Harassment with Section 62

We are all aware that Section 62 of the Strata Schemes Management Act 1996 (SSMA) provides that the Owners Corporation ‘must’ keep common property in working condition. The Seiwa Case states that it is a statutory obligation of an Owners Corporation to comply with the requirement to repair. In fact, the Seiwa case punished an Owners Corporation for delaying repairs.

We have just had an interesting situation occur. An older building on the northern beaches required repairs to the balconies. Many of the balconies were leaking and in need of repair.

The Owners Corporation had an executive committee who were working towards a methodology to ensure that everything was repaired. The premises was filled with self-funded retirees.

The Owners Corporation devised a renovation plan. They had progressive plans to work through and repair every balcony over a period of a couple of years.

A new purchaser entered the premises. He knew that it was leaking and knew of the plan. Nevertheless, as soon as the property settled, he had a meeting with strata lawyers to serve a notice on the Owners Corporation. His notice simply said that they needed to fix his balcony immediately. He said that if it wasn’t repaired within 60 days, they would lodge an application to the Supreme Court for damages.

The new lot owner is quite within his rights. He harassed the Owners Corporation and they had to amend their program to deal with his balcony first. It required $50,000 and a special levy. It forced 4 owners to sell their units.

Section 62 exists to ensure that things are kept maintained and repaired. It was never the legislature’s goal to have people forced out of their own homes because somebody wished to jump the queue. This is an unfortunate outcome of a very good provision under the Act.

We don’t know what the solution is. Nevertheless, things like strata finance or insurance policies are needed to protect against this type of thing and would be necessary to look at. It is a growing problem. Since 1992 we have had private certifiers, which means that unfortunately NSW buildings are not as good as they were before. Let’s hope that there are not too many more examples of what has happened in this case on the northern beaches.

Delivery

Section 55(1)(a) of the Property Stock and Business Agents Act 2002, states that an agent is not entitled to a commission unless the Licensee serves a copy of the agency agreement upon the Principal 48 hours after the agency agreement has been signed. There are some exemptions under Section 55 that allows the courts to extend these periods, but the courts have not done so thus far.

One of the most controversial things that comes up in training regularly is how this should be served. Obviously, the best approach is to have 2 copies when the Principal signs it. One you can leave with them and one you can take away. In some circumstances however this is not able to be done.

The Act allows for the agency agreement to be served in 2 ways:

• By hand; or
• By facsimile

The legislation does not however mention anything about email. The Electronic Transaction Act 2005 does permit for contracts to be sent electronically. It is impossible to tell how the courts or tribunals would consider balancing this inconsistency.

Because the punishment is so severe with section 55, that is, you lose all your commission, I take the most conservative view point. We believe the only 2 methods of service are by hand or by facsimile. Clients do not have a facsimile machine at home. Therefore, you should ensure that the agency agreement is served by hand.

We had a client who served an agency agreement 72 hours after signature. He went to court and lost his commission. This commission amounted to $130,000.

I made a comment in a course last week where I said that service by hand is required. What I meant was that, it is only required because most people don’t have facsimile machines.

International transactions are much harder. Obviously, international facsimiles do work. We believe that in some cases you may need to email the agency agreement back or have an email signature to put it on the market. This is a risk you will probably have to take. It is arguable that, the concept of service under section 55 has discretion for a reasonable delay. International transport of contracts across the sea would seemingly be a ‘reasonable excuse’ for serving it after 48 hours. We would suggest that with international clients, fax first, email second and always serve an original copy by post.

The Alternate Proxy

At training the other day, I received an interesting conundrum. The facts are as follows:

• The Owners Corporation had sought tenders in relation to maintenance and repairs;
• The Chairman of the Owners Corporation tendered for this job;
• The proxy’s were given to the Chairman;
• The proxy’s however said that if the Chairman was not in the meeting, an alternate person would be the holder of that persons proxy’s;
• The Chairman left the room during the vote; and
• The Chairman won the tender.

The Owners Corporation is now upset that the Chairman may have acted improperly. The question is twofold:

• Did the Chairman act appropriately; and
• Can you have a proxy form with an alternate person?

In the first instance, the Chairman did act highly appropriately. When it came time to vote, any issue in relation to a conflict of interest disappeared when he left the room. He did not exercise his power of proxy to vote for himself.

In relation to the second question, all that is required is that the proxy is clearly identified on a proxy form. There is nothing under the Act to prevent two persons in the alternative from carrying a proxy. Provided the proxy is only used by one person, it is quite lawful.

The Chairman therefore can take on the tender and undertake the job.

Check Your Bank Account

Leverage was approached about three weeks ago by a client who has had difficulties with their trust account. No, they have not dipped their fingers into their trust account, but some administrative problems have emerged.

In 1999, the agent opened the trust account in accordance with the Property, Stock & Business Agent’s Act 1941. They went to the bank with their blue form, provided a copy to the Office of Fair Trading and kept a copy for themselves. This form advised the bank that:

• All fees should be taken from the agent’s general account; and
• All interest should be paid to the Property Services Compensation Fund.

Over that period of time, the bank debited all fees from the agencies general account. Unfortunately, they paid all interest payable under the account to the agent’s trust account and not to the Office of Fair Trading Property Services Compensation Fund. This bank has now served a notice on the agency seeking a refund of $132,000.

Yes it was the bank’s fault. Regrettably, the law of banking is absolutely clear. You are not entitled to keep what is not yours. The agent was given $132,000, which is the property of the Property Services Compensation Fund. Yes, they are responsible for paying the money back.

It is also our opinion that the bank has acted unlawfully. The bank has a statutory obligation to pay interest to the Property Services Compensation Fund. It is not the obligation of the agent. Hence, the bank has acted negligently and needs to compensate the agent.

Leverage has written a letter to the bank requesting that they develop a proposal that fits our client’s needs. Presently, they are suggesting that they will loan the money to the agent and charge them interest. How understanding is that???

It is Leverage’s suggestion that the bank needs to at least compensate for two things:

• The tax paid on the amount they paid to the agent; and
• The high amount of fees which were paid for an interest bearing account.

You might ask why the bank made this mistake? We don’t know! Basically they were not aware that it was a real estate trust account! All the cheque books, the receipt books, the account statements state “….. Real Estate Agent’s Trust Account”.

What has been identified from our investigations is that this has happened to a number of agents in a number of areas of Sydney. It isn’t a one off. It’s an event which has happened right across Sydney. For obvious reasons, Leverage will not identify the bank or the agent. We do however suggest that, as soon as possible, you check your bank accounts to ensure that the banks have applied interest correctly.

The Burdens of Power

Leverage had cause towards the end of last year to advise an executive committee in relation to proceedings in the High Court. What became an issue was the personal view points of the executive committee as it relates to their own affairs. The vote which they wished to take as an executive committee was on the basis of self interest and not on the basis of the Owners Corporation interests.

As a lot owner, the owner is permitted to vote in their self interest. A lot owner has a vote at the Owners Corporation in relation to all affairs that affect themselves. They have no burden to vote in the best interests of the Owners Corporation.

This is different when it comes from the executive committee members. The executive committee owe a duty of care to the Owners Corporation. They also have a fiduciary duty to act in the best interests of all lot owners. This means that, executive committee members have a fundamental duty to always vote for what is in the best interest of the Owners Corporation. This may mean that members of the executive committee vote in a way which does not benefit themselves.

Organisations who own a number of lots often use their voting power to elect themselves or nominated persons onto the executive committee. This is quite permissible, when voting as a lot owner. It might serve to benefit the multiple lot owners to have control of the executive committee, but those executive committee members are bound to vote in a way that benefits the whole, not the individual lot owner.

If an executive committee votes in a way which is not in the best interest of their Owners Corporation, that executive committee may be sued for breach of fiduciary duties. It will happen! We have already had approaches from a particular Owners Corporation that has asked whether we would consider taking on a case to sue an executive committee who have used their positions as lot owners to have themselves elected on the executive committee and made decisions which are in their self interests. In some cases, their decisions have been unlawful.

This is what the burden of power is about. It is nice to have control, but the reverse side is that it also becomes a responsibility. The responsibility becomes liability if those responsibilities are not fulfilled in the best interest of the person they are meant to protect.
 
Coming Up Next: Work, Health and Safety Laws
We have had a considerable amount of interesting documents being produced for the Work Health and Safety Act 2010 which is to replace the Occupational Health and Safety Act 2001 in NSW. This is too large to be done in a single newsletter. Hence, from next week we will run a series of newsletters over the next 4 weeks of discussions about the Work, Health and Safety Regulation.

The Busiest Lawyers in Town

You might be surprised to hear this, but property managers in NSW are busier doing law then most of the solicitors. In discussing this with a leading property manager this year, it was discovered that she had attended court 7 times more often than us in the last 2 months. Although Leverage can’t be considered a super busy legal practice, it did demonstrate the amount of legal work which is thrust upon property managers.

The Consumer, Trader and Tenancy Tribunal Act 2001 (CTTT) prohibits appearance in the tribunal by solicitors. Section 36 of the CTTT advises that solicitors can only attend with the leave of the tribunal member. In tenancy matters, this means a majority of cases would be refused.

The CTTT however permits advocates to attend the tribunal. In relation to the Residential Tenancy Act 2010, real estate agents who are properly authorised can attend the CTTT without leave. All sides of a tenancy dispute can have an advocate represent them on their behalf.

Considering that the CTTT case list is primarily governed by tenancy disputes, somewhere in the vicinity of 75% to 80%, it is not surprising that property managers are busy.

There is no doubt that property managers have a greater knowledge of the Residential Tenancy Act 2010 than most solicitors. They deal with it on a daily basis and have to refer to it regularly due to the extent of disputes in that jurisdiction. Nevertheless, are property managers designed and trained to:

• Interpret the law;  Collate evidence;   
• Develop Legal Strategy;  
• Understand the procedures of courts and tribunals;   
• Understand the legal principals such as natural justice that apply in a court and tribunal; and     
• Formulate submissions before a court or tribunal.

Many property managers do a great job in representing their landlords, however they have had to learn their own way in determining the CTTT disputes. Yes, for anyone who obtains a license, there is a requirement to have knowledge and some skills in relation to managing CTTT disputes. Unfortunately, most of the people representing landlords are just mere certificate holders who have never had any training and have acquired their experience by attending the tribunal. This is neither fair to the landlord nor to the property manager.

The Australian College of Professionals is so concerned about this that this year we are considering the development of 2 courses:

• A short 4 hour CPD course which is an overview of the CTTT advocacy; and
• A more extensive course which is designed to teach property managers how to develop, present and be victorious in matters before the tribunal.

This course will be designed to develop property managers, to become a highly effective advocate in the tribunal, local courts and other small claims.

If you are interested in this course, please email the College to identify your interest.