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The new and improved Paddocks Sectional Title Scheme Management course has just finished. Over 40 students completed the course and we were delighted to receive such positive feedback. You can see all reviews and enrol here. 

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SECTIONAL TITLE VS HOA

This week we share an interesting Q&A from Paddocks Club, which follows on from the recent series of Life Rights articles. 

Question: 

Dear Professor, we manage a small new complex of only two units.

The Developer has registered the complex as a Sectional Title.
We have the Certificate or Establishment and Sectional Plans which confirm this.

The Developer handed the complex a “Constitution” (which make many references to Sectional Title legislation) and had referred to the complex as an HOA at the inaugural meeting. Furthermore, each household has taken out building insurance in their private capacities.

When enquiring with the Developer as to whether it is a Sectional Title complex or a HOA they responded with:
“The very nature of this 2 unit development, and other similar 2 and 3 unit developments that we have been involved with, is such that many of the provisions of the Sectional Title Schemes Act are not appropriate nor practical. This is why when we have registered the schemes, we have created a HOA and included a HOA condition in the Title Deed.”
They made further reference to Section 6(5) of the Sectional Titles Schemes Management Act records that where a Body Corporate is situate within a Home Owners Association (HOA), the provisions of the HOA prevail.

It seems that they are registering these complexes as a layered scheme, with no need to.
Is this appropriate and how should we go about managing this complex, with which legislation?

Answer:

Regulation 6 (4) under the STSMA has been used (and sometimes abused) by developers who don’t want the scheme to be managed in accordance with the PMRs. You can see the text under the LEGISLATION tab above.

The developers get purchasers to agree to be members of an HOA for the scheme and impose a title deed condition that has the STBC assign its powers and functions to the HOA. In this case they can substitute all the PMRs with other provisions.

What developers sometimes/often do not understand is that:
1. The HOA is still exercising the STBC’s powers and functions, so it is bound by all the provisions of the STSMA when it does so, and

2. The STBC still has to have rules – although these are sometimes embedded in the HOA constitution – and these rules have to comply with the requirements of the STSMA in regard to valid rules.

In short, there may be an HOA, but it is doing the STBC’s job and is bound by the STSMA, and relevant provisions of the CSOSA, while doing so.

As a managing agent, you may be cautious of taking on schemes like this because you can’t rely on your knowledge of the PMRs to guide your decisions, you have to be guided by the STSMA and the substituted rules, which may be embedded in the HOA constitution.

In practice I often find the that developers of these ‘hybrid’ schemes put management provisions in the HOA contract that are not valid ST rules or are contrary to provisions in the STSMA.

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