This article is part of a series on the new reforms to Strata Title legislation in NSW, the most far-reaching reform to take place since the commencement of strata title in 1961.[1]  Most provisions of the Strata Schemes Development Act 2015 (NSW) and Strata Schemes Management Act 2015 (NSW) will commence on 1 July 2016.

A significant aspect of the new legislation is its attempt to combat “proxy farming”.  This is the process whereby one member of a Strata scheme gathers up the right to vote on behalf of other members who are less active in the scheme.  The new limit on “proxy farming” is expected to have far-reaching effects:  It was described as one of the most hotly debated of all the reforms during the online consultation process, with proxy farming said to allow “manipulation, threatening behaviour and subjugation of others”.[2]  The NSW Minister for Innovation, Victor Dominello in the second reading speech before Parliament referred to “the scourge of proxy farming”.  In fairness, it may be observed that proxy farming may facilitate the efficient governance of strata schemes in circumstances where many strata owners seem happy to give a proxy so that they do not have to attend strata meetings. 

The new measure to stop proxy farming

Whatever the true view of proxy farming, a cornerstone of the legislative effort against it is the new measure which will limit the number of proxies which may be held by any one person to no more than 5% of the total votes in the scheme (or 1 proxy if the total number of votes is less than 20).[3]  On its face, this measure alone would appear sufficient to stop any real reliance on proxies.

But will it do so?

The State of Queensland has previously introduced a similar measure which limits the right to hold proxies to no more than 10% of the votes in a strata scheme.  However, in a recent case in Queensland of Williahra Tower, a member of a Strata Scheme with 108 lots presented 27 powers of attorney signed by 27 other lot owners, granting to himself as grantee the power to vote in strata meetings.  This was far in excess of the 10% proxies permitted by Queensland legislation.  The adjudicator held that this was a valid use of power of attorney, and it was permissible to exceed the legislative limit applying to proxies by this means.[4]

In practical terms, powers of attorney may be more difficult to obtain – many people are aware that a power of attorney gives a right to deal with a person’s property and can therefore become an instrument of fraud in the wrong hands.  Yet a power of attorney can be limited on its terms to only the right to vote at strata meetings.  The case of Williahra Towers demonstrates, that in practice it is possible for a member to collect a substantial number of powers of attorney in place of proxies, in that case 25% of the votes of the strata scheme.

It is also true that there is a specific prohibition in the new legislation against an original owner of the lot casting a vote by means of proxy OR power of attorney, if it was obtained pursuant to a term of the sale contract for the lot, or an ancillary arrangement.[5]  This is designed to prevent the common practice of developers who build strata unit blocks continuing to exercise control over the strata scheme by taking proxies/power of attorney during the process of selling the lots.  The fact that powers of attorney are specifically referred to in this situation, yet not in relation to the general prohibition against a person holding more than 5% of proxies in a scheme, appears to reinforce that the legislature did not intend to prevent the holding of large numbers of powers of attorney by a member (so long as it is not done by the developer through contracts of sale). 

It will be interesting to see if a general practice of seeking powers of attorney granting rights to vote at strata meetings arises in New South Wales under the new legislative regime, thus effectively replacing “proxy farming” with “power of attorney farming”.

Michael Mitchell

Principal

Keypoint Law

[1] The concept of Strata Title was created in the State of New South Wales in 1961, and has since been adopted throughout Australia as well as in Singapore, South Africa, Indonesia, Malaysia, India, parts of Canada and many other countries

[3] Schedule 1 clause 26(7) of the Strata Scheme Management Act 2015 (NSW)

[4] See Williahra Tower [2016] QBCCMCmr 177 (21 April 2016) http://www.austlii.edu.au/au/cases/qld/QBCCMCmr/2016/177.html at para [53]

[5] See section 25(5) of schedule 1 to Strata Scheme Management Act 2015 (NSW)

 

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This article is for general information purposes only and does not constitute legal or professional advice.  It should not be used as a substitute for legal advice relating to your particular circumstances.  Please also note that the law may have changed since the date of this article.