Until 30 November 2016, owners corporations in NSW could not engage a lawyer or commence any legal action unless the engagement and the legal action was approved at a general meeting of the owners.
There was an exception to that requirement if the lawyer’s costs were quoted at less than $12,500 or $1,000 per lot (whichever was the lesser).
In addition, owners corporations had to send a copy of the lawyer’s cost agreement to all owners in the scheme within 7 days of its receipt.
There have been significant changes to these requirements since the commencement of the Strata Schemes Management Act 2015 on 30 November 2016 (referred to here as “the New Act”).
Under section 103 of the New Act, an owners corporation must still approve the obtaining of legal services at a general meeting, but the threshold for the exception to this rule has been significantly raised.
General meeting approval of legal services is not required if:
(a) the legal work is urgent; AND
(b) the legal work is quoted at no more than $15,000.
It’s important to note the use of the conjunctive “and” above. The exception only applies if the work is both urgent AND quoted at no more than $15,000.
Clause 26 of the Strata Schemes Management Regulation 2016 provides a more general exception in that, if the legal work is quoted at no more than $3,000, general meeting approval is not required (whether or not the work is urgent).
The effect of raising the exemption threshold is that legal services that could previously approved by a committee will now need to be approved by the owners corporation in general meeting. In my experience, a significant amount of legal work falls in the category of “not urgent, but costing more than $3,000” and will therefore require owners corporations to go to the time, trouble and expense of convening a general meeting in order to gain the required approval.
Owners corporations and strata committees would be well advised to try and predict, so far as they can, the kinds of matters about which they may like to seek legal advice during the course of a year, and attempt to put motions to their Annual General Meetings to approve this work. For example, if you are looking to engage a lawyer to assist you to conduct the mandatory by-law review required by clause 4 of Schedule 3 to the New Act, obtain cost agreements from lawyers before your AGM so that approval for the legal work can be sought and obtained then – even if you don’t plan to instruct the lawyer for another 6 months or so. It will save you having to hold a further general meeting later in the year. Just be sure to check that the lawyer’s quote remains valid for that period of time.
It is also important to note that the effect of section 105 of the New Act is that lawyers’ costs agreements do not need to be given to each owner, UNLESS they are for legal services requiring the approval of the general meeting. So, for work that is going to cost less than $3,000, or work that is urgent and going to cost less than $15,000, the lawyer’s costs agreement need not be circulated. This is a significant change from the requirement under the old law to issue copies of cost agreements to all owners, regardless of the quoted cost or nature of the legal services.