WA Strata Reform: Crunch time for developers inches closer

Following the end of the community consultation period on the proposed new strata regulations on 30 September 2019, we eagerly await the WA Government's response and implementation of the long-awaited strata reform.

The new strata laws will transform the industry as we know it, introducing to WA concepts such as leasehold strata and community title and providing more protections for buyers and vulnerable persons involved in strata schemes.

While the new laws are not expected to come into effect until the first quarter of 2020 at the earliest, developers should now be reviewing their current and proposed sale contracts and by-laws to determine the effect of the expected changes.

In particular, developers should consider the:

• additional information and disclosures to be given to buyers;
• changes to buyer termination rights; and
• re-classification of by-laws.

Before the contract is signed…

Additional information to be given

Under the new laws, sellers will be required to give additional information to potential buyers before the sale contract is signed, including minutes of the strata company, statements of account, details of debts owed to the strata company, estimated contributions the buyer will need to pay, and notices relating to the termination of schemes.

Under the draft regulations, a seller must also give a buyer a statement about restrictions to voting rights if a provision in the contract results in a buyer losing or having their voting rights as an owner of a lot restricted, including by grant of an enduring proxy or power of attorney to the seller.

Form of information

The draft regulations propose that all information to be given to a prospective buyer before the contract is signed is to be a separate document, annexed to the contract. If the buyer consents, this information can be provided electronically.

These changes to the form in which information is to be provided will be welcome news to developers, previously faced with lengthy contracts and apprehensive buyers.

After the ink is dry…

Sellers must continue to disclose notifiable variations to buyers, however classification of notifiable variations and timeframes around notification and termination by buyers have changed.

Notifiable variations may either be a:

• type 1 notifiable variation – generally relating more to changes to the lot size, unit entitlements for the lot and proposals to terminate the scheme; and
• type 2 notifiable variation – generally relating to changes to the schedule of unit entitlements, by-laws, service contracts and common property.

Sellers will now be required to disclose a notifiable variation to buyers within 10 working days of becoming aware of the notifiable variation or, if the seller becomes aware of the notifiable variation less than 15 working days before the due settlement date, as soon as practicable.

Even if a notifiable variation is disclosed in the contract, the seller must still give notice to the buyer within the relevant time periods once the matter consisting of the notifiable variation is complete.

If a seller fails to comply with the disclosure requirements before or after the contract is signed, a buyer may postpone settlement for up to 15 working days after the seller has complied with the relevant requirements.

Greater buyer termination rights

Buyers will have greater termination rights under the new regime, with the ability to terminate a contract:

• if the seller has failed to provide the appropriate information before the contract is signed, and if the seller was to later comply with those requirements, the information would disclose material prejudice to the buyer – but if the seller does later comply with those requirements, the buyer may only terminate within 15 working days of the seller's notice being given;
• if the buyer is given a notice of a notifiable variation and the buyer is materially prejudiced by the information disclosed, provided the buyer terminates within 15 working days of receiving the notice;
• if a type 1 notifiable variation occurs and the seller does not give notice within the required timeframe – but if the seller does later provide notice, the buyer may only terminate within 15 working days of the seller's notice being given;
• if a type 2 notifiable variation occurs and the seller does not give notice within the required timeframe and if the seller was to later comply with those requirements, the information would disclose material prejudice to the buyer – but if the seller does later comply with those requirements, the buyer may only terminate within 15 working days of the seller's notice being given; and
• at any time before registration of the scheme, if the lot has not been created when the contract was entered into and:
• the contract does not require any deposit to be paid to a lawyer, real estate agent or settlement agent to be held on trust until the scheme is registers and specify the lawyer or agent to whom payment is to be made and details for payment; or
• the scheme is not registered within a period after the contract date agreed in writing by the buyer and seller (or if no period is specified, within 6 months of the contract date).

Re-classifying by-laws

The way we refer to by-laws is changing, with "governance by-laws" to replace schedule 1 by-laws and "conduct by-laws" to replace schedule 2 by-laws. Schemes will no longer require Management Statements, and instead will have "staged subdivision by-laws" where developers want to undertake a staged subdivision.

Although existing by-laws will continue in force (other than those by-laws incorporating the terms set out in Schedule 1, clauses 11 to 15 of the current Act, which will be taken to be repealed due to their incorporation into the Act), under the draft regulations any future amendments to the by-laws will need to include a re-classification of the by-laws and be consistent with the transitional provisions set out in Schedule 5, clause 4 of the amended Act.

Therefore, developers should consider the impact that changes to their by-laws will have, and consider the impact of making changes after the commencement of the new regime.