Understanding the Initial Period

The initial period

When a strata scheme is first established, it goes through an important phase known as the “initial period.” During this time, specific rules and restrictions apply to protect the interests of future owners. This article explains the key aspects of strata scheme formation and what happens during and after the initial period.

What is the Initial Period?

The initial period of a strata scheme begins on the day the strata plan is registered with NSW Land Registry Services. This same day marks the formation of the owners corporation. During this period, the builder or developer (known as the ‘original owner’) constitutes the owners corporation.

The initial period continues until the original owner has sold more than one-third of the total unit entitlements in the scheme.This means that if the original owner maintains ownership of at least two thirds of the aggregate units entitlement the scheme will remain in its initial period. This can be the status of the scheme for months or years.

Original Owner Restrictions

To protect future owners’ interests, the original owner faces several important restrictions during the initial period. They cannot:

• Modify, cancel, or create new by-laws that don’t apply equally to all owners or lots
• Make alterations to common property (unless specified in a development contract)
• Take on debt exceeding the owners corporation’s available funds
• Arrange loans or provide securities
• Appoint a strata managing agent or building manager after the first annual general meeting
• Sell any common property
• Create or release an easement

Owners Corporation Responsibilities

Despite being in the initial period, the owners corporation must fulfil several crucial obligations. Once the strata plan is registered, the original owner must estimate the amount of money it will need to credit to its administrative fund within 14 days. This fund manages the day-to-day costs of the strata scheme. The owners corporation must also:

• Manage day-to-day financial matters
• Maintain accurate accounts and records
• Collect and manage levies
• Obtain appropriate building insurance
• Maintain and repair common property
• Hold regular meetings

End of Initial Period

When the initial period concludes, several important actions must occur:

• The original owner must organise the first annual general meeting (FAGM) within two months
• The strata scheme transitions to regular operations
• New reporting obligations begin

Strata Annual Reporting

During the initial period, the owners corporation is exempt from strata annual reporting requirements. However, once the initial period ends:

• Annual reporting becomes mandatory
• Reports must be completed within three months of each AGM
• The scheme must comply with all standard strata reporting obligations

Key Deadlines to Remember

• Administrative fund estimation: Within 14 days of registration
• First AGM: Within 2 months of initial period ending
• Annual reporting: Within 3 months of AGM (after the initial period)

For more information about the initial period, our new development set up team would be happy to help you navigate this important phase and answer any questions you may have.