all Australians have, under the law, the right to seek justice. But this right doesn’t count for much if it cannot be exercised’.

Strata buildings and strata owners are no exception. 

Indeed, in many cases, strata buildings can and should be enforcing their legal rights more than individuals because they are the trustees of strata owners’ collective interests [responsible to protect them] and are better able to afford advice and litigation because of the shared cost base they have access to.

A short history of Australian restrictions on legal action

The first restrictions on strata buildings’ legal rights were introduced in New South Wales in 2005 following a spate of high profile cases about significant building defects in large buildings taken against high profile developers and builders.

The change was introduced by the then Minister for Fair Trading, the Hon. Reba Meagher, after it was slipped in near the end of the review of the 1996 strata laws being undertaken through the Strata Schemes in 2004 - the further issues Discussion Paper.

In the second reading speech to the new laws in Parliament, the following was said about the new restrictions:

‘Another new initiative will be in relation to the commencement of any form of legal action by executive committees. Concern has been expressed that prior to commencing action individual owners should be made aware of the cost of legal action and the likelihood of success. Most strata schemes will include individuals from a broad cross-section of the community with a variety of personal expectations, attitudes and level of involvement. It is impossible to expect that there will always be perfect harmony. The commencement of legal action on matters concerning the scheme is one area where it is certain that a divergence of views will exist. The Government proposes to minimise the level of internal dispute arising in this area by taking some simple but effective measures.’

and

‘A meeting of the owners' corporation must be called before the action can actually commence, to ensure that everyone can have a say if they wish. These new provisions will not only include the initiation of legal proceedings but also the obtaining of legal advice. Executive committees will effectively be prevented from undertaking legal action under their own initiative, thus removing the possibility that claims will be made that a committee has not acted in the interests of all owners and added to existing conflict rather than dissipated it.’

Funnily enough and differently to the quoted statements, the restrictions were applied to all legal services [not just litigation] and there was never a requirement to give strata owners any information about the likelihood of success.

I personally lobbied the NSW Government against the restrictions at the time on the basis that the restrictions were overkill; affecting all strata buildings’ rights just to address a few complaints in a few strata buildings [a common law reform habit], but was unsuccessful.  I was only able to convince the Minister for Fair Trading to introduce a few exceptions to the restrictions for urgent legal action and levy recovery and to introduce a threshold amount below which the restrictions do not apply to legal actions and services.

Hon. Reba Meagher was Minister for Fair Trading for less than 2 years [just covering the period of these changes] and resigned from government permanently in September 2008.

Victoria followed the NSW initiative by introducing its own restrictions on legal actions in its then-new Owners Corporation Act 2006 which are stricter but only apply to litigation.

And, the Australian Capital Territory included similar restrictions in its revamped Unit Titles Act 2011 which only apply to litigation.

What are the current restrictions?

Here’s a summary of the current restrictions on strata buildings’ legal rights around Australia.

In NSW, strata buildings must not use legal services [covering legal advice, transactions, or litigation] without a majority approval in a strata owners meeting [s 103].

There are exceptions for:

• recovering unpaid levies,

• urgent action [in the strata committee’s opinion] necessary to protect strata interests,

• non-urgent legal service that costs less than $3,000, and/or

• any legal service that costs less than $15,000.

In Victoria, strata buildings cannot bring legal proceedings without a three-quarter majority approval in a strata owners meeting [s 18].  There are no exceptions.  It’s also not clear if the restriction applies to defending legal proceedings.

But, there are no restrictions on Victorian strata buildings getting legal advice or for legal transactions.

In the Australian Capital Territory, strata buildings must not take legal action [covering beginning, defending, or continuing litigation] without a majority approval in a strata owners meeting [Sch 2, Cl 2.5].

There are exceptions for:

• recovering unpaid levies,

• the legal costs are lower than the lesser of $750 times the number of strata lots or $10,000, and/or

• urgent legal action [in the strata committee’s opinion] where it’s not reasonably practical to get strata owner approval.

But, under the urgency exception, later strata owner meeting approval must be obtained ‘as soon as practicable’.

It’s very likely given the ‘copy-cat’ approach being taken around Australia by regulators to strata law reforms that these provisions will be mindlessly copied in other states.

After all, if they exist without complaint somewhere in Australia then they must be a good idea.

We’ll I’m complaining and they’re not a good idea!  And, I wonder why everyone is so silent on the matter?

I’ve also made submissions about this to the NSW Government in relation to the latest strata law reform proposals in Strata Reforms [NSW]: Stage 1 Wrap Up [it’s number 113].

What’s wrong with restrictions on strata legal advice or actions?

There’s a number of very simple reasons why I believe that specific restrictions on a strata building’s ability to engage lawyers for advice or assistance or to start legal action should not exist.

Here are a few of them. 

1.     People aren’t restricted in their ability to get legal advice or participate in litigation generally. So why, when they are strata owners deciding things collectively should their ability to get legal advice or litigate in relation to that strata building be limited.  Introducing voting thresholds is a denial of their common law and human rights.

Imagine if you were told you could only get legal advice if a majority of your family agreed.

2.     Corporations aren’t restricted in their ability to get legal advice or participate in litigation either.  Plus corporations, don’t need shareholder approval for legal actions since their boards and authorised officers have the authority and responsibilities to act in the corporation’s best interests.  That’s no different from the position of strata committees and strata managers who have similar obligations to strata buildings and owners.  So, why the different approach?

Imagine if BHP needed a shareholder meeting approval for running litigation over an iron ore mine.

3.     There are plenty of other activities and actions that expose strata buildings to significant liability that are not similarly restricted so why just legal actions or legal services?  In fact, the main restrictions on strata building powers relate to the delegation of decision-making or long-term [10 year] contracts.

A strata committee can defer common property repair work [or just fail to do it] and the strata building can therefore become liable to significant public liability claims and/or other damages. So, why isn’t that action restricted too?

4.     The restrictions on legal advice and litigation reduce strata buildings’ ability to conduct major or complex litigation with adverse impacts on all strata owners; not just those who oppose litigation.  There’s no doubt in my mind that the reduction of major strata defect cases over the last 10-15 years is a result of these restrictions.

Perhaps the drop in strata building construction quality and the increase in major building defects in NSW and Victoria is also linked to these restrictions on strata building litigation since developers and builders know it’s harder for them to sue.

5.     The restrictions operate to oppress strata owner minorities who want to access legal rights [eveni if they are large majorities] since up to 49.9% of strata owners are prevented from actioning their rights in a strata building if 50.1% don’t want to also do so.  Plus, those strata owners can’t enforce their rights separately since they have no standing to do so. 

What do strata owners do when they haven’t been able to seek compensation for building defects because other strata owners didn’t want to risk litigation where the cost of the litigation [including the adverse costs exposure] was less than the cost of rectifying the defects. Who covers the shortfall?

6.     There are other adequate restrictions and controls on strata committee, strata manager, and building operation that protect strata owners from bad decisions and/or excessive spending that can be easily enforced.      

7.     The exemptions that have been included in NSW and ACT prove the unfairness of the restrictions on strata buildings’ access to legal rights because in principle there’s no difference between litigation over levies and other strata building losses. 

What is in fact occurring here is that the government is effectively deciding what legal rights strata owners can and can’t enforce by condoning some and sanctioning others.

8.     The generalised restrictions on strata buildings’ ability to access legal rights is like embedding a legal incapacity on strata buildings when other citizens with legal incapacities are afforded extra ways to access their rights.

The Australian Law Reform Commission Paper Equality, Capacity And Disability In Commonwealth Laws (DP 81) in 2014 said the following:

‘At common law, the capacity test for a person to participate in civil proceedings is the same as that required for a person to enter into legal transactions.’

‘There is a presumption of capacity ‘unless and until the contrary is proved.’

Surely strata buildings should be presumed to have legal capacity too.

So, I’ll keep advocating to remove the restrictions on strata buildings’ legal rights.  Hopefully, other strata stakeholders will join me.

And, I’m happy to debate anyone on the topic, anytime.

March 22, 2021

Francesco ...