Governance Education for Executive Committees

Transcription

1 Governance Education for Executive Committees Participant Manual Produced by the Institute of Strata Title Management Ltd with funding assistance from NSW Fair Trading 2010 Institute of Strata Title Management Ltd 2010

2 Introduction Participant Name: Course Dates: Location: Disclaimer The information in this document should serve as a general guide only. While every effort is made to ensure that the information is generally accurate and correct, no warranty or guarantee is given by ISTM as to the accuracy or correctness of the information The information provided is not a substitute for individualised professional advisory or legal advice. ISTM disclaims all responsibility and all liability for any expenses, losses, damages and costs which may be incurred for any reason whatsoever as a result of the information provided by ISTM. Institute of Strata Title Management Ltd 2010 Page 2

3 Introduction Welcome to Executive Committee Governance Education Completion of this course will provide you with the basic knowledge to participate as a member of an Executive Committee (EC) in your Strata Plan. Module 1 Governance and Ethics Module 2 Roles and responsibilities Module 3 Strata Plan Interpretation Module 4 Administrative Matters Module 5 Communications Institute of Strata Title Management Ltd 2010 Page 3

4 Introduction Purpose of the Course and Course Outcomes Promote best practice in the management and governance of strata schemes through: Improving Governance skills for EC members Increasing the ability of EC members to meet their fiduciary and management responsibilities Improving the understanding of rights and responsibilities of owners corporation for strata owners Providing training and education for industry practitioners to support them in their roles Delivery The course consists of five modules. These will be delivered in two hour sessions. There is no professional qualification associated with completion of this course. You will receive a statement of attendance at the completion of the course. ISTM is a Registered Training Organisation RTO #837. Your ISTM trainers have extensive industry knowledge and experience. We hope that you enjoy the course and welcome any feedback or suggestions that you have. Resources Student Manual Slide presentation Strata Schemes Management Act 1996 (available from ISTM) NSW Office of Fair Trading Strata Living (available from ISTM and NSW Fair Trading) Other as noted in individual modules Institute of Strata Title Management Code of Ethics Institute of Strata Title Management Ltd 2010 Page 4

5 Introduction Contents Module 1 - Governance and Ethics - Introduction... 7 Activities Module 2 Roles and Responsibilities - Introduction Activities Module 3 - Strata Plan Interpretation - Introduction Module 4 - Administrative Matters - Introduction Activities Module 5 Communications - Introduction Activities Resources Institute of Strata Title Management Ltd 2010 Page 5

6 Module 2 Roles and Responsibilities Module 1 Governance Education for Executive Committees Governance and Ethics Institute of Strata Title Management Ltd 2010 Page 6

7 Module 2 Roles and Responsibilities Module 1 - Governance and Ethics - Introduction Welcome to Governance Education for Executive Committees This unit is designed to provide you with information on the requirements of governance to facilitate the ethical carrying out of the responsibilities of an Executive Committee. Learning Outcomes Once you have completed this module you will understand the definition of governance, the requirements and responsibilities of an Executive Committee, both to the Strata Plan and in compliance with the Legislation. You will also be aware of the issues of accountability, trust, involvement in activities and meeting expectations. Further Resources Further information on Governance and Ethics may be obtained from: Strata Schemes Management Act 1996 Institute of Strata Title Management Code of Ethics Nonprofit Good Governance Indicator Guide ( Institute of Strata Title Management Ltd 2010 Page 7

8 Module 2 Roles and Responsibilities Introduction S E S S I O N N O T E S Governance means the accepting of responsibility on behalf of others in the role of an Executive Committee (EC) member. It is the guiding of the Owners Corporation in accordance with the Strata Schemes Management Act (SSM Act) and Regulation and the adherence to other relevant pieces of legislation that affect an Owners Corporation. It means being accountable to the constituents; the stakeholders; the other lot owners. A degree of trust is granted to Executive Committee members to carry out their role on behalf of others. Good governance means providing the essential services as required by the Strata Schemes Management Act 1996 (SSM Act) and doing so in an ethical and professional manner. Consistent good governance will inevitably lead to effective and efficient delivery of services. Executive Committee members are volunteers who have an interest in the well being of the Owners Corporation. This position of trust comes with responsibility and accountability. Standards set by an Executive Committee will affect the decisions and conduct of the members and as well flow through to the whole Owners Corporation. The manner in which an Executive Committee conducts itself will also affect the relationship with its Strata Managing Agent. Therefore when accepting a position to be an Executive Committee Member and as a representative of the Owners Corporation, a person has to understand what their role and responsibilities are going to be. WHY WE NEED GOVERNANCE The Executive Committee is responsible for the day-to-day decision making of the Owners Corporation. It has a legal right and power granted to it by the SSM Act. It has authority and is accountable for the resources and activities of the owners corporation. The EC determines matters at meetings of the owners corporation. It communicates these decisions via minutes and other forms of communication. Although it may not exercise the range of powers of a Board in a company structure (eg unable to set levies or create by-laws etc.), it still continues to operate within parameters set down by decisions of the owners corporation in general meeting or within the constraints of the SSM Act & Reg. Institute of Strata Title Management Ltd 2010 Page 8

9 Module 2 Roles and Responsibilities In performing its duties the EC must demonstrate responsibility. Its actions should at all times be transparent. In doing so it respects the trust shown to it by the wider owners corporation representation. An EC is not divorced from the membership; not separate from the owners corporation. It is not to act in isolation of the owners corporation. It must exercise financial responsibility. This is one of its primary responsibilities. A Strata Scheme is managed by an Owners Corporation. Upon the registration of a strata plan for a strata scheme, an Owners Corporation is established. An owners corporation has the principal responsibility for the management of the scheme. It may be assisted in the management of the scheme by any one or more of the following:- a) The Executive Committee b) A Strata Managing Agent c) A Caretaker Decisions of the EC are decisions of the owners corporation except where prevented by the SSM Act i.e. to be made by unanimous or special resolution in general meeting or any other matter the owners corporation has determined in general meeting is to be decided only by the owners in general meeting. Section 61 spells out the obligation for primary management of the owners corporation: a) Maintain and repair the common property b) Manage the finances c) Take out insurance d) Keep accounts and records Further, Section 62 states: An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation. This is a primary responsibility of the owners corporation and its EC. It is a legislative requirement; a rule. This provides certainty for owners in a strata scheme that by regulation the body corporate must maintain the development i.e. the building and its surrounds. The owners corporation and its elected body, the EC, must comply with the terms of this requirement. This clarity of function makes it easy for the appointment of an administrator such as a strata managing agent or caretaker to carry out their roles. Other legislation such as Occupational Health & Safety legislation is far reaching. The OHS Act affects an owners corporation because it is at any time considered a work place. Any time work is being carried out on the common property the owners corporation is responsible to ensure the area is safe Institute of Strata Title Management Ltd 2010 Page 9

10 Module 2 Roles and Responsibilities for such work. The area must be free of hazards or at the minimum controlled so as to reduce the risk of injury or death. Application of Governance Precise rules eliminate discretion and uncertainty these are found in the SSM Act. Self-regulation can be established by an owners corporation in several ways including the making of decisions at both the general meetings or at Executive Committee meeting. The creation of management by-laws under section 47 of the SSM Act usually is directed at such things as rules for the use of facilities, like bar-b-q areas and swimming pools etc. The SSM Act provides a mechanism for coping with alterations affecting the common property. It may make or authorise changes to the common property but only by special resolution at a general meeting. It may allocate the repair and maintenance responsibility for such changes to an individual lot owner who is a beneficiary of the decision. An owners corporation may restrict an EC in making decisions on certain matters. It does this by passing an ordinary resolution at a general meeting. Legal advice may not be obtained unless a resolution is passed at a general meeting approving the seeking of that advice. However certain exemptions apply. An owners corporation must insure the building under a damage policy with an approved insurer and in accordance with a valuation. Certain exemptions apply to two (2) lot schemes. An owners corporation must establish an Administrative Fund and a Sinking Fund and levy contributions to those funds from owners of lots in the scheme. These funds are to meet day-to-day recurrent expenses and those of a capital nature. An owners corporation may make, amend or repeal by-laws to assist it in the control, management, administration use or enjoyment of the lots or the lots and common property. An owners corporation may grant exclusive use or special privileges to a lot owner on such terms as it determines including the payment of money. In proceeding with any one of the above an Executive Committee must have due regard to its ethical duties. Executive committee members have enormous trust placed upon them by their fellow members. Therefore the executive committee member must discharge his/her duty at all times in an ethical manner. Institute of Strata Title Management Ltd 2010 Page 10

11 Module 2 Roles and Responsibilities The following is an extract from the ISTM Code of Ethics as it relates to Owners Corporations and Executive Committee members:- Clause 2.3 An Executive Committee member must not gain a benefit over and above other owners or a majority of those owners unless that Executive Committee member discloses such a benefit at any meeting of the Executive Committee where a motion relevant to such a benefit is considered, and makes that disclosure prior to the consideration of that motion. An Executive Committee member, or a person who seeks to be elected as an Executive Committee member, must comply with any disclosure requirements under law, including, if applicable, under clause 3A of Schedule 3 of the Strata Schemes Management Act To show that an Executive Committee is acting in the best interest of its members, it must ensure effective communication and transparency. Effective communication underpins the relationship of trust among the members of the Owners Corporation. It also extends to the other stakeholders including the strata managing agent, building manager, caretaker, suppliers or contractors providing services to the Owners Corporation. This communication must be actively worked at by the Executive Committee. It is the responsibility of these members to transmit decisions and the reasons for these decisions to all concerned. There is also the responsibility for effective communication between the strata managing agent and the appointed representative of the Owners Corporation, normally a member of the Executive Committee. Review of Strata Management Services Executive committee members will need to evaluate the strata managing agent from time to time. Standards for a review might range from a comparison of fees and charges, ability to respond to communications within a reasonable time frame, dealing with contractors and residents in arranging repairs and maintenance, competence in conducting meetings for the Owners Corporation, etc. Executive Committee Accountability With delegation comes responsibility and accountability. Delegation does not mean passing something over to another party and forgetting about it! The Owners Corporation acting to consider motions at a general meeting is the highest level of decision-making for a strata scheme. Owners participating at this level (i.e. in general meeting) have the legal authority within the scope and provisions of the SSM Act to make decisions for their community of owners and residents. Institute of Strata Title Management Ltd 2010 Page 11

12 Module 2 Roles and Responsibilities Executive Committees are always subject to the higher level of the Owners Corporation. Their positions are not assured for more than 12 months. They may be dismissed by the Owners Corporation following a special resolution passed at a general meeting. All positions automatically fall vacant at each annual general meeting. At all times the executive committee members must be seen to be acting in the best interests of the Owners Corporation in a fair and transparent fashion. The SSM Act and Regulation encourage this process with administrative law and procedures that guide their activities. For instance, no one member of an Executive Committee may make a binding decision on behalf of the committee or Owners Corporation. As representatives of the Owners Corporation an Executive Committee s forum for decision making is at a duly convened meeting. Due notice must be given in accordance with the provisions of the SSM Act and accurate minutes kept of these decisions. Even before a decision is made by an Executive Committee, there is a mechanism for sufficient owners who may be affected by that decision to prevent the committee from making a decision on a particular matter. This is done by serving notice on the secretary before the decision is made at the forthcoming meeting by owners opposed to the making of that decision. (Owners holding more than 1/3 rd of the aggregate unit entitlement). SELF REGULATION FOR EXECUTIVE COMMITTEES The governance role of an executive committee is to exercise that role with responsibility, accountability and uphold standards and ethical behaviour that reflect the needs and requirements of the Owners Corporation Executive Committees must be active in the management of the strata scheme. This means directing, influencing and monitoring the activities of the strata scheme. Even though committee members are volunteers, they take up their role because they have an interest in the well being of the Owners Corporation. An overriding area of concern for all committee members of an Owners Corporation is ethical governance. This ethical behaviour must be clear to all members. Institute of Strata Title Management Ltd 2010 Page 12

13 Module 2 Roles and Responsibilities Upon election an Executive Committee member should accept they will carry out their duties with the same degree of responsibility as any director of a trading corporation. Often this area of responsibility is ignored. There are over 68,000 strata schemes registered with the Department of Lands: Over 75% (51,260) represent strata schemes consisting of 10 lots or less. Larger strata schemes (defined as being in excess of 100 lots) represent 0.8% (535 schemes). Despite the common feature of all being subject to the same strata management legislation (the SSM Act & Regulation) every strata scheme is unique. An Executive Committee is entrusted with the day-to-day responsibility to manage the strata scheme for and on behalf of all owners. The bond is a common interest in safe-guarding the common property and individual lots. Despite shifting values in our society to-day, honesty and integrity are essential in meeting our communities expectations. The actions of a committee must be seen as legitimate by the lot owners. Committees must act within the provisions of the law, and not just the SSM Act. By developing an understanding of the SSM Act and by-laws the Executive Committee will be able to discharge its legal responsibilities. The interpretation of rules and even their amendment to suit the needs of the strata scheme guides a committee in what it should do. Numerous other pieces of legislation impact every day on an Owners Corporation such as the Community Land Management Act, Occupational Health & Safety Act and Regulations, the Dividing Fences Act, Noise Control Act, Home Building Act, Environmental Planning and Assessment Act, Residential Tenancies Act, Property Stock and Business Agents Act, Trees (Disputes between Neighbours) Act, sundry local government acts and regulations, to name just a few. To help them in the discharge of their duties, strata managing agents offer their professional services to shoulder the responsibility for complying with these legislative requirements. Strata managing agents help Executive Committees set aside their individual preferences and look at the broader picture for the Strata scheme. At the end of its term, at each annual general meeting, an Executive Committee should be able to report to its members on the activities during the immediate past year; how it dealt with demands from the building and its occupiers. General meetings are the opportunity for the dissemination of information to all owners about the development. They are also the time when each and every lot owner may place an item on the agenda for discussion by all owners: an individual s access to the highest level of decision making. From any point of view this is a democratic process. The Agency Agreement Institute of Strata Title Management Ltd 2010 Page 13

14 Module 2 Roles and Responsibilities A written Agency Agreement must be entered into between the strata managing agent and the Owners Corporation. This legislative requirement is contained in the Property, Stock and Business Agents Act Listed in the Agency Agreement will be a schedule of services to be provided by the strata agency for a set and agreed fee. Both parties are to sign the Agreement; the Owners Corporation only after having approved the appointment of the strata managing agent by majority resolution at a general meeting. The Agency Agreement sets out the appointment process and delegation of duties and functions to the strata managing agent. It also includes details about the termination of the Agreement. There are many duties and functions that may be delegated to a strata managing agent including the following:- Preparation of Administrative & Sinking fund estimates Receiving, receipting and banking. Paying of invoices Taking out insurance Conducting meetings; attending to correspondence Maintaining the Owners Corporation records Arranging for section 108 inspections and section 109 certificates However the following functions may not be delegated to a strata managing agent:- Cannot further delegate their powers, or set levies Use proxy votes to obtain a financial or material benefit (i.e. increase their fees or extend the contract term) The agreement may only be varied by resolution at a general meeting. Similarly, the termination of the strata managing agent may only be approved at a general meeting. The Executive Committee has a working document on which to provide day-to-day guidance for the strata managing agent in the discharge of their duties. It is most important that Executive Committee members familiarise themselves with this Agency Agreement. The strata managing agent is appointed by an Owners Corporation to service the needs of the strata scheme Institute of Strata Title Management Ltd 2010 Page 14

15 Module 2 Roles and Responsibilities Strata managing agents and Executive Committee members are to render service to the owners corporation and not to any individual. To do so would create a conflict of interest situation between the strata managing agent, the Executive Committee and the owners corporation. The Responsibilities So what s different about living in a strata scheme? In owning a Strata Title unit you are sharing ownership and responsibility of common property. If you own your unit, you are automatically a member of the Owners Corporation which has responsibility for the common property. You need to pay levies on a regular basis to the Owners Corporation so that all the facilities will be maintained. There are rules, called by-laws, which govern your behaviour while you live in this strata community. These will cover things like hanging of washing on a balcony, parking of cars on common property, disposal of rubbish, creation of excessive noise, keeping of pets and so on. The Executive Committee administers the day-to-day affairs of the Owners Corporation and must be mindful of its responsible and important role. The Act and Regulations provide the roles of office bearers and their duties and functions. This guides the Executive Committee. The owners corporation depends on these members to carry out their duties in an efficient, practical and ethical manner to ensure the smooth operation of the strata scheme. Activities Activity 1 Can you name at least 3 other pieces of legislation which affect a strata scheme? Institute of Strata Title Management Ltd 2010 Page 15

16 Module 2 Roles and Responsibilities Activity 2 How would you measure the effectiveness of your Executive Committee in meeting its responsibilities under the Strata Schemes Management Act 1996? List at least 4 items or things you would look for to see how well it carries out its duties. Institute of Strata Title Management Ltd 2010 Page 16

17 Module 2 Roles and Responsibilities Activity 3 Identify which functions can be delegated by an Owners corporation to a Licensed Strata Managing Agent Set ordinary levies for the strata scheme Record details of levies collected Vote at meetings with a valid proxy Organise repairs of common property Supervise contractors attending the common property Administer the by-laws of the strata scheme Manage the finances of the strata scheme Keep minutes of meetings Keep records of motions passed in meetings Keep copies of correspondence sent and received Keep proxies given to the owners corporation Keep accounting records and financial statements Prepare and maintain the strata roll Insure the building under a damage policy Insure against damage to property, death or injury for which the owners corporation could become responsible Organise workers compensation insurance where it is required under the Workers Compensation Act 1987 Insure against damage that the owners corporation may become liable for when a person does voluntary work for the owners corporation in the building or on common property Take legal action on behalf of the owners corporation Call Annual General Meetings Keep on file records of notices issued under the Strata Schemes Management Act (or any other Act) for at least 5 years For large schemes (over 100 lots) organise an annual financial audit Organise a building valuation at least every 5 years for insurance purposes Prepare a 10 Year Sinking Fund Plan (for schemes that came into existence after February 2005) Set and collect additional levies Issue notices to comply with by-laws Provide strata scheme information required by a Section 109 Certificate to prospective purchasers Allow an owner to inspect the records Dismiss a member of the executive committee Arrange access for fire safety inspections Organise pest control and notify owners Institute of Strata Title Management Ltd 2010 Page 17

18 Module 2 Roles and Responsibilities Module 2 Governance Education for Executive Committees Roles and Responsibilities Institute of Strata Title Management Ltd 2010 Page 18

19 Module 2 Roles and Responsibilities Module 2 Roles and Responsibilities - Introduction Welcome to Governance Education for Executive Committees - Roles and Responsibilities This module will present an overview of the roles of Executive Committee and some detail on the functions for which they are responsible. Learning Outcomes Once you have completed this module participants will understand what each member of the Executive Committee is responsible for. You will also have some basic knowledge on financial planning for an Executive Committee, insurance requirements for a Strata plan and an understanding of the role of Strata Managing Agents. Further Resources Further information on Roles and Responsibilities may be obtained from: NSW Strata Schemes Management Handbook. CCH Australia Limited ISTM resources NSW Strata and Community Schemes Management and The Law. Strata Schemes Management Act and Regulation Institute of Strata Title Management Ltd 2010 Page 19

20 Module 2 Roles and Responsibilities S E S S I O N N O T E S Executive Committee The Executive Committee is a group of people elected at an annual general meeting and is largely responsible for the day to day control and management of the strata scheme. However, the Executive Committee is subject to a degree of control and supervision by a general meeting. The owners corporation must appoint an Executive Committee. An Executive Committee consists of: Where there is only one owner, that owner Where there are two or more owners, nine members or less To be eligible for election a person must be: An individual A company nominee Office Bearers The Executive Committee must, at an Executive Committee meeting, appoint a chairperson, secretary and treasurer. One person may hold two or all of those positions. When appointed, the persons holding those offices are also the chairperson, secretary and treasurer of the owners corporation. To be eligible for appointment to one of those offices a person must be a member of the Executive Committee. Chairperson The chairperson presides at any general meeting and Executive Committee meeting of the Owners Corporation. The chairperson does not have a casting vote at either Executive Committee or general meetings. The chairperson s responsibility is to ensure that proceedings are conducted fairly and to properly ascertain the will of the meeting. Other than exercising procedural control over a meeting, the chairperson s power or authority is no different than other individual Executive Committee members. Institute of Strata Title Management Ltd 2010 Page 20

21 Module 2 Roles and Responsibilities Secretary The role of the secretary includes: Convening and giving appropriate notice of meetings Preparation and distribution of minutes of meetings Maintenance of the strata roll Enabling the inspection of documents Answering communications addressed to the owners corporation Attending to matters of an administrative or secretarial nature Treasurer The functions of a treasurer include: Notifying owners of contributions Receiving, acknowledging, banking and accounting for money paid to the owners corporation Keeping the accounting records Preparing the financial statements Preparation of Section 109 certificates Financial Planning Administrative Fund Budget The owners corporation must prepare an administrative fund budget: To maintain in good condition the common property To provide for insurance premiums To meet other recurrent expenses Sinking Fund Budget An owners corporation must prepare a sinking fund budget: To paint or repaint any part of the common property To acquire personal property To renew or replace personal property To renew or replace common area fixtures and fittings To replace common property Other expenses of a capital nature Institute of Strata Title Management Ltd 2010 Page 21

22 Module 2 Roles and Responsibilities Long Term Planning Sinking Fund Plan The legislation also requires the owners corporation to prepare a sinking fund plan. This is required to be a ten year plan which is reviewed every five years. Experts may be engaged to assist in preparation of this plan. Maintenance Plan The strata schemes legislation puts obligations on an owners corporation, and therefore it s Executive Committee, to properly maintain the common property. The most effective way of complying with this requirement is to implement a maintenance plan and a capital works plan (a sinking fund plan). Most owners corporations would have a maintenance plan in place, if only for cleaning, gardening and lift maintenance. A maintenance plan should be prepared to deal with all areas of common property. The items that would be included in the plan may be: Cleaning Gardening Lift maintenance Pump maintenance Air conditioning maintenance Gutter maintenance Garage door maintenance Pest control The above is not meant to be comprehensive and some items will not be applicable to some complexes. The plan should detail all items to be addressed, the frequency of service and the name of the contractor performing the service. All service contracts should be the subject of a specification and be put out to tender. Strata Managing Agents A strata managing agent is a person or company delegated to perform any function of an owners corporation. The functions of a strata managing agent are essentially clerical in nature. The agent usually acts as secretary and treasurer of the owners corporation and, as such, is responsible for keeping statutory records and ensuring the owners corporation complies with the provisions of the Management Act. Appointment Institute of Strata Title Management Ltd 2010 Page 22

23 Module 2 Roles and Responsibilities Apart from appointment by an Adjudicator, strata managing agents can only be appointed by an owners corporation following a resolution of a general meeting. An instrument in writing (agency agreement) must follow the resolution. The owners corporation may delegate to the strata managing agent: All of its functions Any one or more of its functions All of its functions, except those specified in the agreement The general meeting resolution would normally authorise both the appointment and the delegation. The agency agreement would normally be signed under common seal by the owners corporation (by the secretary and one other Executive Committee member). Agency Agreements Agency agreements must be in writing and also must comply with certain other conditions: Must be signed by both parties Must contain prescribed terms Must be served by the agent on the owners corporation within 48 hours of the owners corporation signing the agreement A template of an Agency Agreement can be found at the back of this manual under Resources Delegation Any function delegated to a managing agent cannot be delegated to anyone else by that agent. The chairperson, secretary, treasurer or Executive Committee, may continue to exercise all or any of the functions delegated to a strata managing agent. When a strata managing agent performs the function of an owners corporation it must make a written record and serve the record on the owners corporation. Termination of the Delegation Subject to the agency agreement an owners corporation may terminate the services of an agent by passing a motion at a general meeting and then serving written notice on the agent. Building Managers Institute of Strata Title Management Ltd 2010 Page 23

24 Module 2 Roles and Responsibilities In larger schemes it is becoming more common to have a building manager carry out some of the functions usually performed by a strata managing agent. These functions include: Caretake the common property Manage cleaning the common property Manage maintenance of lawns and gardens Supervise the use of common property Manage maintenance of the common property Sometimes the building manager may be an on-site residential property manager. This would permit the manager to: Provide a rental pool service to lot owners Provide a range of other services for owners A building manager cannot perform the services of a strata managing agent. A building manager would enter into a contract with the owners corporation to perform the duties contracted to the manager. This contract would have a term that cannot exceed 10 years. If a contract is entered into in the initial period it must be ratified by the owners at the first annual general meeting. The engagement of contractors must be by purchase/work order issued by the strata managing agent Insurances The insurance arrangements for a strata scheme are one of the most important aspects of management. All insurance taken out by an owners corporation must be with an approved insurer. The owners corporation is required to take out certain insurance covers: Building insurance Public Liability insurance Voluntary Workers insurance Workers Compensation insurance Designated insurance cover Any other class of insurance prescribed by the Regulations An owners corporation may take out other insurances, where they have an insurable interest. These may include: Institute of Strata Title Management Ltd 2010 Page 24

25 Module 2 Roles and Responsibilities Common contents Office bearers insurance Misappropriation insurance Discretionary property insurance Building Insurance The whole of the building must be insured in accordance with the most recent valuation and in the name of the owners corporation. Part Building Strata Schemes Most strata schemes are based on the whole of a building. However, there are a few buildings that comprise one or more strata schemes based on only part of the building. These strata schemes are called part building strata schemes. The owners corporation of each strata scheme and any other person who may have an insurable interest in the building must jointly insure the building and keep it insured. Public Liability An owners corporation must take out insurance in respect of damage to property, death or bodily injury. This cover must be taken out for not less than $10,000,000 for each claim. Designated Insurance Covers An owners corporation must take out insurance against an occurrence which the owners corporation, in accordance with a special resolution, decides to insure. Voluntary Workers Insurance An owners corporation must take out insurance which covers a person doing work in a building or on common property, without being paid. Workers Compensation An owners corporation must take out insurance required to be taken out by the Workers Compensation Act 1987 (NSW) and the Workplace Injury Management and Workers Compensation Act Office Bearers Insurance An owners corporation may take out insurance on behalf of chairperson, secretary, treasurer or member of the Executive Committee covering an act or omission committed or omitted in good faith in performing the functions of that office. Institute of Strata Title Management Ltd 2010 Page 25

26 Module 2 Roles and Responsibilities Misappropriation Insurance An owners corporation may take out insurance in respect of the misappropriation of money or other property of the owners corporation. This cover is discretionary and need not be taken out with an approved insurer. Discretionary Property Insurance An owners corporation may insure any property that it is not otherwise required to insure and in which it has an insurable interest. Valuations An owners corporation must obtain a valuation of a building it is required to insure at least once every five years. By Laws By laws are a set of rules which govern the behaviour of people living in Strata Title properties. These are contained in Schedule 1 of the Strata Schemes Management Act 1996 for strata plans registered prior to 1 July For schemes registered after this date, they will be as indicated on the Certificate of Title and will either be one of the set of model by-laws contained in the Regulation or by-laws created by the original owner at the time of registration of the Strata Plan. Owners corporations may from time to time add to, alter or cancel any of the by-laws to assist them in the management of the scheme. There are management by-laws which the owners corporation can enact to assist in the general management of the development. Other by-laws may be created by special resolution at a general meeting to grant either special privilege or exclusive use of common property. Occupational Health and Safety (OH&S) Risks Risks to which owners corporations are exposed are numerous and complex. Risk arises from physical hazards and from legal obligations under existing legislation. An owners corporation must take reasonable care to ensure that the common property is safe and will not cause injury. It is essential that all owners corporations, no matter how small, recognise that they will be exposed to risk of litigation and/or penalty if they: Fail to comply with fire safety legislation Fail to comply with legislation in relation to lifts and other specified items of plant Fail to comply with legislation in relation to protection of the environment Institute of Strata Title Management Ltd 2010 Page 26

27 Module 2 Roles and Responsibilities Failure to meet those obligations may also entitle a relevant insurer to deny or reduce insurance cover. Owners corporations will also be exposed to additional risk where: Part or all of the common property is being used for commercial purposes The owners corporation employs a caretaker Liabilities and Penalties Breach of an obligation imposed by legislation will usually give rise to liability Liability under general law, if applicable, will be unlimited. If the liability is in the form of a fine or penalty it may not be covered by insurance held by the owners corporation. Acknowledgements We acknowledge the following reference material used in preparation of this module. Gary F Bugden NSW Strata Schemes Management Handbook CCH Australia Limited Institute of Strata Title Management Ltd 2010 Page 27

28 Module 2 Roles and Responsibilities Activities Activity 1 Executive Committee What is the maximum number of executive committee members? Who are the office bearers? What are three roles of the secretary? Activity 2 Financial Planning What are the two types of budgets an owners corporation requires? What are three items that should be provided for in a maintenance plan? Institute of Strata Title Management Ltd 2010 Page 28

29 Module 2 Roles and Responsibilities Activity 3 Executive Committee and the Strata Manager How is a managing agent appointed? What must an agent do when it performs a function? Can a building manager also act as strata manager explain your answer? Activity 4 Insurances What insurance covers must an owners corporation take out What is the minimum amount of public liability insurance required? Activity 5 Occupational Health and Safety (OH&S) How might failure to comply with OH&S affect insurance covers? Can an owners corporation make an insurance claim for statutory penalties? Institute of Strata Title Management Ltd 2010 Page 29

30 Module 3 Strata Plan Interpretation Module 3 Governance Education for Executive Committees Strata Plan Interpretation Institute of Strata Title Management Ltd 2010 Page 30

31 Module 3 Strata Plan Interpretation Module 3 - Strata Plan Interpretation - Introduction Welcome to Governance Education for Executive Committees, Strata Plan Interpretation This unit is designed to provide you with information on the formation and registration of a Strata plan, as well as interpretation of the various markings on a Strata Plan. Learning Outcomes Once you have completed this module you will be able to identify areas of common property, define the boundaries of a lot, interpret the various parts of a strata plan, be aware of any Acts that apply to a Strata Plan. You will also be able to understand a range of definitions pertaining to interpretation of a Strata Plan. Further Resources Further information on Strata Plans may be obtained from: (Peter please fill in) Institute of Strata Title Management Ltd 2010 Page 31

32 Module 3 Strata Plan Interpretation S E S S I O N N O T E S Foundation of Strata Title The Strata Schemes Management Act 1996 came into effect on and from 1 July It repealed many sections of the Strata Titles Act 1973 and the Strata Titles (Leasehold Development) Act 1986 relating to management of strata schemes. It incorporates all sections relevant to the management of Strata Title properties. Prior to the introduction of the Management Act the Strata Titles Act 1973 had been the basis for both development and management of Strata Title property. Up until this time the management of Strata Title property had been in accordance with the Conveyancing (Strata Titles) Act This was the first attempt to provide for management of multiple housing within one structure. Strata Title is part of the Torrens Title System of owning property. A single title document is provided which shows all interests in the land and a good root of title. This can be investigated by title search. Torrens Title, introduced in 1858 by Robert Torrens, at the time revolutionised the way people owned land. It also gave the government responsibility to keep records of all land ownership. What is a Strata Plan? A strata plan is a floor plan of a proposed strata scheme. Upon registration with the Land and Property Management Authority (LPMA), an Owners Corporation is established. How is a Strata Plan Registered? A draft Strata Plan is created by a surveyor on behalf of a Developer/Builder at commencement of the Scheme for the purpose of determining the boundaries of lots or cubic space of lots. It should be noted that everything that is not in a lot is common property. Common Property as defined in the Strata Schemes Development Act 1973 is: so much of the parcel as from time to time is not comprised in any lot At completion of the development Local Council approves the Strata Plan and completes the appropriate Certificate to permit the Registration of the Plan with the LPI. The LPI carries out an extensive examination of the plan to ensure statutory requirements are met and that lot boundaries and common property are clearly defined. Upon registration of the Strata Plan the Owners Corporation comes into existence. Institute of Strata Title Management Ltd 2010 Page 32

33 Module 3 Strata Plan Interpretation How is a Strata Plan made up? There are three parts to a strata plan: Sheet 1 - Administrative Information Sheet 2 - Location Plan Sheet 3 - Floor plan Sheet 1 contains the Administrative Information Council Strata Certificate Surveyor s details Details of Plan of Subdivision Name and address for services of notices Strata Plan Number LPI Certificate of Registration Schedule of unit entitlements Details of any other documents Sheet 2 contains the Location Plan North Point Strata Location Boundaries of the parcel Building materials used for external construction Any part or parts of lots that are external to the building The identity of adjoining parcels Details of easements Any other information The Location Plan does not define lot boundaries Certain changes occurred at the LPI after As a result, location plans are not necessarily included. Prior to this date, it is normal to have a location plan included. Sheet 3 contains the Floor Plan(s) The floor plan defines the boundaries of each Lot. This is the document that is utilised in determining common property and the boundaries of a Lot. In most instances, each level of a building will have a separate floor plan sheet. Exceptions to this rule may apply where 2 or 3 levels are on the same sheet. Institute of Strata Title Management Ltd 2010 Page 33

34 Module 3 Strata Plan Interpretation Boundaries of lots are defined as the inner surface of the external walls, the upper surface of the floor and the under surface of the ceiling. This excludes painting, wallpapering and floor coverings where not affixed to the floor i.e. glued or cemented to the floor. The area within a lot is referred to as a cubic space and is defined by both horizontal and vertical boundaries. The side boundaries or perimeter of a Lot are defined by reference to a permanent structure feature such as a wall. This is shown on a Strata Plan by a thick line indicating that this feature is Common Property. A fine line on the plan makes reference to a boundary not being a common property wall. As previously stated, whilst not shown on the plan, the horizontal boundary is the under surface of the ceiling and the upper surface of the floor. By definition, it follows that all floors, walls and ceilings unless stated otherwise are common property. A stairway is deemed to be a floor or a ceiling on an angle. Where there is no upper surface of the floor or under surface of the ceiling, a statement will appear on the plan which sets out these limits, e.g. denoted courtyard limited in height to 2 below and 5 above the upper surface of the ground floor of the adjoining unit where covered. It should be noted that the term except where covered makes an allowance for eaves and guttering. This would mean that items such as eaves and guttering form part of the common property whilst drainage systems and paving servicing the Lot would be the Lot owner s responsibility. This means that taking a line from the upper surface of the ground floor and projecting out the cubic space of the Lot being the Lot owner s property, projects 2 metres below this line and 5 metres above. From a practical perspective, what would a lot owner own with respect to a courtyard that forms part of a lot? In the example, the area of the courtyard owned by the Lot owner is measured vertically from the upper surface of the ground floor of the adjoining Lot 2 metres down and 5 metres up (as per the strata plan). All this area is cubic space and forms part of the Lot. There may be further statements on the Plan relating to such things as pergolas, exclusive use areas, whether floor and wall tiles with a Lot are common property, fences, walls and retaining walls. In reviewing a Strata Plan, there are four types of lines drawn on the plans. Thick Thin Dotted Curvy Institute of Strata Title Management Ltd 2010 Page 34

35 Module 3 Strata Plan Interpretation Thick Lines Thick lines are Common Property walls and unless an exclusive use By-Law is created, are always the responsibility of the Owners Corporation to repair and maintain. Thin Lines Thin lines are boundary lines and usually mark the boundaries of courtyards or car spaces. In the event that there is a fence on this line, the responsibility for repair and maintenance of the fence falls on the Lot owners in accordance with the Dividing Fences Act The Dividing Fences Act states the following. Adjoining owner means the owners of land on either side of the property A fence separating land of adjoining owners whether on the common boundary of adjoining lands or on a line other than the common boundary Fence means a structure, ditch or embankment, or a hedge, enclosing or bounding land whether or not continuous, separating the land and adjoining owners and includes items such as gates, artificial water course or foundation or support necessary for the support or maintenance of a fence. It does not include a retaining wall or a wall which is part of the house, garage or other building Section 240 of The Strata Schemes Management Act 1996 refers to the Dividing Fences Act of This Section relates to the responsibility to repair and maintain fences that form the boundary of Common Property or adjoining land. In these instances the Owners Corporation in conjunction with the adjoining land owner is equally responsible for the repair and maintenance. The following rules apply: If the fence is situated entirely on the Common Property it is the Owners Corporation s responsibility. If the fence is on the boundary of an adjoining property i.e. another Strata Scheme, Torrens Title property, the responsibility falls equally on the adjoining property and the Owners Corporation. If the fence is a dividing fence within the scheme, i.e. between 2 villas in one scheme, then the responsibility falls equally on the respective Lot owners. To determine responsibility for the repair and maintenance of a fence....if it is a thick line it is Common Property and the Owners Corporation s responsibility Institute of Strata Title Management Ltd 2010 Page 35

36 Module 3 Strata Plan Interpretation Plans registered before 1 July 1974 On 1 July 1974 the Conveyancing (Strata Titles) Act 1961 was repealed and replaced with the Strata Titles Act At that time, the boundary between a Lot and another Lot or between a Lot and Common Property was defined by the centre line of any dividing structure such as a wall floor or ceiling. The transitional provisions of a new Act resulted in the majority of boundaries that were formerly the centre line of the structure being adjusted to the inner face of the structure. This was to adapt the former strata scheme to the provision of the new Act (inner surface of floors, walls and ceilings). The only boundaries that were adjusted were those that were the centre line of a structure between 2 lots or between a Lot and Common Property. Definitions Building Common property Council Current Plan Developer Floor area Floor Floor plan in relation to a strata scheme or a proposed strata scheme, means a building containing a lot or proposed lot or part of a lot or of a proposed lot the subject of that scheme or proposed scheme. means so much of a parcel as from time to time is not comprised in any lot In relation to a body corporate, means the Executive Committee of that body corporate appointed in accordance with the Strata Schemes Management Act 1996 Means a current plan as defined in section 7 (1) of the Conveyancing Act 1919, which is registered in the office of the Registrar-General, but does not include a strata plan, a strata plan of subdivision or a strata plan of consolidation. In relation to the strata scheme constituted upon registration of the strata plan proposed under a development scheme, means the person who, for the time being, is: (a) the original proprietor, or (b) a person, other than the original proprietor, who is the proprietor of a development lot within the strata plan In relation to a cubic space, means the area occupied on a horizontal plane by the base of that cubic space. Includes a stairway or ramp Means a plan, consisting of one or more sheets, which: (a) defines by lines (in paragraph (c) of this definition referred to as base lines) the base of each vertical boundary of every cubic space forming the whole of a proposed lot, or the whole of any part of a proposed lot, to which the plan relates Institute of Strata Title Management Ltd 2010 Page 36