Property Rights – done right or wrong?

To my amazement, during several visits to the former Soviet Union countries, I have noticed the lasting detrimental effect of their incomplete attempts to introduce Property Rights, following the fall of Communism.

Until the end of Communism the concept of private ownership of property was only a dream to individuals in those countries.

When Communism fell over, ‘Property Rights’ were proudly declared but, in effect, if you were a resident in a block of former Soviet-built apartments, you then ‘owned’ the cubic space occupied by your apartment up there in mid-air.

No thought was given to the communal areas and even less thought was given to the underlying land, which continues to be owned by the government.

Subsequently, as the years have passed, many of these poorly constructed apartment blocks are due to be demolished but, of course, none of the tenants will agree to that because their Property Rights will evaporate at that time.

One of the greatest gifts that Western Australia could give to those countries would be a copy of our Strata Title Act which ably addresses the management of communal areas and underlying land which is jointly owned by all those apartment owners.

As a guide and reference to make it easy for any interested party to follow this matter in greater detail we have asked three bright young Mannkal scholars from our 2021 Leadership Development Program to submit a summary of the original Strata Title Act and the reasons for redrafting it in the new form.

Please read their summaries below.

Regards,
Ron

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Yannik Simkovics

In 2018, the Western Australian Parliament passed new elaborate legislation to reform the state’s strata title framework, which recently come into effect. The reform has been eagerly anticipated and endorsed by interest groups hoping to cut red tape. The reform can be broken down into two phases.

Phase 1 included the passing of the Strata Titles Amendment Act 2018 (WA) (STAA). Effective since 1 May 2020, the STAA introduced substantial changes to the existing Strata Titles Act 1985 (WA) (the Act) and repealed the Strata Titles General Regulations 1996 (WA). The STAA forms the first substantial revision of the Act in more than two decades, and aims to remove complexities, by streamlining processes, increasing transparency, and introducing a new form of landownership to reflect housing preferences in the 21^st century.

More specifically, the STAA, introduced a new strata form that enables the creation of leasehold schemes, which permit the issuing of a certificate of title for each leasehold lot. The fixed life term of the scheme is set between 20-99 years, and gives the lessee the ability to sell, mortgage or sublet the strata without requiring consent of the lessor. New disclosure requirements will give prospective buyers the right to access strata scheme information such as bylaws and account information, while improvements to the termination process promises fairer and more streamlined outcomes. The STAA further expands the jurisdiction of the State Administrative Tribunal, promising a more efficient strata dispute resolution process outside the traditional court system. Lastly, the STAA introduced multiple changes aimed at improving strata management. These changes include clearer bylaws, mandatory maintenance plans, allowing electronic votes and communication and the introduction of statutory duties for strata managers, regulating the roles, while aiming for clarity and consistency across the industry.

Phase 2 entails the introduction of community schemes through the Community Titles Act 2018 (WA) (CTA), effective 30 June 2021. Community schemes are expected to facilitate the mixed use of a single parcel of land or buildings. Contrary to existing strata schemes, the CTA allows the subdivision of freehold land or a building into multiple community schemes, which allows a more flexible use and management of property for investors and owners.

In short, the legislation introduces new forms of landownership, new mixed forms of property use and streamlines strata management processes.

However, the STAA alone inserted almost 100 new pages to the Act, not to mention the addition of the CTA. The regulation introduces new compliance requirements, externalises many strata management decisions, further regulating private life, which previously was at the discretion of the owner. We are yet to expose the unforeseen consequences of heavier government intervention.   

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Wesley Du Preez

The Strata Titles Act 1985 set forth a series of laws about the development, management and sale of vertical (e.g. Apartment/Office blocks) and horizontal (e.g. Townhouse/Business Park) subdivisions of land under a form of ownership called a Strata Title. The Strata property is managed by a Strata Company and Strata Manager which oversee the upkeep, dispute resolution, termination and sale of schemes. In May 2020, multiple amendments to the Strata Title Act 1985 took effect, many were proposed in the 1996 review but took 24 years to be formalised. These amendments were intended to streamline and update many aspects of the act which proved cumbersome for stakeholders.

1.  The introduction of Leasehold Strata:
Intends to benefit developers through a fixed long term lease arrangement of between 20 to 99 years, which determines the leaseholder’s right to use and develop the property.

2.  Community Titles Act 2018:
Allows Community strata schemes to subdivide into more specialised forms of subschemes managed under an umbrella strata corporation. (e.g. Residential and Commercial subschemes are managed under different strata companies). Legislation effective in WA as of June 2021.

3.  SAT Tribunals:
New specialised State Administration Tribunal (SAT) set up to deal with Strata-related disputes in a more streamlined manner outside of a magistrate’s court.

4.  Scheme Termination:
Faster and simpler decisions on Strata-related proposals. Unanimity previously necessary, now 80% majority is sufficient.

5.  Better Buyer Information:
More transparency regarding the laws, rights, obligations and levies are included for stakeholders. Reduces information asymmetry between concerned parties and allows for fewer disputes and quicker decision making.

6.  Better By-Laws:
Amendment separates by-laws into Governance and Conduct categories. 10-year Maintenance plans and reserve funds for some developments have also been introduced.

From a libertarian free market perspective, the Act (and its reforms) alienate much of the self-determination of individual property owners and hands it to the Strata company with a more “community focussed approach”. The impact this has on the property rights of individuals within these developments cannot be overstated, especially as land becomes more scarce and subdivisions become increasingly necessary to meet the demand for housing. In a truly free market Strata-like developments would form and run naturally, adapting individually to consumer needs. A market for decentralised competing micro-governments is more efficient than the centralised blanket approach to property management enshrined into law.

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Sebastian Tofts-Len

Recently, WA’s land tenure and strata regulations underwent major reform. There were two phases; (1) in 2018, amendments were made to the Strata Titles Act 1985, which came into effect on May 1, 2020, and (2) the introduction of the new Community Titles Act 2018, which came into effect on July 1, 2021.

Amendments to the Strata Titles Act 1985

Landgate – the statutory authority responsible for WA’s property and land information – described the amendments to the Strata Titles Act 1985 as making it, “clearer and fairer for people, professions and industries involved with residential and commercial strata.” In other words, it was time to modernise existing strata laws and bring it into the 21st century.

Strata law is very complex. In fact, the Strata Titles Act 1985 is over 300 pages long. Putting aside all the intricate legal complexities: in summary, amendments include new disclosure obligations for sellers to prospective buyers, broadening the powers of the State Administrative Tribunal (SAT) to resolve strata disputes and have more flexible procedures than traditional courts, and the introduction of electronic options for communication, voting and scheme management.

The reforms have been praised by property advocacy groups. President of the Real Estate Institute of WA (REIWA), Damian Collins said, “Once implemented, the new legislation will provide a more streamlined and transparent system for everybody involved in strata living.”

“This includes better dispute resolution, clearer obligations for strata managers and a fairer and more robust system for the termination of schemes.”

Sandra Brewer, WA Executive Director of the Property Council added, “Modernisation and streamlining of strata titles law and leasehold tenure have been a key priority for Property Council members for many years, and it is terrific to see the strata titles law finally adopted.”

Further details of the amendments can be found here. The full 369-page Act is available online.

Introduction of the Community Titles Act 2018

“Innovative” and “flexible”. These were the words repeatedly used by the McGowan Government to describe the newly introduced Community Titles Act 2018.

The legislation came into effect early last month, introducing a new type of land tenure and sub-division called community schemes. Offering an alternative to strata titles, community schemes providing greater flexibility in management of mixed-use developments (eg. a multi-storey building with retail, commercial and residential uses on different floors).

Unlike strata titles, which only allow one scheme to be created on a single parcel of freehold land, WA’s community schemes will allow for up to three tiers of community titles to be managed under a single overarching/community scheme.

The community schemes have received a tick of approval from Australia’s largest property development advocacy group, the Urban Development Institute of Australia (UDIA). The WA CEO, Tanya Steinbeck aptly points out that, “Community Titles has been in effect for many years in other states” including New South Wales, South Australia and Queensland. “The type of projects that are delivered under the schemes is quite amazing.”

Community schemes should have been introduced in WA years ago. The ability to now decentralise a single scheme into multiple sub-schemes will provide greater autonomy and flexibility of management to their respective property owners, giving rise to the innovative integration of retail, commercial and residential uses.

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