New laws: Will strata cops make a difference?

The podcast this week is almost entirely taken up with the new laws that passed the other day in the NSW parliament. 

We won’t see most of them kick in until later in the year, but the effects could be immediate.

Dodgy contracts that could see off-the-plan sales rescinded might be being rewritten as we speak.

Building managers and strata committee chairs might well be asking what they have to change to fulfil requirements to act in the best interests of strata schemes.

Developers’ low-ball estimates of levies for new blocks might be getting pumped up a little if a $55k fine could be imposed for deliberately underquoting.

But the one unanswered question – in the podcast, at least – is what form the Strata Taskforce is going to take and how it will operate.

Such are the vagaries of online publishing that we answered that question in this story, after we had switched off the mikes. But we can have a chat about that next week.

And finally, we welcome our new sponsors Strata Community Insurance to the Flat Chat fold. Insurance is all about risk, but we reckon SCInsurance is a safe bet.

Transcript in full

[Jimmy]

So the new Strata laws passed in Parliament the other day. This is the ones we’ve been talking about for ages, and I’ve been picking through the Minister and I like Chantibong’s second reading to see what if I could find out what was missing and what was still in there. And it seems to be fairly intact.

[Sue]

Okay, so they’ve kept in the things like educating executive committee members and things.

[Jimmy]

Mandatory education, yeah, but they don’t have any detail on it.

[Sue]

Oh, still none.

[Jimmy]

So just going through the speech, I mean he points out in his speech that there are 86,000 Strata schemes, that’s Strata buildings, not just apartments, in New South Wales.

[Sue]

Gosh, that’s a lot, isn’t it?

[Jimmy]

And they’re expecting 50% of the population of the state to be in Strata in the next 15 years.

[Sue]

That’s incredible because that’s not just Sydney, that’s the whole state.

[Jimmy]

And, you know, you look at that, well, what that means is a lot of people moving into Strata for the first time or owning Strata for the first time and that obviously presents problems because it’s a far from perfect system at the moment.

[Sue]

And especially in areas outside Sydney where people might not be so used to it and there might not be many supportive networks.

[Jimmy]

Right, so we’ll be talking about the new bill, which is soon to be enacted, and we’re going to be talking about our new sponsors. I’m Jimmy Thomson. I edit the flatchat.com.au website.

[Sue]

And I’m Sue Williams and I write about property for the Sydney Money Herald, the AFR, the Age and Domain.

[Jimmy]

And this is The Flat Chat Wrap.

So we’ve got about 10 pages of stuff here from the Minister’s second reading.

[Sue]

So, I mean, it’s interesting because sometimes people come back from holidays and they say to you, I had a great holiday, I’m going to show you my pictures or I’m going to talk about it. And you always say to them, what’s the best two things about it? Right.

Which always makes me smile because, yeah, that’s right.

[Jimmy]

We don’t want to see the whole thing.

[Sue]

With this Strata legislation, what are the jewels in there?

[Jimmy]

Oh, it’s hard to choose. I think the one thing is probably that Strata contracts are going to be brought under consumer law.

[Sue]

That is fantastic.

[Jimmy]

Isn’t it? Isn’t that good? So all these dodgy contracts that you get faced with, at least you’ll be able to challenge them under whether they’re fair or reasonable under normal consumer law.

[Sue]

And that’s quite cheap and quite simple. And there’s a specified process for that. So it’s so much easier.

[Jimmy]

Really? Where are you getting this from? It just means that they come under consumer law and you can go to court and challenge them.

[Sue]

Well, which is much better than coming under Strata law.

[Jimmy]

Where you couldn’t challenge them at all.

[Sue]

Yeah, that’s right. So I think you’re being very unfair to me.

[Jimmy]

Right. One of the other things that these laws are going to improve is they’re actually addressing building managers and the problems that some schemes have with building managers.

[Sue]

What are they saying about building managers?

[Jimmy]

Well, basically, they’re saying that anybody, including committees and Strata managers and building managers, have to operate in the best interests of the building. Now, building managers have kind of skirted round all this thing and they were getting 10 year contracts when Strata managers were getting three year contracts, even when that was reduced. But now they’re saying that building managers have to act diligently and reasonably.

[Sue]

And hopefully all the good ones do anyway, but some of the bad ones certainly don’t. And we’ve heard about many building managers who will do lots of services for members of Strata committees, for instance.

[Jimmy]

Yes.

[Sue]

You know, kind of look after, really make sure they’re looked after in a ridiculously way. But for everybody else, you know, they can go to hell, really, because the Strata committee is where the power lies.

[Jimmy]

Exactly. And they’re the ones who will effectively decide whether or not those contracts get renewed when they come up. And there’s also saying that the Strata committees have additional duties and obligations on members, including complying with Strata and community land scheme laws and acting with honesty and fairness.

So, as the minister said in Parliament, this will be a big change for some committees. So the government will work with the sector to roll out mandatory training to support committee members in meeting their duties under the Act. So that’s the mandatory training.

They haven’t worked out how they’re going to do it. They haven’t worked out how they can force people to undertake the training. But it’s there and they’ve got until November.

[Sue]

OK, to work it out.

[Jimmy]

Yeah, because that’s when all these laws actually come into effect.

[Sue]

So you’d imagine it would be kind of on Zoom, wouldn’t it really? It would be a series of seminars and you have to go to at least one or two seminars and kind of register your attendance.

[Jimmy]

I don’t think so.

[Sue]

No?

[Jimmy]

Maybe not. Maybe it’ll be like your driving test, you know, the initial on-screen thing where you…

[Sue]

Oh, just an on-screen thing, not a talk.

[Jimmy]

I don’t… they don’t know, I don’t know. I mean, whatever is going to be least expensive, I guess, it will be least expensive and most effective is going to be the way.

But I think that, you know, the problem with the remote learning thing is that somebody in the committee will go, oh, look, I’ll just register for the course and put your name on it and then it looks like you’ve done it and then you’ll be fine. So there’ll have to be some way of either preventing that or penalising people who do it.

[Sue]

Or having a little exam at the end.

[Jimmy]

You know, we have at the college where I teach the online interface where all the documents sit, where all the reading is for the students to do. You can click a button that tells you who’s been on it and how long they’ve been on it. All they have to do is log in, open up the document and then they can go and go down the pub and come back in two hours.

And it looks like they’ve been reading stuff for two hours. So, you know, this remote learning thing has its advantages, but it has its problems.

[Sue]

So it has to be really interactive for people.

[Jimmy]

Yeah, I think people have to be… I mean, look, we’ve got technology now. My computer logs in when it sees my face.

It could be as simple as facial recognition. Register your facial recognition on that and then people will start schooling about privacy and things like that.

[Sue]

But oh, well, it’s not up to us to discover. It’s up to the government to work out something and for us to criticise it when it’s not good. Or congratulate them when it is.

[Jimmy]

And getting it right. One of the things that comes up is that there’s been a problem with owners wanting to renovate and the other owners in the building dragging their heels with permission that should be straightforward. But basically they just possibly because they don’t want the disruption.

[Sue]

Oh, yeah. Or maybe they’re busy and they just kind of keep putting it to the bottom of the agenda, really.

[Jimmy]

Yeah. And what they’re saying is unless the Strata Committee gives a written reason for refusing an application for renovation, then that application will be taken to have been approved after a certain amount of time.

[Sue]

OK, that’s fair enough.

[Jimmy]

Yeah. So you can’t just sit on it. I mean, if they don’t, if there are reasons for not approving the application, they have to actually think about it and tell the owner who’s made the application, look, you need to fix this because we’re not happy about it.

[Sue]

Yeah. So it keeps them on their toes. Yeah.

And also the bill, I think, makes buildings make sure that they comply with all the obligations they need to like looking after the building properly.

[Jimmy]

Yeah.

[Sue]

And preparing 10 year advance plans for building maintenance.

[Jimmy]

Yeah. One of the problems has been that we have under the law at the moment, you have to create a 10 year maintenance plan. You don’t have to finance it.

You don’t have to allocate money for that 10 year maintenance plan if you don’t want to. All you have to do is say that you’ve considered it, which is ridiculous.

[Sue]

Yeah, because you might say, oh, we want two new lifts.

[Jimmy]

Yeah.

[Sue]

But we don’t want to pay the levies. Yeah.

[Jimmy]

And you know, and people are going, well, I’m planning to sell out in five years anyway. So I’m not putting money into new lifts.

[Sue]

Hmm.

[Jimmy]

Rather than looking at it from the point of view of I’m going to be here for the next five years. So I will be contributing to the wear and tear people. Some people look at it from the point of view, I’m going to be leaving here in five years and I’d rather not spend the money that’s going to benefit somebody else in the future.

So what a lot of strata committees do is wait until things fall apart and then special levies and all that stuff come into play, which is just a nightmare. So what this legislation does is to say you can’t just keep kicking the can down the road. You know, at some point you’ve got to look at your obligations to maintain and repair and actually do it.

And and I think that’s a big step forward.

[Sue]

That’s fantastic.

[Jimmy]

When we come back, we’re going to talk about levies, estimates and embedded networks. That’s after this. And we’re back and ploughing through this long document.

I mean, I’ll put a link to the Hansard page so that people can read this in detail. And that is where the devil lies, as in most things. But carrying on, one of the things in the new legislation is that developers have to get a professional surveyor to estimate the levies that it will cost to run the building.

Because even today you will get, and we’ve experienced this ourselves, you will get developers saying, oh, the levies are going to be really low because of this, this, this and this. And then the owners corporation comes in and we’ve actually heard this happen where they they’ve said, you’ve set the levies too low and they can’t run the building on that amount of money. Developers are saying, no, no, you’re spending too much.

And in the case I’m thinking of, the developers own a lot of property in the building still. So they have a lot of voting power. They have a lot of voting power and it is to their advantage to keep the levies as low as possible.

[Sue]

While they’re still selling apartments.

[Jimmy]

Yeah. Both to reduce their own income because they’ve got to pay levies on their unsold apartments.

[Sue]

And meanwhile, the building kind of goes to rack and ruin, really, because it’s not being properly maintained.

[Jimmy]

Exactly, exactly. So this is a really good thing and it’s long overdue. And there’s some fines like $55,000 for developers who don’t fulfil their obligations under this.

Embedded networks is another issue.

[Sue]

Yeah, that’s a huge issue. It’s getting bigger all the time, isn’t it really?

[Jimmy]

Well, it’s a big business. I mean, you can find building magazines where developers see ads that say, you know, don’t pay to get your drains put in. We’ll put them in.

All you have to do is persuade your owners to sign a long term inflated contract and we’ll get our money back anyway.

[Sue]

Oh, God. Yeah. So it’s stopping those.

[Jimmy]

So they’re trying to stop those. And they’re also extending the existing legislation on contracts of the limit of three years and contracts to embedded electricity networks so that after the three years, you can go back to the power company and say, we don’t want you to supply power to the building anymore or our owners have all got different deals happening and we want them to be able to get electricity from their choice. Now, that’s a huge thing because the power companies have been basically holding apartment blocks to ransom for forcing them.

I mean, in our building, our investment, the power company, when we said that we wanted to feed the power from the token solar panels on the roof, they said, yeah, that’s fine. We’ll only charge you the standard rate for that electricity. And we said, but these are our solar panels.

And they said, no, they’re not. They’re ours.

[Sue]

But they’re taking space on the roof. Can’t you rent? Can’t you charge them rent?

You should be able to charge them huge rent for having them there.

[Jimmy]

This is a problem of a new building. You’ve got people in there who really a lot of them, a lot of them don’t know what they’re doing. Some of them really know what they’re doing.

And I’m talking about the developers and some of them just don’t want to get involved in anything controversial.

[Sue]

Yeah, sure.

[Jimmy]

So it’s difficult just to get the right thing done. So this is where the legislation becomes very helpful.

[Sue]

Fantastic. And I think with off the plan developments, there’s a few things there too, isn’t it?

[Jimmy]

Yeah, well, one of the things is if you as often happens, I mean, what usually happens in a new strata building and there’s a lot of them being built is they have the first AGM, the strata manager turns up with a raft of documents. All of those documents need to be ratified at the AGM, the first AGM, if they’re going to be enforced, if they’re going to mean anything. What the strata managers will do or some will do is say you have to sign these, you have to approve these, which is not true, by the way.

And some strata managers will say you might want to take some time to look at these and consider whether they’re to your advantage. Among those will be contracts. I mean, I know I’ve spoken about this before, but the contract that was presented to us, which allowed for a 10 percent increase in fees every year for 15 years and nobody else had spotted this because it was in tiny print.

Even the strata managers looked surprised at this, although I don’t know how surprised they actually were. And so what this is saying is if you come into a building and you’ve approved contracts at the first AGM and then it turns out that those contracts are as dodgy as get out, then you can rescind, not just a contract, you can rescind the sale, the purchase of your apartment.

[Sue]

Wow. That really is a get out clause, isn’t it?

[Jimmy]

It sure is. So, you know, you bought your apartment off the plan, you go in, the people that you’ve never met before tell you, yeah, we’re across all this, we should approve all the contracts. The strata manager is jumping up and down and saying, vote to approve the contracts.

This is all standard practice. And I hasten to add, that’s not all strata managers that would do that. But there are some that I know very well who would.

And it all gets approved. And then you go, hang on, we’ve just signed up for this ridiculous payment. We had a situation where they, among the payments, were maintenance for the lifts, right?

And the lift engineers happened to be there to explain why the lifts hadn’t been working properly. And I said to them, are these lifts under warranty? And they said, of course they are.

And I said, well, why are we paying maintenance? And the strata manager said, well, you know, if you buy a new car, you’ve still got to pay to have it serviced. And I and I said, well, yes, but you’ll probably find that most new cars, you get the first year service free.

Yeah. So it was all a bit embarrassing in that that was booted out, that amount was booted out from the budget. Well, I say it was booted out for the budget.

It was quickly used to pay for the shortfall because of the low estimate the strata managers had put on the levies. What else have we got? I tell you what, if this law about rescinding the contract had been in place back then.

[Sue]

It’s not retrospective, though, is it?

[Jimmy]

No. I would have happily stood in front of the developer and ripped the contract in half. Sure.

[Sue]

I think it also helps owners who are experiencing financial hardship.

[Jimmy]

Yes.

[Sue]

Yeah. So what’s what’s.

[Jimmy]

Well, basically, they’re compelling owners, corporations, and we’re talking about either the treasurer or the strata manager when they send out levies and when they send out default notices, they also have to send out information about how they can get financial assistance.

[Sue]

Oh, that’s a good idea.

[Jimmy]

Yeah. And information to the owners corporation about their leeway that they have, for instance, in not imposing penalty interest and and allowing for payment plans. So it doesn’t undermine the owners corporation’s ability to get the money back that they’re owed.

But it does give owners who fall behind in the payments a chance to catch up. And one of the awful things that has come out of the recent scandals in Strata has been that you’ve got a strata management company that has a legal offshoot and those people can pursue debts through the courts. So what happens is the strata managers say to the owners corporation, don’t worry about these debts.

We’ll get them all back and it won’t cost you anything, which is what the law says, that whoever is in debt has to pay the cost of recovering the debt. So the strata manager then goes off to their legal offshoot and says, we want you to pursue this debt, take whatever it costs. All reasonable costs can be sheeted back to the person who’s in debt.

But of course, their debt is going up and up and up and up. And this is actually introducing a little bit of humanity into the system.

[Sue]

And that’s great. I mean, we’ve just seen interest rates come down once, but we have the governor, Michelle, saying, oh, they’re unlikely to come down again for a long time.

[Jimmy]

Well, she doesn’t want people going mad spending. Absolutely. So she’s got to wave the stick while she’s offering the carrot.

[Sue]

Well, yeah. And I mean, globally, it’s so chaotic. Nobody knows what’s going to happen with America.

And so the lead on effects of that are huge, potentially. So, yeah, so that’s good that people are being helped, really. And I think the new laws also clarify the roles of different members of the Strata Committee, which is a good idea and allows people to have digital inspections of records, which is very democratic.

[Jimmy]

Well, you know, it’s been ridiculous. I mean, you’ve got some Strata managers who will not let people look at the records because they say there are privacy issues, which is bullshit. So it’s good that a lot of these things are being cleared up.

The compliance with these laws will be interesting to look at. Now, in the press release that came out yesterday, they talked about eight point four million dollars being put into a task force. And I said, oh, great.

What is this task force and what does it do? And I’m still waiting for the phone call that’s going to explain all this to me.

[Sue]

But so they don’t actually say what the task force is. Presumably for compliance, is it?

[Jimmy]

Well, yeah, but there’s so many levels. And how does it is it a case that you phone up Fair Trading and say, oh, look, our committee didn’t follow the law when they rejected my application or are they going in and saying, oh, these contracts are unfair. So we’re going to look at that for you.

We don’t know.

[Sue]

So all in all, what’s your verdict on these changes?

[Jimmy]

I think it’s good. Typically, in the press release that came out, you had a hyperlink to the website on New South Wales Fair Trading, which is isn’t actually the website, the web page you want to go to. There is another link on that page to the page you want to go to.

So I’m going to cut to the chase for our listeners and just put in the proper one that will get you to all the stuff you need to read.

[Sue]

Great. All right.

[Jimmy]

We have almost run out of time. So very quickly, I want to welcome our new sponsors, Strata Community Insurance.

[Sue]

Oh, great. Are they a specialist Strata?

[Jimmy]

They are. Let me set up. There’s a gentleman whose name is familiar, even if the person isn’t.

His name is Paul Keating, who’s been around the Strata insurance industry for ages.

[Sue]

He’s the other Paul Keating. He’s not.

[Jimmy]

He’s not Paul Keating.

[Sue]

The past Prime Minister.

[Jimmy]

Yeah, you’re a very good friend.

[Sue]

He swore at me once.

[Jimmy]

He swore at you recently when you didn’t like an interview. This is a different Paul Keating and he is a very nice man and I’ve never heard him swear at anyone. But he has set up a Strata insurance company called Strata Community Insurance.

It’s all about Strata and specifically, particularly small Strata schemes.

[Sue]

Oh, great.

[Jimmy]

Because they have trouble often getting insurance that fits them because a lot of insurance is designed as one size fits all for big schemes. So they they’ve come on board this week and looking forward to extracting information from them.

[Sue]

Fantastic. Welcome.

[Jimmy]

Well, that’s us. We’ve run out of time again, Sue. Thank you very much for coming along the corridor to sit down and talk Strata with us.

[Sue]

Pleasure, Jimmy.

[Jimmy]

And thank you all for listening. We’ll talk to you again soon.

[Sue]

Bye.

[Jimmy]

Bye. Thanks for listening to the Flat Chat Rap podcast. You’ll find links to the stories and other references on our website, flatchat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple Podcasts, Google Podcasts, Spotify or your favourite podcatcher. Just search for Flat Chat Rap with a W, click on subscribe and you’ll get this podcast every week without even trying. Thanks again. Talk to you again next week.

 Transcribed by TurboScribe.ai.