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Developer difficulties
Within three months from 1 April 2008, developers will be required to setup a new owners association or modify an existing community association.
The new law sets out very specific obligations on how a developer must set up an owners association so it can register the master owners association with the lands department.
To transfer ownership and issue a separate title, the lands department will require a developer to call the first meeting of the owners association and pass all the necessary resolutions required to effectively manage the owners association's assets.
All developers will be required to fix any structural defects for a period of 10 years and ensure internal snagging issues are fixed within one year.
At the first meeting of an owners association, a developer holds 100% of all the votes on behalf of all the purchasers and its interests. Here, it will pass the appointment of the owners association's general manager (strata manager), the FM company and any other consultants and contracts that are required by the new law.
The developer will also be required to ensure the owners association is set up currently and complies with the new law. There are many complicated and onerous duties a developer must comply with.
Worst case scenarios
It must think out from today and put in place resolutions that will allow the building and the development to survive the long term.
The area of greatest concern is the type and structure of leases and licenses over the common areas.
If a hotel is operating in a development and requires a license over the common areas then the length, term, rental and maintenance requirements are crucial to how the building will operate in the long term when things like the current contracts expire.
A developer has only one chance to get it right because at the first meeting of the owners association, it will approve or not approve specific motions that will affect the long-term management and operation of the building and its common areas.
At the first meeting, the developer will approve items with a:
• Unanimous resolution (100% approval of all members). This includes the allocation of car parks and individual unit proportion of the buildings common areas costs, etc;
• Special resolutions (75% approval in favour) and,
• Normal general resolution (requiring a 50% approval from the floor).
Items that are essential to be approved like leases or licenses of common areas (cafés or restaurants to position tables and chairs outside their shop), will require a special resolution.
This shows that if a developer gets it wrong then future owners may be able to overturn the first meeting and call a new one with different objectives not in the interests of the developer.
It is therefore essential that a developer appoints an experienced strata manager to audit what it's doing and assist it in running efficient and successful meetings.
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