Joining a strata committee is a great way to collaborate with your neighbours and help shape decisions that affect your property. 

But it can seem like a thankless task, particularly when decisions inevitably will not please everyone. Frankly, they can’t. Strata legislation is the real driver of committee decisions and so the first job of a strata committee is to ensure the corporation complies with legislation, advocating for good ideas is secondary.

New laws just passed by the NSW parliament and expected to take effect later this year will provide more help and guidance for committee members faced with tough decisions. 

New laws:

• Training for committees

• Duty to the owners corporation

• Enforcement of repairs and maintenance

Better understanding, better meetings, better decisions

Importantly, they include a new requirement for committee members to undertake some formal training.

The details are yet to be rolled out but the intent is clear: Training will improve strata knowledge, which should lead to better meetings and better decisions.

Another new section will more explicitly codify the duties of committee members to act responsibly and “with honesty and fairness, with due care and diligence and for the benefit, as far as practicable, of the owners corporation.” 

The key words here are “of the owners corporation.” 

The owners corporation gives life to the collective responsibility of all owners for everything that is not part of individual lots. Decisions by committees must be based on the best interests of the owners corporation as a whole and as a separate legal entity, not just cater to the desires of the owners who attend meetings. 

Repair and maintain – time to act 

The package also includes new powers for Fair Trading to enforce the legal obligation of the owners corporation to repair and maintain common property. 

Any owners corporation delaying major repairs or neglecting critical maintenance risks having that decision taken out of their hands. Details of how that would happen have not been provided. However, we note the power already exists to have an administrator appointed so it’s reasonable to think that might be the mechanism government will use. 

Informed decision making 

The government focus on the duty of a committee (and each of its members) to act in the interests of the owners corporation as well as the obligation to repair and maintain the property highlights the requirement for good process in making informed decisions. 

The most critical decision-making processes in our personal, business and strata lives is not deciding how to finance something – it is deciding whether to do that something in the first place. 

Decisions need to be made in two stages: 

First, what should be done? And second, what’s the best way to pay for it? 

Some of our personal decisions are easy and discretionary: For example, Stage 1 “I want the new iPhone”. Stage 2 is “How do I pay for it?” 

Here the decision whether to act can be influenced by affordability. 

Other decisions are much more complex, but still discretionary: 

Stage 1 “I need to register my car”. Stage 2 “I don’t have any money.” This is similar to many strata decisions where the legislation is clear that something must be done but the best means of paying for it is not immediately clear. 

Committees and committee members must also separate decisions into stages: 

1. What should be done? 

2. What is the best way to pay for it? 

In strata, many decisions are not discretionary. The owners corporation must repair and maintain. The ‘what to do’ is not optional, it’s purely a matter of working out the best way to do it. Owners corporations often get stymied here, confusing decisions about ‘what is best to do?’ with ‘how best to pay for it’ – these must always be kept separate. 

Most decisions about how to pay for something require a general meeting. Under the new strengthened duties, strata committees must show ‘due care and diligence’ in assessing all options, including financing options, so owners in a general meeting can make an informed decision. 

Tax is key 

Once a decision is made to act, the committee must determine the best way to fund the investment while acting in the owners corporation’s best interests. To do this, it is crucial for both the committee and owners to evaluate the funding in terms of after-tax costs. 

Taxes to consider: 

• Income tax for each owner 

• Company tax for the corporation 

• Capital gains tax 

• GST 

For Lannock’s part, after 20 years in strata finance, it is very clear to us that debt funding by the owners corporation is usually the most cost effective option after tax. That is certainly the case for investors, and to varying degrees for most other owners. 

The message for committees is simple: In choosing how to fund your project, carefully consider all the options, including the after-tax effect of the levies that result from the choice of funding. Seeking expert advice on tax is a great idea.