Managing the managers: it’s only common sense

It’s all gone very quiet over at Strata Community Association (SCA) NSW since their president Stephen Brell resigned in the wake of an expose of his company, Netstrata, on ABC TV.

Maybe the remaining members of the SCA board are huddled together working out  what they need to do in their industry to regain public confidence (which has never been that high, to be honest).

Or maybe they are working out what not to say or not do until it all blows over. 

That would be a shame. The problems in strata management are complicated and interconnected but, when you apply some logic to the situation, the solutions are potentially very simple. And we should remember, there is only one group of people who are putting money INTO strata – us, the owners – and we deserve better.

Here are a few suggestions that might help right the ship and set it on a true course again.

PROBLEM: Strata managers don’t get paid enough.

This is a constant complaint from within the industry and it is not without merit.  With the average fee per unit between $280 and $320 per year the strata manager of a 50-unit block is only going to get $15k a year, from which they have to pay staff, office expenses, training fees and other costs.

SOLUTION: Well, the answer isn’t to find rorts, scams, kickbacks and commissions to make up for the shortfall.  Even when they find a loophole in the law so that a dubious practice is not illegal, it doesn’t make it right.

The Strata Commissioner or Fair Trading or even SCA needs to establish a minimum rate that will allow strata managers to be rewarded properly for the work they do.  The better ones can then charge more.  The less capable might go out of business – would that be such a bad thing?

Meantime all the kickbacks and commissions could be a licence-threatening offence, just in case anyone is tempted.

PROBLEM: The First AGM of new schemes

It’s a simple arithmetical probability that the majority of people at the first AGM of a strata scheme which has been sold off-the-plan, will never have owned in strata before and have only the sketchiest idea, if that, of what their rights and responsibilities might be. 

And yet they are expected to approve contracts, often incredibly complicated and worth hundreds of thousands of dollars, locking them into long-term relationships with service providers whom they have never met before. The law says contracts negotiated before the First AGM should expire at the meeting and must be confirmed by the owners if they are to stay in place.

Thus owners have one shot at understanding and assessing these contracts, some of which arrive in type so tiny you need a magnifying glass to read them.  Others are only accessible through QR codes. Most of them have clauses and sub-clauses that are Byzantine in their complexity..

SOLUTION: Have a two-stage First AGM (FAGM) at which the strata committee is elected and that’s it!  The committee can come back to a reconvened FAGM in a few weeks and recommend acceptance or rejection of the contracts, possibly after they have placed them under legal scrutiny.

PROBLEM: Embedded Networks

Strata managers are being pressured by developers into enabling embedded networks – infrastructure that should be paid for by the developer but they get for free in exchange for convincing mostly unaware owners into signing long-term inflated maintenance contracts.

It’s the developers and infrastructure providers who a seeking to cheat strata owners but it’s the strata managers who compile the sheaf of documents that owners are expected to read and understand in a very short time (see previous point).

SOLUTION: Fair Trading needs to create an evolving list of infrastructure that should be paid for in the purchase of the units.  Developers and strata manager should be legally obliged to declare when any infrastructure is being paid for by means other than out of the developers’ budgets. Failure to do so should lead to fines and the rescinding of the related contracts.

PROBLEM:  Conflict of interest

Strata managers help developers to set up their strata schemes and are paid for this by the developers.  Then, magically, halfway through the First AGM, they supposedly cease working for the developers and start working for the unit owners.  That foot in the door is incredibly influential in setting the scene for how the strata scheme will be run. It’s a clear conflict, especially when the strata manager has the potential to work for the developers’ next projects.

SOLUTION: Simply change the law so that the strata manager who sets up the scheme can’t be the same one who slides into the role of managing it. No conflict, no problem.

PROBLEM: Insurance commissions

All strata schemes must have insurance.  That’s the law. Some insurers pay strata managers commissions of up to 20 per cent for bringing their business to them. Strata managers have to declare this but it is not illegal. However, there have been reports of strata schemes being bullied into accepting one policy over another because the more expensive one gives the strata manager a commission and the other doesn’t.

SOLUTION: It’s time this anachronism was ditched permanently.  In 2022 an Independent Review of Strata Insurance recommended that the commission rebate and broker fee system should be phased out, highlighting the need for more transparent practices.

We understand that SCA-NSW has been dragging its feet on this, hence no change in the law. However, if there was a proper payment system for strata managers insurance commissions wouldn’t be necessary. The problem is, once you have embedded and legitimised kickbacks, then the lines between right and wrong get very blurry.

PROBLEM:  One-sided contracts

We mentioned earlier the contracts that are thrust under new owners’ noses at the First AGMs.  It doesn’t help if they are printed in tiny fonts in faint colours.  And then you look at the content and some strata management contracts – the terms under which you employ your strata manager – are so one-sided you may as well sign a piece of paper saying “whatever you want”.

One with which we are very familiar says that the strata manager can’t be held responsible for anything they do on behalf of the strata scheme, regardless of whether it’s right or wrong. So much for accountability. And then you find that some strata managers say you must use the standard SCA contract or you won’t get any service from anyone.

SOLUTION: Savvy strata owners can and do negotiate these contracts themselves. However, there should be a Fair Trading and Owners Corporation Network (OCN) -endorsed contract that owners can use as an alternative. This is not as radical a move as it may seem – we all are obliged to use the official government tenancy agreements whether we are landlords or renters.

PROBLEM: Hidden Charges

If charges are going to be hidden, it’s in the above contracts that you will struggle to find them.  In truth, it’s not so much that they are hidden as unexpected ad only come to light when you go through your end-of-year finances and discover that asking how much you are being charged for contacting your strata manager has a chrge related to it and which the owners have agreed to when they authorised the contract.

SOLUTION: Strata managers know better than anyone else what additional costs are going to raise concerns among owners.  So the answer is transparency. You caouls ask for a log of all ancillary costs, separate from the other expenses, to be tabled at every committee meeting, so you can see if things are getting out of control.  Although that might come at a cost too.