In the world of strata management, changes in service providers are sometimes necessary. Whether a strata manager is stepping away from their role or a new company is taking over, the transition must be handled smoothly and according to industry regulations. This is where novation comes into play.
What is Novation?
Novation is transferring a contract from one party to another with the consent of all involved parties. In the context of strata management, an existing strata management contract can be transferred to a new strata manager, provided certain conditions are met.
Key Considerations for Novation
A strata company must provide consent before a novation can proceed. However, this consent cannot be unreasonably withheld. There are several valid reasons a strata company might decline a novation request, such as:
Concerns about the new strata manager's ability to fulfil the contract's obligations.
Questions about the financial standing or reputation of the proposed new strata manager.
If the strata company has engaged the new strata manager in the past two years or is currently disputing with them,
The proposed new strata manager is not a member of SCA WA or does not hold the required professional indemnity insurance.
If there is a conflict of interest, the new strata manager cannot act in the best interests of the strata company.
To formalise the novation, a Proposed Novation Deed must be prepared. This document outlines that:
The new strata manager agrees to take on all contractual obligations.
The outgoing strata manager is fully released from their responsibilities.
A new agreement is formed between the strata company and the incoming strata manager based on the terms of the existing contract.
Timelines for Approval
Once a strata company receives a Proposed Novation Deed, they have 20 business days to either approve the novation or provide written reasons for withholding consent. If no response is given within this timeframe, the novation is approved.
Why This Matters
Novation ensures continuity and transparency in strata management. By following a structured process, all parties—including lot owners—can have confidence that a change in management will be handled fairly and professionally.
If you're a strata manager or committee member navigating a potential novation, ensuring compliance with these principles is crucial. Refer to industry standards and consult your legal or strata advisory professionals for guidance.
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