NSW: Q&A What is an unfinancial lot owner and can they vote?

This Q&A is about voting, unfinancial lot owners and what this means in NSW owners corporations.

Table of Contents:

• QUESTION: If an owner has interest owing on arrears, but during the meeting, a motion is passed to waive those interest fees, at what point are they permitted to vote or be nominated for the strata committee? Are they considered unfinancial until the end of the meeting?
• QUESTION: Can an owner be voted to the committee if they are unfiancial in one of the two lots they own?
• QUESTION: What are the rules regarding Executive Committee members moving and passing motions when they are unfinancial?
• QUESTION: Is an unfinancial lot owner entitled to a valid vote if they pay outstanding levies immediately prior to the AGM? Monies do not arrive in the relevant account for three working days after the AGM.

Question: If an owner has interest owing on arrears, but during the meeting, a motion is passed to waive those interest fees, at what point are they permitted to vote or be nominated for the strata committee? Are they considered unfinancial until the end of the meeting?

Answer: An owner who is unfinancial at the commencement of the meeting would remain so for the duration.

Yes, for the purpose of a meeting where a motion to waive interest and elect the strata committee is considered, an owner who is unfinancial at the commencement of the meeting would remain so for the duration of such.

In NSW, an owner is considered unfinancial if they have failed to pay all contributions levied that are due and payable and any other amounts recoverable from the owner in relation to the lot. This includes interest applied for unpaid contributions.

The Strata Schemes Management Act 2015 specifically addresses the limitations of an unfinancial owner at a general meeting, stating: ‘A vote at a general meeting (other than a vote on a motion requiring a unanimous resolution) by an owner of a lot or a person with a priority vote in respect of the lot does not count if the owner of the lot was an unfinancial owner at the date notice of the meeting was given and did not pay the amounts owing before the meeting‘ (Schedule 1, Part 4 (8)).

Similarly, when considering the election of a strata committee, the Act stipulates: ‘An owner of a lot in a strata scheme who was an unfinancial owner at the date notice was given of the meeting at which the election of a strata committee is to be held and who did not pay the amounts owing by the owner before the meeting is not eligible for appointment or election to the strata committee‘ (Section 32 (2)).

Therefore, because the legislation explicitly states that an unfinancial owner must pay all due amounts before the meeting, the voting rights would not be partially granted to the owner for the remainder of the meeting and subsequently, eligibility for election to the strata committee could not be conferred, even if the owners corporation passed a resolution to waive the interest at the meeting.

After the meeting concludes and the minutes are issued, the strata manager would facilitate the removal of any interest in accordance with the resolutions passed and as permitted under Section 85 (3) of the Act.

In my experience, in these circumstances, it would be advisable for the unfinancial owner to pay the interest owing before the meeting. The payment should be made in advance of the meeting date to ensure that the funds are received in the owners corporation’s trust account. Then, if the resolution to waive interest is agreed upon at the meeting, a credit would be applied to the owner’s ledger account thereafter.

By making payment of the interest before the meeting, the owner ensures they have full voting rights, are eligible for election to the strata committee, and will contribute to the smooth conduct of the meeting.

Ben Ruddell
Tender Advisory
E: ben@tenderadvisory.com.au
P: 0423743714

This post appears in the July 2024 edition of The NSW Strata Magazine.

Question: Can an owner be voted to the committee if they are unfiancial in one of the two lots they own?

What is the recourse if an unfinancial member is voted to the strata committee? The question was asked at the beginning of the AGM “is everyone financial?”. The Strata manager replied “Yes”. The member was unfinancial in one of the two lots owned.

What is the recourse for a Strata Manager who has allowed this unfinancial member be elected on to the Strata Committee?

As the member was invalid to be elected at the AGM, am I allowed to go onto the Strata Committee as the replacement?

Answer: If an owner owns two lots, and one of those is financial, they can use that lot to nominate themselves (or another person) as a candidate for the strata committee.

If an owner owns two lots, and one of those is financial (i.e. has no amounts owing to the owners corporation as of the time of the notice of the general meeting being issued, and those amounts are paid before the meeting), the owner can use that lot to nominate themselves (or another person) as a candidate for the strata committee.

Section 32(2) of the Strata Schemes Management Act 2015 (NSW) (‘the Act’) does attempt to explain that an unfinancial owner is not eligible for appointment, however fails to clarify a scenario in which they own more than one lot.

It is therefore section 31(5) of the Act that provides this clarification, as it states “A person who is an owner of more than one lot in the strata scheme may nominate one person for election as a member of the strata committee for each lot for which the person is an owner.”

If a person was not elected properly, one could seek an order from the NSW Civil & Administrative Tribunal to invalidate the resolution, in accordance with section 24 of the Act. However, when seeking such orders, one must note section 24(3), which states:

“The Tribunal may refuse to make an order under this section only if it considers—

1. that the failure to comply with the provisions of this Act or the regulations, or of the Strata Schemes Development Act 2015, did not adversely affect any person, and
2. that compliance with the provisions would not have resulted in a failure to pass the resolution or affected the result of the election.”

Tim Sara
Strata Choice
E: tsara@stratachoice.com.au
P: 1300 322 213

This post appears in Strata News #618.

Question: What are the rules regarding Executive Committee members moving and passing motions when they are unfinancial?

Our Strata Manager has informed us that at the beginning of each EC general meeting, we must ask if any members declare they are unfinancial.

If the committee does not ask this question and an unfinancial member moves a motion or votes on a motion, that motion can be declared valid.

My understanding is that if any EC member votes on a motion when they are unfinancial, that motion is invalid.

I raised this during acceptance of the previous minutes where an unfinancial member voted and moved a motion. The Strata Manager stated this was ok as we didn’t ask the question at the beginning of that meeting to find out if anyone was unfinancial.

Answer: The chairperson of any meeting should consult with the Treasurer (or Strata Managing Agent) to understand who is financial and unfinancial, in order for them to preside at the meeting and make determinations properly.

There are many rules to consider before, during and after a Strata Committee Meeting.

In this article, let’s focus on the issues raised in the question.

Relevant legislation

Section 42 of the Strata Schemes Management Act clarifies the functions of the chairperson, being:

1. to preside at meetings of the owners corporation and the strata committee of the owners corporation, and
2. to make determinations as to quorums and procedural matters at meetings of the owners corporation and the strata committee of the owners corporation.

Schedule 2 of the Strata Schemes Management Act sets out the Meeting Procedures of Strata Committees.

• Clause 7 requires that the notice of a strata committee meeting must include a detailed agenda (with all of the motions to be considered).
• Clause 8(1) requires the chairperson to preside at any meeting at which they are present (and clause 8(2) allows the committee to appoint another member if the chairperson is not present).
• Clause 9(4) excludes a member of the strata committee from being entitled to vote on any motion if:
  
  • they are unfinancial as of the date that the notice of the meeting was given; and
  • they have not paid the amounts owed by the time of the meeting.
• Clause 14 clarifies that a motion can only be moved by a person entitled to vote on it. It should be noted that moving a motion does not allow for motions to be added to the agenda (an example of moving a motion might be to move to amend a motion).

The correct way

The chairperson of any meeting should consult with the Treasurer (or Strata Managing Agent) to understand who is financial and unfinancial, in order for them to preside at the meeting and make determinations properly. The source of truth is the financial records – not the declaration of those present (after all – usually, when people are in arrears, they don’t know it).

The validity of decisions

Even if there was an error with the vote count and declaration by the chairperson, it might not necessarily have changed the outcome of the decision.

For example, if there were four votes cast in favour, and one vote against, and one of the four votes was actually invalid (e.g. they were unfinancial), the outcome would have been the same anyway as it was still 3 to 1.

The reason being that under section 24 of the Strata Schemes Management Act, the NSW Civil & Administrative Tribunal can make orders invalidating resolutions. However, section 24(3) states:

The Tribunal may refuse to make an order under this section only if it considers—

1. that the failure to comply with the provisions of this Act or the regulations, or of the Strata Schemes Development Act 2015, did not adversely affect any person, and
2. that compliance with the provisions would not have resulted in a failure to pass the resolution or affected the result of the election.

Tim Sara
Strata Choice
E: tsara@stratachoice.com.au
P: 1300 322 213

This post appears in the September 2022 edition of The NSW Strata Magazine.

Question: Is an unfinancial lot owner entitled to a valid vote if they pay outstanding levies immediately prior to the AGM? Monies do not arrive in the relevant account for three working days after the AGM.

We recently held our AGM. One of the lot owners paid their outstanding levies half an hour before the start of the meeting. We were unaware of this at the start of the meeting and the meeting was conducted, votes counted etc. with the understanding that the unfinancial lot owner’s votes were invalid.

The meeting was closed. After this, the unfinancial lot owner states to the strata manager that he had paid and provided evidence of payment. The strata manager then decides to accept this lot owner’s vote and alter the outcome of the closed meeting. Please note that despite payment being made to the strata management company, the monies didn’t arrive into the relevant strata scheme’s account for at least three working days.

Is this lot owner entitled to a valid vote and can the strata manager alter the outcome of a meeting once the meeting is declared closed?

Answer: The lot owner should have confirmed when signing in that they were financial so this could be dealt with transparently at the start of the meeting.

As you would know an unfinancial owner, mortgagee or covenant chargee cannot vote at a meeting on a motion (other than a motion requiring a unanimous resolution) unless payment has been made before the meeting of all contributions levied on the owner, and any other amounts recoverable from the owner, in relation to the lot. This is taken to be payment received as schedule 1, clause 23(8) of the Act requires the payment must be made before the meeting for the lot owner to be financial.

The lot owner should have confirmed when signing in that they were financial so this could be dealt with transparently at the start of the meeting. The lot owner could have provided evidence such as a screenshot of the payment from their mobile emailed or texted to the strata manager, that the funds had been transferred and the strata manager could have checked whether the funds had been received. In this case, as the funds had not been received unit 3 days after the meeting the lot owner was not financial.

To prevent this from happening again I recommend that you requestion under cl13 of Scheduled 1 of the Act that the chairperson declare the names of those persons entitled to vote at the start of each meeting.

An unfinancial lot owner could file an application with NCAT under s25 of the Strata Schemes Management Act 2015 on the basis that they were denied a right to vote and that a particular resolution or all resolutions at the meeting were a nullity and of no effect. However, section 25(2) states:

2. The Tribunal must not make the order unless the Tribunal is satisfied that the resolution would not have been passed but for the fact that the applicant for the order–
   
   1. was improperly denied a vote on the motion for the resolution, or
   2. was not given due notice of the item of business in relation to which the resolution was passed.

Therefore if the lot owner’s vote was not going to change the outcome of the vote then the Tribunal cannot make an order to declare the resolution a nullity. This type of application must be made within 28 days of the meeting.

Allison Benson
Kerin Benson Lawyers
E: allison@kerinbensonlawyers.com.au
P: 02 4032 7990

This post appears in Strata News #466.

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