Compulsory SMs – be careful what you wish for

The canceling of strata manager Whitney Wang’s licence last week had an alarming aspect that many observers may have missed. Complaints about the boss of inner-west strata management firm Professional Strata Management Group reached a climax when he was compulsorily appointed by the Tribunal (NCAT) to one block after being sacked from several others by the same body.

The problem with a compulsory appointment can be that the strata manager takes over all the powers and responsibilities of the strata committee and owners corporation, and owners have no say in the running of their building for at least one and usually two years. In effect, a Tribunal Member had handed the keys to the kingdom to someone their colleagues knew had failed in the job several times before.

Taking an overview, our regular guest correspondent Francesco Andreone of GoStrata explains how and why compulsory managers are appointed, which he says can happen more easily and less predictably than you might think.

There’s a lot for a strata building to do to comply with strata and other laws, keep things running smoothly, deal with emergencies and other unexpected events, and implement the wishes and desires of strata owners.

Strata buildings can do that themselves through the strata committee, strata executives and strata owner meetings [self-manage] or they can appoint a strata manager to do that and give the strata manager some [but not all] of its powers to do so.

There is no reliable data on the comparative levels of self-managed and strata manager-operated buildings. But the majority of strata owners make this choice.

But sometimes strata owners’ choice about that can be taken away and a strata manager appointed to run the strata building by a Court of Tribunal. That can be a strata manager when there isn’t one or a different strata manager instead of the appointed one.

So, here’s how that works in NSW strata buildings.

Orders, terms and changes

The NSW Civil and Administrative Tribunal has power to appoint a strata manager to run strata buildings under section 237 of the Strata Schemes Management Act 2015. That can occur despite the wishes of the strata committee, a strata owner or all the strata owners.

So, it’s like appointing an administrator to a company or a protective trustee to a person.

When appointing a strata manager, NCAT, can give that strata manager power to exercise some or all of the functions of that strata building. If the strata manager is given all of the functions, that is more authority than a strata building and owners can usually give a strata manager.

The appointment can be for up to 2 years.

NCAT can also set the terms and conditions of the strata manager’s appointment in its order, including the amount the strata manager is paid, conditions on its activities and more.

The strata manager has to consent to being appointed the scope of its powers and the terms and conditions.

And, of course, NCAT can change or end the strata manager’s appointment.

Applicants

A range of people can apply to NCAT for an order appointing a strata manager including:

• a strata owner, strata renter, mortgagee or charge,
• a person who has an order against the strata building that isn’t satisfied,
• a person who has a judgment against the strata building,
• a government authority that benefits from a covenant on the strata scheme.

So, that includes a range of internal and external strata stakeholders.

Plus, NCAT can make an order appointing a strata manager when dealing with any other application even if the parties weren’t asking for that to occur.

So, a strata manager could be appointed in the course of another dispute when they aren’t wanted or expected.

Bases for strata manager appointment

There are 4 bases upon which NCAT can make an order appointing a strata manager.

First, if a strata building has failed to comply with an NCAT order made under the Strata Schemes Management Act 2015.

That’s straightforward since the strata manager appointment becomes a simple and effective enforcement mechanism for NCAT orders. And, typically, the strata manager that is appointed is given only enough powers to carry out the order; whether it’s performing works, undertaking an administrative task or to do something else.

Second, if a strata building hasn’t paid a judgment debt.

That’s also straightforward since the strata manager appointment becomes a simple and effective enforcement mechanism for debt. And, typically, the strata manager that is appointed is given only enough powers to pay the debt; whether it’s just paying the debt or, more typically, also raising and recovering strata levies from strata owners to cover the payment.

Third, if a strata building has failed to perform a duty or duties.

That’s less straightforward as the duties are not limited to obligations imposed on strata buildings under the Strata Schemes Management Act 2015 so includes strata building obligations under other laws that apply to it [like planning, environmental, tax or other laws] and arguably common laws [like negligence, fiduciary, trust, etc].

It’s also more difficult since it involves proving the applicant establishing the duty and proving that it hasn’t been done.

And, finally, it involves the challenge of overcoming a defence argument that rather than appointing a strata manager, NCAT should simply order the strata building to perform the duty or duties as a substantive order. And that’s a pretty persuasive proposition.

Fourth, if the management of the strata building is not functioning properly or at all [often mistakenly described as dysfunction].

That’s the most difficult basis for an order to appoint a strata manager since the test [not functioning properly] is vaguely defined and how much dys-functioning or non-functioning is enough varies from strata building to strata building and situation to situation.

So, it’s hard to know when and if NCAT will make an order on that basis.

For that reason, I’ve summarised some principles that have been expressed by NCAT and some examples of when orders were made by NCAT to help understand what’s required.

What’s NCAT said in the cases

Here’s a summary of the key cases that set out principles and examples of when strata manager appointment orders were made.

Mandatory strata manager orders are not made lightly from Kahn v Owners Corporation SP 2010 [2017] NSWCATCD 39.

Mandatory strata manager orders need a dereliction of duty or dysfunction in operation of the strata building from The Owners-Strata Plan No 14593 v Soares [2019] NSWCATAP 35.

Mandatory strata manager orders usually need more than an isolated incidence unless it is serious misconduct, including disobedience to Tribunal or Court orders from Anderson v Owners SP 61034 [2019] NSWCATAP 61.

The aim of mandatory strata manager orders is to maintain a democratic strata system rather than replace it from Kahn v Owners Corporation SP 2010 [2017] NSWCATCD 39.

It is not enough for mandatory strata manager orders that strata owners do not get along from Bischoff v Rita Sahade [2015] NSWCATAP 135.

If there is a properly functioning strata building, personal animosities or disagreements on the decisions doesn’t of itself justify mandatory strata manager orders from Robinson v Owners SP 61717 [2018] NSWCATCD 49 and from Anderson v Owners SP 61034 [2019] NSWCATAP 61.

If internal strata disputes are chronic, complex and/or litigious they may reach a point where mandatory strata manager orders are appropriate from Moallem v CTTT [2013] NSWSC 1700 and from Bate v Owners SP 60549 [2018] NSWCATCD.

Mandatory strata manager orders are also appropriate where there is a clear and substantial failure to manage the strata building according to strata laws and in the interests of all lot owners under from Gershberg v Owners SP 5768 [2011] NSWCTTT 411.

Sometimes, not following expert advice, including from a strata manager, can justify mandatory strata manager orders from Co Funds Management PL v Owners SP 78945 [2011] NSWCTTT 488.

Providing a ‘clean slate’ to re-establish order or to stop dysfunctional or non-compliant conduct , can also justify mandatory strata manager orders from Kotevski v Seadon and Owners SP 82413 [2013] NSWCTTT 597.

The complexity of a strata building [including in relation to the mix of strata lot uses, its size or other ongoing management matters] can also justify serial or continuing mandatory strata manager orders from Foong v Scutella [2021] NSWCATAP 225.

When a mandatory strata manager is appointed, it should be someone who provides impartial management at least cost from Farland v Simmons [2018] NSWCATCD 28.

And, for a recent example of NCAT appointing a strata manager when no one was wanting one there’s the decision in Foo v Frew [2023] NSWCATAP 303 which is covered in the Case Watch Parking, Trees, Money & Meeting Issues result in a Mandatory Strata Manager.