Game on – Fair Trading to investigate Netstrata

The NSW Strata Commissioner and Fair Trading have launched an independent review of strata management giant Netstrata following an expose last month of the company’s insurance practices on ABC TV.

And the investigation may not be restricted to Netstrata, with some industry whistleblowers and strata scheme clients claiming that other strata managers have employed similar “workarounds” to avoid declaring insurance commissions, as they are required to do by law.

The Strata Commissioner’s office has contracted McgrathNicol to conduct the inquiry. The company has previously investigated dubious activities in the development industry for Building Commissioner David Chandler.

It’s also understood that Netstrata has agreed to the review and will foot the bill for the investigation.

Under NSW law, strata managers are allowed to accept commissions of up to 20 per cent for organising mandatory insurances for strata schemes, provide they declare the commissions to their clients.

Netstrata has been accused of misleading strata owners by telling them that they don’t take commissions while profiting by organising insurances through a subsidiary company and driving up premiums.

The latest ABC story alleges that more than 40 per cent of Netstrata’s $50 million profits for the past eight years have come from undeclared insurance commissions. Netstrata has been voted SCA-NSW’s “Business of the Year” for four of the past five years.

The strata commissioner’s office announced the review late on Thursday afternoon.

“Following recent media reports in relation to strata management agency Netstrata, the NSW Commissioner for Fair Trading has announced a review of Netstrata and its operations which will be undertaken by a third-party independent expert,” it said.

“NSW Fair Trading will work with and instruct the independent expert to support the integrity of this process. On completion, a detailed report will be delivered to both NSW Fair Trading and Netstrata.

“The independent review will look at business structures, processes and systems, professional practices, fees and charges, commissions and incentives, and third-party relationships.

“Fair Trading reserves the right to take further regulatory action.”

The last comment relates to a feeling withing the industry that while taking profits from an insurance subsidiary was not against the law regarding insurance commissions, it was contrary to the spirit of the transparency  laws intended to protect strata owners from exploitation.

The review is expected to identify known and potential loopholes and recommend legislative changes to close them.

“As more NSW residents choose strata living, it is essential they have confidence in the professionals they engage to manage what is often their most valuable asset,” said NSW Strata and Property Services Commissioner John Minns:

“NSW Fair Trading is committed to ensuring a trusted and accountable strata sector and this comprehensive response to the issues raised demonstrates the commitment to achieving this.”

As a result of the ABC TV expose, Netstrata Managing Director Stephen Brell resigned as president and from the board of Strata Community Australia (SCA-NSW), the strata manager’s professional body. SCA-NSW immediately announced it would conduct an independent inquiry into the allegations.

Meanwhile, the fall-out has been widespread with strata managers rushing to reassure their clients that they haven’t been involved in anything underhand, regarding strata insurance.

And the Georges River local council has said it will review Netstrata’s sponsorship of Jubilee Stadium – home of St George Illawarra Rugby League club – subject to the results of the SCA-NSW inquiry … and doubtless the independent Fair Trading inquiry too.

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