Netstrata report slams ‘disturbing practices’

The report into strata managing company Netstrata has been released by NSW Fair Trading and it is a devastating dissection of a culture of dubious behaviour, including but not limited to non-disclosure of conflicts of interest.

However, Netstrata says it contests most of the allegations listed in the report and says some of the report’s findings are “at odds with industry understanding and practices.”

The investigation, launched as a direct result of an ABC TV Four Corners report The Strata Trap by Linton Besser, broadcast last year, details a litany of Netstrata’s failures in a variety of aspects of its dealings with strata owners.

Independent examiner McGrathNicol was commissioned by NSW Fair Trading as part of its broader investigation into Netstrata, following allegations that the company was charging excessive fees, and not disclosing conflicts of interest or referral commissions.

According to the report on the NSW Fair Trading website, after reviewing a sample of 60 strata plans managed by Netstrata, McGrathNicol identified potential breaches of strata law, including:

• Two instances of non-disclosure of commissions received by Netstrata, in contravention of section 60 of the Strata Schemes Management Act.
• Possible breaches of section 60 in relation to non-disclosure of commissions received by Netstrata from a third-party service debt collection agency, Strategic Collection Services Pty Ltd.
• Seven instances of failing to obtain at least two quotes for expenses exceeding $30,000, in contravention of section 102.
• Several potential conflicts of interest not disclosed by Netstrata to its clients including the personal relationships that employees of Netstrata had with suppliers.
• “Highly saturated” use of those related entity suppliers or suppliers with whom Netstrata had a commercial arrangement.

The report also highlighted other practices that it said could be considered not in the best interests of the consumer, including:

• charging a premium to strata plans who did not use Netstrata’s wholly owned insurance broker, Strata Insurance Services (SIS).
• a remuneration structure which arguably incentivised its strata managers to bill for add-on charges (Schedule B charges).

“At the heart of this matter is that strata managers have a legal duty to act in the best interests of the people they work for – the owners’ corporation,” NSW Fair Trading Commissioner, Natasha Mann says on the department’s website.

“The disturbing practices described in this report suggest that Netstrata does not appear to have always done this. On multiple occasions, Netstrata’s own interests appear to have trumped the interests of the people it had a duty to act on behalf of.”

Since the review was launched , the NSW Government has strengthened strata laws with significant reform focused on transparency and accountability, says the website, but confirms that Netstrata’s actions were not considered under the new laws, but those in place at the time.

Commissioner Mann thanked McGrathNicol for its report, which you can download here, and said it would “assist Fair Trading in our ongoing investigation into Netstrata.”

Meanwhile, on its website Netstrata says it contests most of the allegations of breaches listed in the report and “looks forward to working through these in more detail with NSW Fair Trading.”

Its website also says Netstrata has already implemented many of the independent reviewer’s recommendations and “remains committed to delivering better customer outcomes.”

“Netstrata welcomes the report’s findings that customer charges for a broad range of services Netstrata provides via its wholly owned subsidiaries are charged at or below typical market rates, and that Owners Corporations using Netstrata’s Strata Insurance Services (SIS) typically pay less for their total cost of insurance,” it continues.

“Netstrata welcomes further guidance from NSW Fair Trading given that some of the report’s findings are at odds with industry understanding and practices,” it says on its response which you can read HERE.

In fact, Fair Trading says the McGrathNicol review is only one component of its broader review into Netstrata. Led by Fair Trading’s newly established Strata and Property Taskforce, the department says it is already examining matters relating to other separate allegations of misconduct.

This includes complaints from impacted strata schemes and here at Flat Chat we encourage affected owners to write to us or, even better, directly to Fair Trading with your concerns if you feel you have been victims of inappropriate  behaviour by Netstrata or any other strata management company.