Decision Making in an Owners Corporations: How are decisions made? Informally over coffee or in accordance with legislation?

Coffee Anyone?

A constant question asked of strata & community title lawyers is whether a decision of an owners corporation has been validly made. Why is this an issue? Many people don’t know how an owners corporation makes decisions. This can cause problems as if a decision is not validly made, any action undertaken by an owners corporation to further that decision is open to challenge. At worst, the decision is either void or ultra vires which would mean that lot owners may potentially have an action against the executive committee or strata manager who purported to make the decision if there is a loss to the owners corporation arising out of the “decision”.

So, how does and owners corporation make decisions? There are four ways for an owners corporation to make a decision, these are:

  1. The owners corporation at general meeting (either an annual general meeting or an extraordinary general meeting) make a decision by resolving to do (or not do) a thing. In NSW the rules of who is, and isn’t, eligible to vote is contained in Schedule 2 of the Strata Schemes Management Act. Some decisions require a simple majority, others must be by special resolution or unanimous resolution. For example the first motion on the agenda of each general meeting is to resolve to accept the minutes of the previous general meeting. Note that the general meeting must be properly constituted and required meeting notices be provided.
  2. The executive committee, at a properly convened meeting, resolves to do (or not do) a thing. Importantly, the executive committee’s powers can be limited by a resolution of the owners corporation at general meeting. An executive committee’s decisions are in NSW taken to be the decisions of the owners corporation however, any decision must be within its powers. For instance if the general meeting restricted the executive committee by limiting its power to enter into contracts over $20,000, the executive committee could not resolve to enter into a contract for $20,001.
  3. The strata manager under their delegated powers given in the strata management agreement and the motion appointing them makes a decision.
  4. An Adjudicator or NCAT / ACAT Tribunal member makes a decision on behalf of an owners corporation. For instance, an Adjudicator may determine that the owners corporation acted unreasonably in not making an exclusive use by-law under section 158 of the Act and may make a decision on behalf of the owners corporation that the by-law is made.

Why is it important to keep this in mind?

What often happens in NSW is that the executive committee will email each other and come to a consensus but not hold a meeting (whether an actual meeting or a paper meeting) to pass a resolution authorising the action. Where the decision is simply to pay the gardener to clean up after a major storm it is unlikely to be contentious. However, if the decision is to sack the current gardener and enter into a new maintenance contract then the owners corporation should ensure the decision is properly made.  Particularly, where as in one case I have been involved with, where the executive committee terminated the building manager/caretaker who then sued the owners corporation under their contract for damages.

The moral of the story is, make sure your owners corporation is making decisions properly, particularly if you want to be able to rely on those decisions. If in doubt, obtain advice.

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