The main piece of legislation regarding the management of strata schemes is the Strata Schemes Management Act 2015 (NSW). Time and time again, clients ask us about the rules for 2 lot strata schemes, and in particular, whether there needs to be an owners corporation and strata levies.
Because of the nature of 2 lot strata schemes (in particular, where each lot consists of a detached freestanding building), there are specific rules that apply to 2 lot strata schemes, as follows:
- The Strata Committee consists of the following people:
- the owner of each lot who is a sole owner or the company nominee of a lot (if the sole owner is a corporation); and
- for each lot that is owned by co-owners, the co-owner nominated by the other co-owners or (if the co-owner nominated is a corporation) the company nominee of that co-owner, or if there is no such nomination, the co-owner first named on the strata roll (section 30).
- A quorum is present for a meeting of a 2 lot strata scheme if not less than one-half of the persons entitled to vote on the motion are present (Schedule 2 Clause 12).
- A 2 lot strata scheme must have an Administrative Fund (section 73) (and therefore, periodical levies to be paid by the lot owners into a bank account in the name of the Owners Corporation). The administrative fund covers the costs of insurances and other recurrent expenses, as well as general upkeep of the property.
- The 2 lot strata scheme will not require a Capital Works Fund (section 74) or Building Insurance under a damage policy (section 160) if:
- the buildings comprised in one of those lots are physically detached from the buildings comprised in the other lot;
- no building or part of a building in the strata scheme is situated outside those lots, and
- if the owners pass a unanimous resolution for the Owners Corporation not to have a capital works fund and/or not to have building insurance for both buildings.
In that case, each lot owner can take out normal household insurance for their particular lot. Although the lot owners still need to be aware that the Owners Corporation must still take out in its name additional insurance such as workers compensation insurance, voluntary workers insurance and public liability insurance (section 164).
- Finally, there is no requirement for an audit of accounts and financial standards to be carried out in accordance with the Australian Auditing Standards unless the annual budget exceeds $250,000 (section 95).
Despite this, it is our experience that a vast majority of 2 lot strata schemes do not strictly comply with the Act. Generally an informal agreement is reached between the 2 lot owners regarding the payment of insurance – which tends to be the only shared cost between the lot owners – without establishing an owners corporation, opening a separate bank account, holding meetings etc.
If you have any questions regarding a 2 lot strata scheme, contact Melissa Bush.