Pitfalls and perils at a new block’s initial AGM

The initial AGM of a new building is an exciting, confusing and challenging event, especially for first-time owners.  But the more things you get right there, the easier life will be for you and your neighbours for years to come.

It’s not easy to do – especially when a large number of people at the meeting are new to strata and will go along with whatever the developer suggests.

But being hyper-diligent now is a lot simpler than trying to untangle yourself from unfair and expensive contractual obligations further down the track

The developer will come to initial AGMs with a range of contracts for ratification – especially things like building and strata management, energy supply and lift maintenance.

In most states those contracts must, by law, be approved and ratified by a majority of owners at the meeting if they are to take effect.

Most high-end developers have hard-won reputations to protect and wouldn’t dream of conning their customers, if only because they want repeat business.

But then there are the rest and you should scrutinise all the contracts because otherwise you could be saddled with bad deals on punitive terms for years to come.

So what should you look out for at your first AGM?

One area of potential concern is “embedded networks”.  They can work to your advantage by offering, for instance, reduced energy costs for the whole building, to be shared among the residents.

But be aware that the supplier or installer of a key part of the building’s infrastructure may have done the work at no cost to the developer provided they persuade the owners to sign up for a long-term and grossly inflated maintenance contract.

Unit owners at a first AGM can put the kybosh on this by rejecting the maintenance contract and letting the developer deal with the fall-out.

Another area is building facilities management contracts.  You might be presented with a contract for 10 years, plus an option of a further 10 when the contract runs out, as it must by law in NSW and other states.

Persuade your fellow owners to only accept a contract that runs for an initial period of one year and then for five or less thereafter, provided it works out in the first year.  Too radical? 

By this time next year that could well be the law if proposed reforms in NSW go through. And consider this, strata managers can only get a one-year contract followed by three years at a time.

You might also ask the developer if they have received or have been promised any payment for the pre-sale of facilities management contracts. 

This fundamentally corrupt siphoning of owners corporation funds into developer pockets can be killed off (except in Queensland) if apartment owners refuse to sign.

When it comes to electing the committee, ask anyone who nominates if they have any prior relationship with the developer and any previous experience of serving on a strata committee.

If the answers are “yes” and “no” respectively, choose candidates whose responses are the opposite. And ask each candidate what they hope to bring to the committee, in terms of skills and experience.

Finally, if you are totally new to strata or aren’t comfortable with public confrontation, consider getting an experienced strata advocate of some sort to speak on your behalf.

Share the costs with other owners if you can.  If the developers refuse to pass on your contact details to other owners so you can do that, know that you could have a fight on your hands from square one.

This column first appeared in the Australian Financial Review.