Unity for community schemes: more alignment to strata title

On 21 October 2020, the NSW Legislative Assembly passed the Community Land Development Bill 2020 (CLD Bill) and the Community Land Management Bill 2020 (CLM Bill) (together the Bills).

Community Land Development Bill 2020

The CLD Bill seeks to repeal and replace the Community Land Development Act 1989 (NSW), for the purpose of facilitating the subdivision and development of land with shared property. The CLD Bill proposes to make the following changes:

• remove restrictions on associations and owners from purchasing adjoining land outside of the community, precinct or neighbourhood scheme (collectively the Schemes);
• increase the freedom of schemes by allowing the use of special resolutions to add land to the Schemes, subdivide association property or transfer association property;
• provide developers with more flexibility and purchasers greater certainty around stages of future works by incorporating significant changes to development contracts to align with similar provisions in strata legislation; and
• simplify the amalgamation process for subsidiary precinct and neighbourhood schemes with parent community schemes at the completion of the development.

The CLD Bill works with the CLM Bill to modernise and increase the effectiveness of the regulatory framework for community lands and aligns it with the management of strata title schemes.

Community Land Management Bill 2020

The CLM Bill seeks to re-enact and update the Community Land Management Act 1989 (NSW) with respect to the management of the Schemes and to align the legislation with legislation applying to the management of strata title schemes.

The CLM Bill proposes to make the following changes:

• impose restrictions on "harsh, unconscionable or oppressive" by-laws;
• increase penalties for by-law breaches;
• promote compliance by managing agents by including strict liability offences;
• provide a framework for the resolution of disputes; and
• set out the investigative and enforcement powers of the Commissioner of Fair Trading (Secretary).

We explain the key provisions below and what these provisions and changes may mean.

Restrictions on by-laws

Similar to the Strata Schemes Management Act 2015 (NSW) (Strata Act), the CLM Bill provides that a by-law cannot be 'harsh, unconscionable or oppressive'.  As such, there is a possibility that the New South Wales Civil and Administrative Tribunal (NCAT) adopts the same meaning to this phrase as it has with disputes under the Strata Act such that prohibitive by-laws will likely be unenforceable.

Increased penalties for by-law breaches

The CLM Bill provides that NCAT may impose a civil penalty for a breach of by-laws for a community, precinct or neighbourhood scheme. If an association for the scheme has given a person notice to comply with a by-law and that person has since contravened the by-law, the Tribunal may impose a penalty of up to $1,100 (proposed subsection 138(1)), or up to $2,200 if the person breaches the by-law again within 12 months of the Tribunal’s first order (proposed subsection 138(2)).

Further, proposed subsection 138(3) provides that notwithstanding subsections 138(1) and (2), in dealing with a contravention of a by-law, the Tribunal may impose a penalty of up to $5,500 under proposed subsection 138(1) and a penalty of up to $11,000, under proposed subsection 138(2). However, the provisions do not specify in what circumstances NCAT may impose the higher penalties.

Strict liability offences for managing agents

Strict liability

The CLM Bill attempts to balance managing agents' transparency and accountability against choice, competition and flexibility within the marketplace.  In bringing the community lands sector in line with strata schemes in NSW, a deep dive into the duties of managing agents was undertaken.

Proposed Division 3 of Part 4 of the CLM Bill covers the accountability of managing agents of the Schemes, providing that the association for the scheme can require the managing agent to provide certain information including information about trust accounts and other accounts; and information about money received and other transactions.  To promote compliance with these requests for information, the CLM Bill provides that a managing agent must comply with a notice to provide such information within 14 days, with a maximum penalty of $2,200 for non-compliance.  However, a person cannot be guilty of failing to comply with such a notice if reasonable cause for the failure is shown.

The CLM Bill also provides that persons to be appointed as the managing agent or facilities manager for a scheme must disclose certain interests, such as a connection to the original owner or a pecuniary interest in the scheme before their appointment, with a maximum penalty of a $5,500 for non-compliance.

Liability for breaches of the above offences is strict.  In regulatory settings, strict liability provisions are not uncommon as they are needed to promote compliance and strengthen offence provisions.

Flexibility for associations when appointing managing agents

The CLM Bill limits the length of a managing agent’s contract to a maximum of one year for an agent appointed at the first AGM.  Any subsequent term of appointment is limited to a maximum of 3 years.  Automatic rollovers of agency contracts are not permitted, except for a period of 3 months where an agreement has expired and the association has not made a decision to either revoke or renew the contract.

Dispute resolution

Proposed Part 11 of the CLM Bill deals with the resolution of disputes in schemes and the powers of the Tribunal. Division 2 of that Part sets out procedures for alternative dispute resolution by the Secretary.

Representation at mediation

Proposed section 181 provides that a party to a civil dispute is not entitled to be represented by another person at a mediation unless all other parties consent to the representation. The restriction only applies to the mediation process and not to the Tribunal proceedings themselves or criminal matters. The purpose of the restriction is to promote the resolution of disputes with as little formality as possible.

Right to privacy

Proposed section 184 provides that a mediator may disclose information obtained in connection with the alternative dispute resolution in certain circumstances including:

• where consent has been given by the person from whom the information was obtained;
• if the disclosure is in connection with the administration or execution of the alternative dispute resolution;
• if there are reasonable grounds to believe that the disclosure is necessary to prevent or minimise the danger of personal injury or property damage;
• if the disclosure is reasonably required to refer a party to a mediation to an appropriate entity and the disclosure is made with the consent of parties to the mediation to aid resolution of the dispute; or
• in accordance with a State or Commonwealth law.

Investigative and enforcement powers of the Secretary

Part 12 Division 1 of the CLM Bill deals with offences and enforcement powers under the proposed Act. Proposed section 209 sets out the investigation powers of the Secretary. If the Secretary believes on reasonable grounds that an offence under the proposed Act has been or may be committed, the Secretary can exercise certain powers to investigate. These include entering the association or common property; entering a development lot; and entering a neighbourhood or strata lot at a reasonable time on notice given to the occupier.

The Secretary does not need to obtain a warrant before exercising the powers under proposed section 209, however there are certain safeguards in place. First, the Secretary must satisfy an objective test - he or she must believe on reasonable grounds that an offence under the proposed Act has been or may be committed before exercising the powers. Second, where individual neighbourhood or strata lots are concerned, the Secretary may only exercise the power of entry at a reasonable time, and on notice given to the occupier.

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