STATUTES AMENDMENT (COMMUNITY AND STRATA TITLES) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 29 February 2012.)

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for Tourism, Minister for the Status of Women) (17:04): I believe there are no further second reading contributions. Given that this bill was reinstated, I understand that those members who have an interest in this particular bill have either spoken at the second reading stage now or previously. I thank those members for their contributions to this bill and take this opportunity to address concerns raised about members of the government not providing copies to the opposition of submissions that the Attorney-General received during consultation on the bill. It has not previously been standard practice for the Attorney-General to make public or hand over to other members of parliament copies of submissions received in response to invitations to comment on draft legislation. Therefore, there was nothing unusual in not doing so with respect to the submissions received on this bill.

Further, it was not simply a question of handing over copies of submissions when the member requested them. There are privacy principles that apply and, in the case of the most recent round of consultation on this bill during which the draft bill and an explanation of the provisions were sent to peak bodies representing interested parties, those invited to comment were not warned that their submissions might be published, nor invited to indicate whether they wanted their submissions or part of their submissions to remain confidential. Members were able to obtain the submissions via a Freedom of Information process which enabled parties who made those submissions and any people referred to in the submissions to be consulted before their submissions were released.

The second reading speech for this bill outlines in detail the consultation process and the key people and organisations consulted and who made submissions. The government also made various amendments to the bill in the other place in response to additional submissions that were made by, in particular, the National Community Titles Institute, representing strata managers. After the bill was introduced in parliament, amendments also arose out of correspondence that the Attorney-General had in the period after the bill was introduced by the Law Society and the Real Estate Institute of South Australia.

It was suggested by the opposition in its contributions on this bill that the second reading speech misconstrued the submissions from the National Community Titles Institute (the NCTI) on this measure. The second reading speech of the bill in the other place, in fact, stated almost exactly the argument that was contained in the submissions made in both rounds of consultation by the NCTI about the proposed termination right in the draft bill. It was not until after the bill was introduced that the NCTI wrote to the Attorney-General complaining about the measure being draconian and that at least a notice period should be allowed.

As I said, that was after the bill was introduced. The Attorney-General responded to those late submissions by securing amendments to the bill to modify the provision. There has been a right to revoke delegations to a manager at any time in the Community Titles Act since 1996. The intention was to give full effect to that right by allowing corporations to also terminate at any time a contract relating to those delegations. The intention is to increase the accountability of managers about whom the Attorney-General, and I understand other members, receive a steady number of complaints.

In light of the further submissions made after the introduction of the bill, the government decided to adopt a compromise position which would see an initial period of up to 12 months during which a manager could rely on future business from the corporation and plan accordingly but after which a corporation would be free to terminate the contract at any time with 28 days' notice if unhappy with a manager's services.

Although, after having a contract or contracts with a manager for 12 months, a corporation may review or extend the manager's contract for another fixed term, the corporation will have a statutory right to terminate that subsequent contract after giving notice. This will give managers an initial period of certainty in which to establish the relationship with the corporation as well as address arguments from managers that there needs to be a period of certainty when setting up new developments. Those amendments were passed in the other place and are in the bill as introduced to this house, and I look forward to dealing with the committee stage expeditiously.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. S.G. WADE: I would seek the patience of the committee. To facilitate government business we expedited the finalisation of amendments and we expedited our preparation for the presentation of those amendments, so I apologise for the limited notice that has been given to honourable members in relation to the amendments. We will certainly try to explain them as we go along.

In relation to the minister's point about consultation in terms of what has been government practice in the release of documents in relation to consultation papers, in our comments both myself and the Hon. Tammy Franks were very strong in our criticism of the government in committing to provide the submissions and then requiring us to go through the FOI process. I was not arguing that the Attorney-General was not reflecting convention. I see this as part of the ongoing development of modern democracy. There is a higher expectation of disclosure, as reflected by the evolution of FOI laws themselves.

In terms of the privacy principles that the minister referred to, we (when I say 'we' I am talking in that context of the Liberal opposition rather than purporting to speak for the Hon. Tammy Franks) are happy to sit under the broad principles of the FOI Act. At times I think that the FOI Act is used too aggressively. For example, my reading of the FOI Act is that a third party does not need to be consulted about the potential disclosure of a document unless the FOI officer has reason to believe that there would be disclosure of personal or commercial interests.

In that regard I think from time to time FOI officers go beyond the law, and perhaps not in the spirit of the law. After all, the spirit of the law is disclosure, not non-disclosure. After all, these are public submissions to a public consultation paper. Let me let that rest. I think it will be an evolution of practice.

On a positive note I acknowledge the fact that the Attorney-General has published on the Attorney-General's website the submissions that were received in relation to the Serious and Organised Crime Act. I would just put it to the government that, if the government finds itself able to release submissions on such a sensitive piece of legislation, it seems to me that it is quite viable for it to become established practice.

I also want to acknowledge the fact that FOI documents reflect that the Attorney-General has responded significantly to feedback on the consultation draft. There is a large number of matters that he has not acceded to. The nature of public consultation is that there is a series of irreconcilable demands, and we appreciate that the Attorney has constructed and engaged in the consultation process. We also acknowledge that, through discussions he had following the initial House of Assembly debate, amendments were made in the House of Assembly which significantly improve the legislation so, again, we believe this bill is getting better as it goes along.

As I said, significant issues remain. We believe that a two-year review would give the industry an opportunity to test whether the theory works in practice, and we are moving amendments to that effect. To balance on the other side, the opposition is still of the view, which we made plain in the House of Assembly, that we do not agree with the Attorney-General's decision to put aside the development enforcement contract issue. We think that that should be addressed in this legislation, and we think that is a flaw.

In terms of the evolution of the industry and its consumer protection, I think it is also important for the house to remember that the National Occupational Licensing Scheme that this house supported is expected to broaden into the property occupation licensing in the next year or so. I am told that it is scheduled to happen on 1 July but that all the indicators are that that will not be achieved.

Be that as it may, this industry is not living in a static environment. Many of the complaints that were not addressed by the Attorney-General I think could be handled through property licensing schemes, so it may well be that the Attorney felt that they could remain unaddressed in that context. We think, in relation to a number of them, that would be a reasonable response. Having made those brief remarks at clause 1, I look forward to considering some possible amendments as we go through.

The Hon. T.A. FRANKS: On behalf of the Greens, and as the other member who requested to see the submissions before proceeding, I would like to know from the government if it intends to change its procedures in the future for submissions that are made to inquiries for legislation to ensure that members have adequate information on which to make informed decisions.

Clause passed.

Clause 2.

The Hon. S.G. WADE: I move:

Page 4, lines 5 and 6—Delete clause 2 and substitute:

2—Commencement

(1) Subject to this section, this Act will come into operation on a day to be fixed by proclamation.

(2) The operation of section 40 of this Act, insofar as it inserts section 142A into the Community Titles Act 1996, will be suspended until a day 12 months after the day on which this Act, or the first day on which any provision of this Act, comes into operation.

This issue was raised with us by the Property Council. They expressed concern at the proposals for deposits for off-the-plan sales to be held in trust. While the council acknowledges that this appears to currently be standard practice within the development industry, it claims that the development sector is still suffering under the financial constraints placed on it by the finance sector, and the risk is that any new regulations that increase red tape and/or put at risk the ability of residential developers to obtain finance will raise concerns.

The Property Council recommends, if the government intends to maintain this amendment, that the implementation of the amendment be delayed for 12 to 24 months to allow time for the finance sector to return back to pre-GFC levels. The opposition is not proposing to amend the primary clause, but we would suggest to the government that it is reasonable to provide some breathing space for the property sector to recover from the GFC.

The Hon. G.E. GAGO: The government opposes this amendment. This amendment would provide for delayed commencement of the clause in the bill that would amend the act to require deposits paid on purchase of a new apartment or lot in a new development to be held on trust by a land agent or similar. The reason for requiring deposits to be held on trust is that until the plan is deposited there is a risk that the new development may not proceed.

Lots are often sold even before planning consent is obtained, and developments may not proceed if a certain level of presales is not achieved. If a development does not proceed, a purchaser is at risk of not receiving back their deposit, especially if the developer becomes insolvent. The requirement was identified as a significant gap in the existing consumer protection regime for purchases off the plan. The requirement already exists in Victoria, Queensland and Western Australia.

In consultation with the Property Council, I asked that the commencement of the provision be delayed until the effects of the global financial crisis on credit availability had passed. The government intended to delay bringing the provision into effect for a period. This amendment would remove any flexibility in choosing the appropriate delay period. It would bring the provision into operation automatically 12 months after the commencement of the first provision of this bill.

The Attorney-General is happy to undertake to not commence the provision earlier than 12 months after the commencement of the earliest provision of this bill unless the Property Council agrees. The Attorney-General is happy to undertake to not commence the provision earlier.

Members interjecting:

The Hon. G.E. GAGO: I hate double-negatives! The government opposes the amendment, because it would remove any flexibility to commence the provision at a date later than 12 months. It should also be remembered that it is already standard practice to hold deposits on sale of units off the plan in trust, notwithstanding the GFC impacts.

The Hon. S.G. WADE: On the basis of the undertakings given by the minister on behalf of the Attorney-General, I am happy to withdraw that amendment. As I understand it, the undertaking from the minister is that the Attorney would give more than 12 months, which is more than the amendment asks. In other words, that is more breathing space for the property sector, and we welcome the Attorney-General's commitment to consult with the sector accordingly. I seek leave to withdraw the amendment.

Leave granted; amendment withdrawn.

Clause passed.

Clauses 3 to 16 passed.

Clause 17.

The Hon. S.G. WADE: I move:

Page 11, line 17 [inserted section 78B(4)(a)]—After 'contract' insert:

(other than a contract that is for a period of 12 months or less)

By way of preface to this amendment, I acknowledge the significant improvement that the government made by way of in-house amendments in the House of Assembly. What we are trying to do here, and I appreciate that I may need to fall back on the assistance of parliamentary counsel in this context, is make sure the government is achieving its objective. The concern that has been raised with us is that, without further clarification, it is possible the legislation could be read such that a series of sequential one-year contracts could be read as one and that, once a contract had gone beyond one year, the party would lose its right to the 28 days' notice.

My understanding is that it is common practice in the community titles and strata titles industry for contracts to be for one year. My understanding is one of the key objectives of the government is to make sure that people are not locked into long-term contracts which undermine, if you like, the power—this bill is primarily about consumer protection. If the government and parliamentary counsel believe that there is a better way of doing it we would be open to that, but we are trying to ensure that the government's objective is, in fact, reflected in the legislation.

What was suggested to us is that, without this amendment, we could have a situation where people are forced to do one-year contracts, have a one-day hiatus and then another one-year contract to make sure that the business protects their interests. The point made to us was that, if you are a good property manager and you manage to get all your portfolio beyond the one year, you actually run the risk of having all your portfolio subject to no notice, and that would be a serious risk to your goodwill. We are more than happy to get the government's understanding. This is not meant to be a contrary amendment; it is meant to reflect what we understand to be the government's will.

The Hon. G.E. GAGO: The government opposes this amendment. This amendment would have the effect of providing that only contracts with a body corporate manager over 12 months in duration can be terminated by the community corporation after giving notice. It must be remembered that the community corporations presently have the right under the act to revoke a body corporate manager's authority to act at any time. The provision in the bill would give full effect to that by also allowing them to terminate the contract as well, after giving the required notice.

The government opposes the amendment because it would undo what the provision is trying to achieve in making the body corporate managers accountable. However, it is recognised that the same need—to be able to terminate a body corporate management contract—is not required where a fixed term contract is for a short period. On that basis, the government would be prepared to agree to an alternative amendment that provides for an exception for contracts of six months or less rather than 12 months or less, as set out in the opposition's amendment.

The Hon. S.G. WADE: The opposition does not feel it is in a position to digest the full ramifications of this. As I said earlier, we expedited the amendments to facilitate the business of the council. I suggest that this might be a matter that might appropriately be parked as a potential re-committal item. We will otherwise be persisting with our amendment.

The Hon. G.E. GAGO: I gather that what you are saying is that you need more time to consider this in detail and that, if we did not agree to recommit, you would report progress.

The CHAIR: The Hon. Mr Wade did not say that. He said that he would insist on his amendment; that the amendment would be put.

The Hon. G.E. GAGO: Then our view is that we have an opposing policy. We have a different point of view on this and—

The Hon. S.G. WADE: With all due respect, minister, I am not sure if that is the case. We certainly understood that all we were doing was underscoring what the government was seeking to achieve. What we are told by the industry is that it is standard practice to have 12-month contracts and that, if they had the reassurance of our amendment, they would be confident that the government would allow them to continue to do 12-month contracts and continue to have access to a 28-day notice period.

Your suggestion of going down to six would significantly change industry practice. They would have to go to six-month contracts to ensure the former notice period. That is my understanding. I may be misunderstanding this, so, rather than legislate in the dark, I would prefer to recommit this and allow for the recommittal to be in tomorrow's business. There are two or three other matters which I think we could constructively progress. However, I would stress—I might be wrong—that I do not think we will have daggers drawn on the policy. All we are discussing is the best way to implement that policy.

The Hon. D.G.E. HOOD: It may assist the minister to be aware that Family First intends to support the Hon. Mr Wade's amendment if it were put to a vote in the immediate term.

The Hon. G.E. GAGO: I do not have any problem with agreeing to recommit this. Obviously we are keen to progress this bill but, if the honourable member needs more time to consider this, that is fine, we can recommit. We can come back and debate this at recommittal, but my understanding is that there is in fact a policy difference. The policy underlying this bill is to allow to terminate at any time, notwithstanding that there is a fixed contract, after the initial 12-month period. Anyway, we can come back and debate that.

The CHAIR: The Hon. Mr Wade has not moved his amendment yet. We can postpone clause 17 until after the schedule.

Consideration of clause 17 deferred.

Clauses 18 to 35 passed.

Clause 36.

The Hon. J.A. DARLEY: I move:

Page 21, lines 30 and 31 [clause 36, inserted subsection (4)(a)(i)]—

Delete 'the amount prescribed by regulation' and substitute:

$20,000

Section 137 of the Community Titles Act currently provides that a community corporation must prepare a statement of accounts in respect of each financial year, showing the assets and liabilities of the corporation at the end of the financial year, and the income and expenditure of the corporation for the financial year.

Clause 36 of the bill amends the auditing requirements in relation to this provision. In the first instance, it provides an annual statement of accounts in respect of a financial year need not be audited if (1) the aggregate of the contributions made or to be made by members of the corporation in respect of the year does not exceed the amount prescribed by regulation and (2) the balance standing in the credit of the fund and the sinking fund at the commencement of the year does not exceed any amount prescribed by regulation.

It is my understanding that the amount to be prescribed by regulation in relation to the first provision is $10,000. The amendment seeks to prescribe an alternative amount of $20,000. Having regard to increases in management fees, rates and taxes, insurance and maintenance fees, the amount of $10,000 as proposed by the government is in my opinion too low. This is a very straightforward amendment that speaks for itself. It simply seeks to provide a little more flexibility in relation to auditing requirements. I commend this amendment to the committee.

The Hon. G.E. GAGO: The government rises to oppose this amendment. Although we agree to prescribing an audit threshold of $20,000, we prefer to have that prescribed by regulation. The second reading speech for this bill explains that it is proposed to increase from $3,000 to $10,000 (the threshold amount for owner contributions) or sinking the administration fund balances under which the community corporation is exempted from the requirement to have its accounts audited. It is suggested that an even greater increase—perhaps $20,000—is warranted as the amount is to be prescribed by regulation. This suggestion can be consulted on during development of regulations to support the amendments to the act.

It should be borne in mind that in New South Wales, the New South Wales corporations of fewer than 100 lots are exempt from the requirement to have the accounts audited; therefore, it is proposed that the regulations be drafted for consultation containing Mr Darley's proposed $20,000 threshold, rather than the $10,000 referred to in the second reading. The government prefers the flexibility of prescribing the amount by regulation because this would allow the figure to be adjusted from time to time—for example, to reflect the effects of inflation.

Amendment negatived; clause passed.

Clauses 37 to 39 passed.

Clause 40.

The Hon. S.G. WADE: I move:

Page 25, line 15 [inserted section 142B(3)(b)]—

Delete ', or has an interest in,'

My understanding is that the government wants the development control period to relate to the period where the developer, in fact, has control. Our reading of proposed section 142B(3)(b) would go beyond that. The fact is that a person might have an interest in the lots but not actually have control, so we are suggesting the deletion of those words would remove ambiguity.

The Hon. G.E. GAGO: The government rises to oppose this amendment. This amendment would change the definition of the 'developer control period'. The bill aims to address complaints about developers entering into various types of agreements and arrangements whilst still in control of a new development, which the new owners are then bound by. These can include long-term maintenance contracts or letting agency business for apartments in the complex.

The bill provides that, during this developer control period, the developer is the fiduciary of the incoming body corporate and must act in its best interests. The proposed amendment would narrow the scope of the definition of 'developer control period'. For example, it appears that, if a developer held onto units in the development through a separate company or a spouse, the developer may no longer be considered to control the corporation under the definition as narrowed by this amendment; that is, this would not meet the definition of 'developer control period'. It is for these reasons that the government opposes this amendment.

The Hon. D.G.E. HOOD: Family First supports the amendment.

The Hon. J.A. DARLEY: I support the amendment.

The Hon. T.A. FRANKS: The Greens would like to hear from the opposition again.

The Hon. S.G. WADE: This point was made by the Community Titles Institute of South Australia. As I understand it, the Community Titles Institute of South Australia was not challenging the policy behind this in relation to developer control period. As we understand it, the policy behind the legislation is whether or not the developer has control of the corporation. But the insertion of the words 'has an interest in', in our view, means that a person who merely has an interest, does not have any control and therefore should not be seen to have a fiduciary duty, is being drawn in. Some of these blocks may be quite large and merely having an interest in the development does not mean that they should be regarded as controlling it.

The Hon. T.A. FRANKS: The Greens will not be supporting this amendment.

The committee divided on the amendment:

Majority of 1 for the ayes.

Amendment thus carried; clause as amended passed.

Clauses 41 to 43 passed.

Clause 44.

The Hon. S.G. WADE: I move:

Page 26, after line 14 [after inserted section 155A]—After line 14 insert:

155B—Review of operation of Act.

The Minister must, as soon as is practicable after the second anniversary of the commencement of the Statutes Amendment (Community and Strata Titles) Act 2011 or any provision of that Act—

(a) cause a report to be prepared on the operation of this Act insofar as it was amended by the Statutes Amendment (Community and Strata Titles) Act 2011; and.

(b) cause a copy of the report to be laid before each House of Parliament.

This has been specifically asked for by the Real Estate Institute of South Australia. This is a proposal for review after two years and has a corollary amendment at [Wade-1] 8. Not only is it good for the concerns of the Real Estate Institute but also there are a number of concerns, particularly from consumers, about ways they thought the legislation could be improved.

I do not dispute that the Attorney-General needed to make some hard decisions, and he has left some of those concerns unaddressed. As I said in my clause 1 remarks, the theory often does not move to the practice; a two-year review gives the government an opportunity to assess the operation of the bill in practice. I understand the government is inclined to support this amendment, so with that hope I will not speak any further at this point.

The Hon. G.E. GAGO: The government supports this amendment. It will insert a requirement in the bill that minister review the operation of the amendments in this bill two years after commencement. In this case the government is prepared to concede this proposal. The objective of the bill is to increase accountability of body corporate managers and community and strata corporations, and this will allow a review to ensure that the amendments do have that result. For that reason the government supports the amendment.

Amendment carried; clause as amended passed.

Clauses 45 to 52 passed.

Clause 53.

The CHAIR: Mr Wade, this is consequential, isn't it?

The Hon. S.G. WADE: Yes, Mr Chairman, through you, rather than say consequential could I say by the precedent of deferring the earlier clause, could I suggest to the government that it might be appropriate, because the same issues arise here as are raised in the previous deferred clause, that we defer the whole of clause 53 for later consideration.

Consideration of clause 53 deferred.

Clauses 54 to 71 passed.

Clause 72.

The Hon. S.G. WADE: I move:

Page 44, after line 14 [after inserted section 50A]—After line 14 insert:

50B—Review of operation of Act

The Minister must, as soon as is practicable after the second anniversary of the commencement of the Statutes Amendment (Community and Strata Titles) Act 2011 or any provision of that Act—

(a) cause a report to be prepared on the operation of this Act insofar as it was amended by the Statutes Amendment (Community and Strata Titles) Act 2011; and

(b) cause a copy of the report to be laid before each House of Parliament.

I regard it as consequential. It is a similar review to that supported by the committee in [Wade-1] 5.

Amendment carried; clause as amended passed.

Clause 73 passed.

Schedule passed.

The CHAIR: We now have clauses 17 and 53.

Progress reported; committee to sit again.