Understanding the community title reforms impacting NSW developers

At the end of last year, the Community Land Development Act 2021 (NSW) and Community Land Management Act 2021 (NSW) commenced thereby repealing the existing community title legislation and replacing it with a more modern and updated version, bringing greater flexibility for developers and existing schemes.

These reforms greater align the community title legislation with the NSW strata schemes legislation that was revised in 2015.  However, the NSW Government is currently reviewing the current strata legislation, so these pieces of legislation may not stay aligned for too long. We will watch this space. 

In the meantime, the following sets out some key changes relevant to developers of such schemes.

1. Changes to the initial period

Previously the initial period for a community scheme only came to an end once the initial period for each subsidiary scheme had expired. This caused problems for developers of community schemes that did not contain any subsidiary schemes and forced them to make time consuming applications to the Tribunal to end the initial period.  

Now the initial period for a community scheme ends on the day that at least one third of the sum of the total unit entitlement under the scheme consists of:

1. Former development lots the subject of subsidiary schemes for which the initial period has expired; and/or
   
   
2. Development lots are no longer owned by the original owner and for which occupation certificates have issued.  

2. Adding land to association property and the scheme

Traditionally one major drawback to community schemes has been that all association property had to be defined upfront and could not added to in the future. 

As a result of the reforms, association property may now be added by transfer if the land is not already part of the scheme parcel and the land is contiguous to the scheme parcel. 

Note that such a transfer cannot happen during the initial period of a scheme unless in accordance with a development contract or authorised by the Tribunal. Practically this does erode some of the flexibility provided to a developer to add future land to association property as, unless the developer goes to the Tribunal, the developer will need to contemplate the additional association property upfront in a development contract.  

Adjoining land can also be added to a community scheme, precinct scheme or neighbourhood scheme. Similar restrictions regarding effecting this during the initial period without a development contract or as authorised by the Tribunal also apply here.  

3. Voting

The reforms include the following in respect of voting rights:

1. The following is now permitted with a special resolutions, where previously a unanimous resolution was required:
   
   
   • amend the management statement
     
     
   • grant an easement burdening association property
     
     
   • grant a restriction on use or positive covenant that burdens association property or the whole scheme parcel
     
     
   • dealings releasing or variating a relevant interest that burdens association property or the whole scheme parcel
     
     
   • authorise the closure of an open access way within a community parcel
     
     
2. An original owner or person connected with the original owner cannot cast a vote via proxy or power of attorney if that proxy or power of attorney was given pursuant to the terms of a contract for sale or any ancillary contract or arrangement.  This replicates the position in the strata legislation.
   
   
3. Developers cannot vote on any matter concerning building defects in residential building work carried out by or on behalf of the developer of the scheme.

4. By-laws

In line with the strata legislation, the prohibition on making by-laws that are ‘harsh, unconscionable or oppressive’ has been imported into the community titles legislation.  

Similarly rights to make ‘association property right by-laws’ (akin to common property right by-laws in strata schemes) and prohibitions on restricting the devolution of a lot or a transfer, lease, mortgage or other dealing relating a lot are now relevant for these schemes.

5. Development contracts

Previously, even if a neighbourhood scheme was being built all in one line, there was an obligation on the developer to lodge a neighbourhood development contract with the neighbourhood plan. This is no longer the case, with the new provisions providing that neighbourhood development contracts are optional.

Developers can also utilise development contracts for community schemes and precinct schemes. Again such development contracts are optional. 

For all development contracts the time for the conclusion of the contract must not be later than 10 years (which is in line with strata legislation) – other than for community schemes where the legislature recognises that some of these schemes are staged over many years.  

For community schemes there is the ability to increase this timeframe for the conclusion of a development contract to a time between to 10 and 20 years upon application to the Registrar General if the Registrar General is satisfied that the development cannot be completed in 10 years.  

6. Terminating a community scheme or precinct scheme

Developers who wish to terminate a community scheme or precinct scheme can now go through the Registrar General’s office rather than having to go to the Supreme Court.

7. Inadequate estimates and levies

Developers must take due care and diligence in determining estimates and levies. An association or member can, within the first three years after the expiry of the initial period, bring an application to the Tribunal seeking an order for the original owner to pay compensation to the association if it is determined that the estimates and levies determined during the initial period were inadequate to meet actual or expected expenditures of the association.  

Given some of the greater flexibility afforded through these changes, we expect that some developers may be incentivised to consider community schemes for their developments. 

There are, of course, many other changes implemented in these reforms, many of those changes addressing the management of the schemes particularly relevant to managing agents and facilities managers.