[Jimmy-T]

@Whale said:
chak – obviously we don’t know the details, but the fact that your Executive Committee (E/C) was as you’ve stated “self elected” probably means that from a legal perspective you really don’t have one, but as they’ve been performing the role to some extent, probably want to continue, and may attend the EGM, that changes matters somewhat in my opinion.

 

I’m just a wee bit concerned that “self elected” might mean that the EC members volunteered for vacancies and there were enough seats for everyone so there was no vote and therefore they weren’t ‘elected’. However, they would still be legitimate members of the EC. 

 

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[Jimmy-T]

You have to declare the EC seats vacant so that you can then fill them again with a new election.
You will need no more than 25 percent of owners voting at the meeting to vot against this for it to pass.

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[Jimmy-T]

@Paul H said:
The bylaw requires that changes to the type of flooring in a unit must be approved by the EC.

By the EC – not ‘EC members’ so, in this case, it has not been approved.

Such approval not to be unreasonably withheld etc

Well there’s a loophole big enough to dive a London bus through.  Define unreasonable.  However, there are other issues about flooring that are covered (or should be) by by-laws related to noise.  I think once you have resolved this issue, you need to take a look at this by-law.  The looser the better, in my book.  I would have a by-law that simply said if anyone lays a floor that causes noise disturbance or allows noise to be transmitted from one lot to another lot, then it should be removed or carpeted over entirely, immediately and at the lot owner’s expense.

The bylaw does not specify the type of flooring required but if there is a change from the type of flooring installed when the bylaw was introduced, the the EC must approve, so the owner does not need OC approval, only EC.

And what if the EC approves a floor that turns out to be noisy?

I checked with the SM about the possibility that non attendance at two EC meetings was enough to get an owner thrown off the EC, and was told that  there is no provision for this under the Act

Hmmm.  Late night wanderings on the Interweb may have taken me to a website related to strata law in Victoria, Canada.  It’s a bloody good idea though.

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[Jimmy-T]

If I may play devil’s advocate here – and I don’t deny any of the problems listed by the OCN exist – it seems to me that the problem isn’t commissions per se, but a lack of accountability and transparency and responsibility by SOME strata managers who take the money and do nothing for their clients.

Case study 1 would not have been a problem if there was a clear chain of statutory responsibility with insurance claims.  So, along with accepting a commission, the strata manager should be obliged to accept that they will manage claims and give advice accordingly.

Case study 2 is a clear case of an SM either being too lazy or possibly even being corrupt.  If an SM is taking commissions, they should present a minimum of three quotes so that the owners can make an informed choice.  This particular case seems to have less to do with commissions than it is related to bad management.

Case study 3 relates to an extreme event – the Queensland floods – and a windfall financial bonus to strata managers.  A good strata manager in Queensland would have been paying some of their excess commission back to the owners.  Again, this has as much to so with customer service and relations as it has to do with commissions.

Commissions on insurance premiums are an anachronism, open to gross exploitation by the less scrupulous strata managers and a fairly blunt instrument when it comes to reducing the costs of assessments and marketing for insurance providers.  However, so far I don’t hear anyone suggesting how you can remove them completely without smaller strata management firms going to the wall.

Any thoughts? Anyone?  Or do we ban commissions completely and let the card fall as they may?

FYI:  When the question of commissions came up in my building a few years ago – to considerable outrage from owners – our new strata manager found us cheaper insurance with better cover and still got the commission. 

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[Jimmy-T]

Jef
Can you quote the entire clause, please? We can’t really judge without reading it.

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[Jimmy-T]

There are two reasons you should pass this on to the strata manager.  Firstly, they advised you to get a plumber in and secondly, it’s a common property issue.

FYI:  This really has nothing to do with by-laws – it’s about what constitutes common property and the Owners Corporation’s (i.e. all owners, including you) legal responsibility to maintain and repair it.

On re-reading your posting, was it the strata manager, building manager or rental manager (if you are a tenant) who told you to get a plumber? I aslk because normally you wouldn’t ask your strata manager about a problem that appeared to be inside your unit.

Either way, the bill should go to the strata manager. And if you’re still not sure who does what you could do a lot worse that have a look at the Fair Trading booklet Strata Living to explain how things work in strata.

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[Jimmy-T]

Here is some further reading on the insurance commission debate.   Below is a review of all the major points by Paul Keating (no, not that one) managing director of our sponsors CHU Insurance.  Attached HERE   is a paper he prepared for the SCA (strata managers) NSW conference last year.  Paul points out that the ban would not affect insurers financially either way since they would still pay commissions to brokers, for the reasons explained below.

 

I share the following with you if for no other reason but to help demystify some of the arguments, perceptions, and areas where I think knowledge could be improved for all stakeholders in this debate.

(a)    A paper I was asked to put together for Strata Managers as a part of the SCA NSW conference last year. Essentially, the message here is that there is a need for Strata Managers to get properly authorised by the Australian Financial Services licensee transacting insurance business with the Owners Corporation (or suffer serious fines). And, that proper authorisation is good for consumers.

(b)    A summary of the issues (below) I was asked to put together (as I saw it) that has led to the proposed ban on Strata Managers receiving commissions. It’s not complete, but a start.

I am all for an open debate on this, with all stakeholders having access to full and accurate information. There is some data that needs to be collected to support the underlying claims, and I believe this needs to be done to ensure a fair outcome for all involved, and that we address the true consumer issues in a balanced and sustainable way.

 

---

 

What is the proposed ban about?

 

Consumer Concerns:

(1)    Perception that strata managers ought to be free of conflicts of interests (OCN)

(2)    Perception that strata managers should not receive commissions (or any benefits) from third parties

(3)    Perception that commissions on insurance is a disincentive to the strata manager to reduce premiums

 

Options to address:

(1)    The is nothing illegal about being in a Conflicts of interest, it is common, and the notion that any person can be free of them is almost improbable. Conflicts of interest will be inevitable for both Strata Managers and the individuals whom make up the Executive Committees. Directors of companies are often in positions of conflicts. The key issue is how these conflicts of interest are dealt with, in an open and transparent way. This inevitably leads to a need for an ongoing process of continuous disclosure. I have suggested a “Standing Notice of Interest” be created and refreshed at every Executive Committee meeting, to ensure all members are (a) aware of contractual arrangements already in place, including commissions, and (b) self-declare their own conflicts that inevitable arise (like using their own insurance broker, using their own tradie for repairs, etc).

 

(2)    There is a need to demystify the insurance process, and better understanding of the financial Services regime, and consumer benefits. For example;

• An Owners Corporation is an ‘unlimited liability’ legal entity, and its members (owners) expose themselves up to their full net wealth
• Owners Corporations need to insure, its compulsory under legislation. This is a key function performed by Strata Managers. However, insurance is finite, and this creates inherent risks and financial gaps for both owners and their Strata Managers.
• Australian Financial Services (AFS) law, now embedded within the Corporations Act, defines the activities that constitute an ‘arranger’ (S766C), and the insurance functions that a Strata Manager normally performs would fall within this definition.
• A Strata Manager as an ‘arranger’ must be trained and appointed as either an distributor or (preferably) as an authorised representative of a AFS licensee. Once appointed, the Strata Manager is subject to supervision and audit of that AFS licensee. Strata Managers, as with Insurance Brokers, only get paid commission by a AFS Licensee if they are successful in the placement. They can do a lot of work for no reward.
• Owners benefit from this regime because the AFS licensee must provide Professional Indemnity protection for the activities of the Strata Manager within that appointment/authorisation. Given this mismatch between unlimited exposure of owners, and the finite nature of insurance, this is valuable consumer benefit that rarely gets consideration by the members of Executive Committee’s for Owners Corporations.
• Insurance Companies pay commission to Insurance brokers and/or Strata Managers because they are their sales and distribution channels, and can be more efficient that employing their own sales and distribution teams. Many brokers in turn pay or rebate a commission back to the Strata Manager. Insurers also require Insurance Brokers and Strata managers to perform many administrative functions such as;

  • Collect and maintaining risk data and claims histories, to present the most accurate profile of the Strata facility, for Insurers to accurately price the risk. Because the Strata Manager gets to know the facility far more intimate than a broker could, their data tends to be more accurate for pricing purposes.
  • For commercial premises, where business activities of occupiers can readily change, Strata Managers can generally maintain a far more accurate schedule for insures
  • Completion and lodgement of documentation, and collection and payments of premiums.
  • Receipting of certificates, and assisting with certificates of currency
  • Coordination of administrative activities, and repairs, in the event of a claim.

• Despite these activities, the Insurer will only pay the commission to the Brokers or Strata Manager if the business is successfully placed with them. Many brokers do not have the information required, and simply rely on the Strata Manager to provide this. So there are many instances where Strata Managers will remain unrewarded for these activities, and will need to charge fees.
• If insurers trade direct, they generally have to do all the administrative, marketing and sales work, hence why their premiums tend not to reduce if a Broker or Strata Manager is not involved and commission not paid.
• Strata Management contracts provide for base management fees to be discounted to take into account other steams of income, like insurance commissions. Owners Corporations have a choice to allow commission or not prior to contract being entered into. Both the Financial Services regime (Corporations Act) and the Property Stock & Business Agents Act legislate compulsory disclosure.
• However, it is the Owners Corporation that ultimately decides where to place the insurance, but they seek guidance from their trusted advocate (their Strata Manager).

 

(3)    There is no evidence to suggest that the perception that commission are an incentive to keep premiums high. The Strata Insurance market is highly competitive, and often insurance programs are transferred between insurers for difference less than a hundred dollars (albeit that this creates a risk far higher than the perceive monetary saving). Strata Insurance products are different, and the scope of cover they indemnify for can vary greatly. The cost of claims tends to be the biggest driver of insurance premiums, inflating around 12% per annum at present.

 

Unintended consequences:

(a)    The government plans to intervene in an area where there is no evidence of market failure. Whilst there are individual stories of consumer concerns, there is no evidence of a sustained pattern of complaints at ASIC, FOS, or within other industry bodies.

(b)    The intervention could be regarded as restrictive trade practice, and could lessen competition (300+ Strata Managers cease insurance trading on behalf of their Owners Corporations).

(c)    The debate on commissions as a form of revenue, despite its full disclosure in Management contracts, is immaterial compared to the risk and benefits of having your Strata Manager authorised to give general advice by a AFS licensee. There are very few AFS licensees who will appoint Strata Managers with this authority, to the detriment of consumers. Why? Because it is and expensive regime, far cheaper for them not to protect the Strata Manager. Owners should insist on this authorisation for their own benefit. This issue must get back on the governments agenda.

(d)    This proposed ban is not a prohibition of commission payments within the Strata sector, rather the ban applies to Strata Managers only, a form of restraint which will be to the benefit of many other financial services licensees (mainly insurance brokers), or their authorised representatives and distributors.

(e)    There appears to be an assumption that if commissions are banned for Strata Managers, that premiums will automatically reduce. That is not accurate. Insurers will still distribute via Insurance brokers and pay commissions, so premiums will largely remain the same. However, Strata Managers will need to reprice their services to ensure they are profitable, presenting a net increase in cost to Owners (and tenants). For smaller schemes, the increase will be significantly more on a time cost basis than the commission received, because their premiums are so small.

(f)     Strata Management companies repricing will result in either Owners accepting the increases, or the costs increase simply becomes unaffordable. Strata Management services will be cut back, or Owners will elect to self-manage, neither outcome positive for consumers. Strata Management companies will need to drastically cut costs (redundancies) if they can’t raise their revenue, sell out, or go under. All of these outcomes are not ideal for competition, will result in cost increases for owners and tenants alike.

 

---

Kind regards,

Paul Keating 
Managing Director

  

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[Jimmy-T]

Ken said:

Do we need to employ a Strata Manager, or can we chose to manage the property ourselves? (Committee and Resident Manager, with possibly help from an accountant)  

Notwithstanding the excellent advice from Whale (below) just to clarify, you could be in a spot of bother if your resident caretaker is seen to be earning money by carrying out strata management duties without having the correct licence.

How do we select a new Strata Manager? (avoid the white shoe exec presentation where they promise the world)

Obviously, I would recommend talking to our sponsors Strata Choice but there are other excellent (and not so excellent strata firms around).  Often the best way is to match the size of the firm with the size of the strata scheme.  There’s danger in hiring a huge strata management firm for a tiny block and vice versa.

But whoever you choose, make sure you meet the strata manager who will be handling your account, rather than the principals of the firm whom you might never see again (regardless of their shoe colour).

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[Jimmy-T]

Having started this particular fight, I just wanted to make a couple of observations.  Firstly they are plenty of circumstances in which short term lets work well – I’m thinking of holiday flats where the regular summer visitors are known to the permanent residents.  Then there are increasingly popular systems like Air B&B where the accommodation is rated (as in Tripadvisor.com) but the guest is also reviewed by previous landlords.

The problem isn’t that strata control freaks want blanket laws that prevent the slightest infraction by landlords and their tenants, it’s that the absence of such draconian measures allows opportunist parasites to make their inflated rents at everyone else’s expense.

The answer is to make landlords responsible for the behaviour of their tenants, past present and future (and this applies to long-term tenants too).  If there are no problems with a let, then there is no problem.  

However, if a landlord allows tenants to cause disruption in a building, owners should be able to fast-track an order at the CTTT telling them to make sure this doesn’t happen again or face fines of up to $5500.  And if they persist, then the CTTT should be able to firstly fine them and then  order that apartment may not be let to anyone under any circumstances for the next, say, two years.

This will force the careless landlord to sell the apartment to owner-occupiers.  Problem solved.

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[Jimmy-T]

That’s a very interesting tactic and thanks for explaining it. The Autocratic chair is an interesting creature – they almost always start with the best intentions, help to fix up some issue, and then cling to power long after their use-by date, believing that they and only they know what’s best for the building. It all leads to my patented three-phase strata cycle – chaotic, democratic then despotic, then it all falls apart and starts again.

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[Jimmy-T]

@Kangaroo said:

Second, any one owner may submit a motion for the next GM.

Why have you underlined and bolded “one”?  What is the significance?

I take a much firmer line than JT on whether anybody is entitled to re-word the motion as submitted. 

I don’t disagree that the law is clear that the wording of the item on the agenda must take the form of words expressed in the notice sent by the owner concerned. However, a good strata manager or secretary will come back to the EC with suggestions if their motions’ intent is not well expressed.

In this case the secretary should not be rewriting motions, as you say, without the approval of the EC.  If the motion has been submitted by an ordinary owner, the strata manager should not be touching it at all.

However it’s not just the wording of the motions but their position in the batting order, which is decided by the secretary. 

For instance, I raised a motion at our last AGM that someone else chair the meeting, specifically to stop our chairman doing his annual one-man show that no-one is allowed to interrupt.  The secretary obediently put my motion second so that the chairman had his moment in the spotlight, rendering my motion irrelevant.

 

 

 

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[Jimmy-T]

In NSW you can submit motions for the AGM until such times as the agenda is issued. The agenda, as part of the notice of the meeting,  must be issued at least seven days before the meeting (which really means nine or ten days to allow for posting).

To answer the original question about who can call a general meeting and when it should be held, this is what the Act in NSW says:

The secretary of an executive committee or, in the secretary’s absence, any member of the executive committee must convene an extraordinary general meeting as soon as practicable after receiving a requisition for such a meeting signed by one or more persons entitled to vote in respect of one or more lots, the unit entitlement or the sum of the unit entitlements of which is at least one-quarter of the aggregate unit entitlements.

The key issue is what does the word “practicable” mean?  How long is a piece of string?

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[Jimmy-T]

All of this depends on the delegated powers (if any) that have been given to the Starta manager – but generally speaking the owners tell (or ask) the SM what to do, not the toher way round.

The secretary of the EC sets the time and date of the EGM. But if the SM has that role, then they do. The strata manager doesn’t have either the right or oblication to attend a general meeting but if they have delegated powers or hold the proxies of owners, they may do so. Most Owners Corps would prefer to have their SM their to ensure that everything is done by the book.
Only the secretary can decide on the final form of the agenda and motions – again is your SM also your secretary?

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[Jimmy-T]

Apart from anything else, this is a good illustration of one reason it is important to have an EC that represents the cultural mix of your building.  Speaking to people in their own language makes them less vulnerable to the con artists and stand-over merchants who operate in strata.

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[Jimmy-T]

Willie said

Can the EC take the insurance administration away from the SM and appoint a broker or does it need to go to a General Meeting of OC

First look at your contract with the Strata Manager – that will tell you what can and can’t be  done.  Then the EC would normally negotiate (often through the SM) what insurance policy they want and with whom.  The best insurance option would normally be presented at your AGM for Owners Corporation approval.  However, taking out insurance is one of the duties of the owners Corporation that CAN be delegated to EC members or the Strata Manager so it may be done separately from the AGM. That said, the Owners Corporation – that’s all the owners at a general meeting – can change the way they want this to be handled by a simple majority vote.

@Cobra said:
As an additional inquiry to Willie’s question; if the EC take the insurance admin (& commission) away from the SM and appoint a broker, can we still have the notices sent via the SM?

The notices sent out by the Strata manager relate to the levies, part of which  cover insurance premiums.  There is no reason I can think of why this would have any bearing on levies notices.  The insurance premiums would also have to be listed (by law) in the annual budget prepared by the treasurer and/or strata manager.  Again, it wouldn’t matter who arranged the insurance. 

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