NSW to crack down on strata manager scams

The NSW State government is planning to crack down on the “small number” of “unscrupulous” strata managers whom it says are undermining public confidence in apartment living. New laws will introduce stiffer penalties and increased enforcement powers against companies that rip off their customers.

Fair Trading and Better Regulation Minister Anoulack Chanthivong isn’t waiting for his department’s report on its independent inquiry into the Netstrata scandal – where the strata managing giant was found to be taking secret commissions on insurance policies – with new laws set to be introduced to Parliament later this year.

Fair Trading says it will “stamp out bad behaviour in the strata sector” which “has put a dent in public confidence around apartment living.”

“We have a housing crisis in NSW and solving it means we need to build more high quality, higher density housing,” Fair Trading said in a Press Release this week.

“More than 1.2 million people already live in strata communities in NSW and that number is set to grow under the Government’s comprehensive plan to build a better NSW.   Recently the behaviour of a small number of managing agents has put a dent in public confidence around apartment living.”

There’s anger in the strata sector that Building Commissioner David Chandler’s herculean work in boosting consumer confidence in the construction of apartment blocks has been seriously undermined by potential owners’ fears that they can be ripped off anyway, by the professionals who are supposed to look after them and their neighbours.

“Owners Corporations usually appoint a strata managing agent to provide advice on meeting legal obligations and managing the delivery of services to the strata scheme,” says Fair Trading.

‘New laws will help build confidence in the sector so apartment owners and residents can feel safe [that] they aren’t being ripped off by unscrupulous agents.”

NSW Fair Trading says it had more than 965 complaints about strata agents in the five years to 2023 with more than half of those complaints about rules of conduct or budgets, levies or finances.  

Key changes proposed include:  

• increasing the maximum penalties and penalty infringement notice amounts for existing agent obligations to disclose information about commissions.
• strengthening the conflict-of-interest disclosure requirements.
• banning agents from receiving a commission on insurance products when they don’t play a role in finding the best deal for residents.
• strengthening NSW Fair Trading’s enforcement and compliance powers.

“These reforms are critical to supporting confidence in investing and living in strata schemes,” Minister Chanthivong said.  

“We want to change the perception that strata managing agents easily, and readily, take advantage of owners by significantly increasing the consequences for those who do the wrong thing.

“The new laws are designed to take immediate action to help restore confidence in living and investing in strata schemes, ensuring more people consider apartment living as a housing option.”  

The higher penalties, greater transparency and new enforcement powers follow an $8.4 million investment in more resources for the Strata and Property Services Commissioner in this year’s budget. 

The Netstrata Scandal

Although the company was not named in the Fair Trading press release, there is little doubt that the proposed law changes have been prompted by the Netstrata scam exposed in an ABC TV 7.30 interview with the company’s Managing Director, Stephen Brell.

In it, reporter Linton Besser interview alleged that insurance premiums worth tens of thousands of dollars were massively inflated through secret commissions imposed through a subsidiary of the company which, unlike strata managers, was not obliged to declare them to owners.

In some cases, owners alleged that their insurance premiums had been more than doubled by the under-the-table commissions imposed contrary to the spirit if not the letter of disclosure laws,

Brell, then President of Strata Community Australia NSW, the peak body for strata managers and service providers, resigned from that role as well as his position on the SCA-NSW board. 

Meanwhile more allegations about strata managers’ milking their clients’ funds poured into the ABC, many claiming that Netstrata wasn’t the only company whose “vertical integration” allowed them to by-pass disclosure laws.   

Clearly coordinating with the NSW Government announcement, SCA-NSW this week revealed that it is revamping is internal disciplinary measures and has appointed an independent complaints and conduct chair.

Meanwhile, the Government will consult with key stakeholders such as the Owners Corporation Network (OCN) – the independent apartment owners and residents peak body – and Strata Community Association on the draft laws in the coming weeks. The Parliament will consider the new laws later this year. 

Strata Managers ‘welcome changes’

Strata Community Association (SCA) NSW, says it “strongly supports” the new measures.

“The SCA has long advocated for sensible and progressive regulation in NSW that will improve practices across the entire strata sector – for the benefit of consumers and the sector alike,” it says in a press release.

SCA (NSW) says it has been working closely with the NSW Government to address key issues in the strata sector, including in relation to conflicts of interest, disclosures and commissions. Specifically, it says, SCA (NSW) has:

• supported the creation and funding of the NSW Property and Strata Services Commissioner, currently led by John Minns, and is a lead participant in engagement with the office;
• actively participated in the recent review of the Strata Schemes Management Act, and in consultations on regulation to improve building quality, training and regulation in the building sector in NSW;
• In collaboration with strata consumer organisations, including the Owners Corporation Network (OCN), the Australian Consumer Insurance Lobby (ACIL) and the Australian College of Strata Lawyers (ACSL) led the request for additional resourcing of the NSW Strata and Property Services Commissioner.
• spearheaded initiatives to improve and strengthen disclosure requirements and conflicts of interest.

Additionally, it says, improving practice in the strata sector has been a critical priority for SCA over the last few years, with activity intensifying on this front over the last several months, including:

• fast-tracking and introducing the enforceable SCA Best Practice Insurance Disclosure Guide;
• appointing a new independent Complaints Chair, Stephen Phillips; and
• committing to producing a best practice guide for ethical practice informed by independent research.

“The NSW Strata community thanks the Minns Government for their consultation and subsequent action to improve the sector, and look forward to continuous engagement going forward,” it says here.

Considering disparaging comments directed at the OCN, ACIL and ACSL in the past by SCA-NSW, we can only hope this sea-change is not only genuine but lasting.