This week in the Flat Chat Wrap podcast we take a deep dive into the strata managers’ code of ethics.
We touched on the topic in the Forum last week and its worth revisiting as the NSW branch of the Strata Community Association is about to officially launch its state government-approved Professional Standards Scheme.
The SCA (NSW) Code of Ethics underpins its professional standards and the built-in disciplinary procedures add some heft to its definitions of what is acceptable and unacceptable behaviour by strata managers.
It’s a fairly dense document but the accompanying guide skirts around the issues that we think are most important.
These include strata managers enabling incompetent and possibly even corrupt committees, while aiding and abetting developers who are intent on ripping off apartment buyers with embedded networks and pre-sold management rights contracts.
LISTEN HERE
Also on the pod, we ask why the building commissioner is taking such a keen interest in developments on the north coast of NSW.
Property prices are booming up there – does that mean the developer sharks are circling?
And, on the eve of the Owners’ Corporation Network’s annual Strata Matters conference, we ask who is looking after apartment owners in other states.
TRANSCRIPT IN FULL
Jimmy 00:00
We’ve been invited to a big function next week.
Sue 00:02
We have!
Jimmy 00:03
The Strata Community Association, previously Strata Community Australia, before they included New Zealand.
Sue 00:12
Oh really! Is that..
Jimmy 00:13
That’s why they changed their name.
Sue 00:15
I always have to look it up, every time I write about anybody from there and I always think “why can I just never remember, whether it’s Australia or Association?”
Jimmy 00:24
Well, that’s why, because it was, once.
Sue 00:26
Oh, right, so I’m not quite going mad.
Jimmy 00:29
So, the New South Wales branch has its AGM next week, but they’re also doing the big launch of their professional standards system (whatever you call it). It’s almost like they’re becoming like accountants, where the government recognises that they provide professional standards. Presumably, at some point in the future they will be able to say “if you’re going to have input from a strata manager, they must be members of SCA New South Wales,” so it’s a big deal.
But, part of that process was to create a Code of Ethics, which we touched upon last week on the website (in the forum), and it actually bears a bit of exploration and examination, so we’ll be doing that. We’re talking about property up in northern New South Wales, which has been visited by the Building Commissioner and, we’ll have a chat about what kind of organisations there are for owners, in other states in Australia. Hi, I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.
Sue 01:39
And I’m Sue Williams and I write about property for Domain.
Jimmy 01:42
And this is the Flat Chat Wrap.
[MUSIC]
Jimmy
The Strata Community Association New South Wales’ Code of Ethics is an interesting document. Not only does it have rules about how strata managers are expected to behave, but it lays out the principles for complaints and if you download their Code of Ethics, you will find a whole complaints form (which runs to about three pages), at the back of the document. It’s a process where you complain about a strata manager, or an SCA service provider (because there are people who are not strata managers, but they provide services and they’re members of SCA), or even owners who are members of SCA; you can put in a complaint about them.
Sue 02:48
What percentage of strata management companies are in the SCA?
Jimmy 02:53
I think it’s the majority. I’ve always wondered why strata managers weren’t in the SCA. I mean, obviously, you have to pay fees to join. I don’t think it’s that hard to become a member there. But, there are strata managers who are not members and we’ve even come across strata managers who claim they’re members of SCA and use the SCA logos on their literature and turn out not to be SCA.
Sue 03:18
That’s right; I remember that one!
Jimmy 03:21
It’s very easy to get a strata managing qualification and I think there are people who set themselves up as strata managers, who shouldn’t be in the industry at all.
Sue 03:33
Like cosmetic surgeons, perhaps, who don’t really need to be surgeons, particularly; they can be doctors, but can call themselves ‘cosmetic…’
Jimmy 03:41
So, this whole thing is all about the professionalisation of strata management, which is good; it’s a good thing. It’s accountability. When you consider how much influence they have on our lives in strata, you would want them to be accountable, professionally. I had a look at their Code of Ethics and you had a look at the guide to the Code of Ethics. Basically, if a strata manager or a strata service provider, or even, a strata owner who is a member of the SCA (which I find a weird thing anyway, but never mind); if they have misbehaved in some way, you can put in a complaint.
Sue 03:46
And then what happens?
Jimmy 04:25
There’s a panel and there is a complaints manager, who makes a finding, based on what the panel thinks…
Sue 04:34
And, are there penalties and are they significant?
Jimmy 04:38
Well, we’ll get to that later. The complaints manager (if he or she finds that the complaint is without substance), they can dismiss the complaint summarily; report the dismissal to the panel, and record the complaint in the complaints register. A complaint concerning unsatisfactory conduct, may be resolved by either a written agreement between the complainant and the subject member, or if the complainant agrees, the subject member undertakes in writing, to take corrective action at their own expense, including compulsory attendance at an SCA seminar, appropriate counselling, or undergoing some other undertaking, as determined by the SCA secretariat. If either party is not happy with that, then it can be progressed to a higher level. Interestingly, if the delegated complaints manager makes a finding of professional misconduct (which involves a potential criminal component, including fraud, embezzlement, theft, or illegal sexual activity), they’ve got to report it to the police. You had a look at the guide and it gives a couple of examples of what SCA considers to be unacceptable conduct.
Sue 06:01
There were kind of quite menial examples, really. One was, say I was a strata manager, and you’re the chairperson of an executive committee…You come to me and say you’re not happy with your regular strata manager; can you have a quote from me, to take over your strata building? So I say “yeah, sure. I’ll give you a quote.” But, under the Code of Ethics, I also then have to get in touch with your strata manager…
Jimmy 06:28
The existing one?
Sue 06:28
That you have currently, and let them know that I’m quoting you, which seems a bit bizarre, really, because why would you want them to know? You know, you as an owner; you don’t want them to know that!
Jimmy 06:30
There is an ‘out’ clause, though, isn’t there?
Sue 06:41
Yes, you can instruct me in writing, not to do that.
Jimmy 06:45
So, if I’m the committee, I can say “don’t contact the existing strata manager?”
Sue 06:49
That’s right, but If you hadn’t thought of that, and then I’d have just gone to the other strata manager; I mean, you’d be in a bit of a mess, really, because I might be charging you double what that person’s charging you and offering you half the services. You don’t want to mess up your relationship with your existing strata manager. So, I didn’t really understand that one. I just thought that was kind of like strata managers, looking after each other, rather than looking after the owners.
Jimmy 07:16
Which has always been a criticism of SCA. They’ve stopped doing it now, but at one point, they claimed to be representing owners, and really, they represent strata managers and to a lesser extent, strata suppliers. Down at the bottom of that totem pole, is the strata owners, for whom they provide training, which is great, but when push comes to shove…
Sue 07:45
No, they’re not really representing owners; they’re kind of looking after strata managers. I mean, given, the other examples are a bit better. The second example they give is where you as an executive committee, come to me as your strata manager and say “we want three quotes for painting the building,” so I say “oh, do you have any preferred suppliers?” You say you had a couple, who you’ve used before, so I say “I’ll definitely go to them to get a quote, but I also have a good supplier, so I’ll go to him as well.” You say “fine.” So, me as a strata manager, I go to your two painters; maybe they’re going to charge me $30 an hour and then I go to my one and say “they’ve said that they’re going to charge $30 an hour… If you say you’re going to charge $29 an hour, I’ll give you the job.” Now that’s clearly immoral. So, that’s good, that that kind of behaviour is safeguarded against, but it’s kind of weird that a strata manager would even consider that that would be okay!
Jimmy 08:46
Yes, although, the strata manager might argue “well, I’m getting a cheaper deal for the committee.”
Sue 08:52
Yes, but you could easily go back to your two preferred painters and say “my painter is saying $30; you give us $29 and then you will stand a much better chance.”
Jimmy 09:00
Right, so, Dutch auction?
Sue 09:02
Yeah, that’s right. It’s kind of weird, really. But then the third example they give is where a strata manager is engaged by an owner to do a search of strata records of another building, because maybe, you’re thinking of buying into that building. So, I go and do the search for you; I give you your report and then, I hold onto those records. I approach that executive committee and say “hey, how about I become your strata manager?” Maybe, that’s incredibly enterprising, or maybe, it’s immoral? I’m not quite sure.
Jimmy 09:33
Yeah, it’s a bit dodgy. So what about owners? Is there any way owners can get themselves into trouble, according to the guide?
Sue 09:40
Well, yes, I think so. Another example is an owner’s recently purchased a townhouse, and is elected to the executive committee, and he notices there’s lots of spare funds in the sinking fund, and proposes various works to improve the landscaping of a footpath that only service their townhouse. So at the meeting, they kind of propose doing all this landscaping and looking after the footpaths, but never actually disclose that it’s only going to benefit them.
Jimmy 10:10
I’ll be honest; I think it’s all a bit of window-dressing, because they have an owner’s section and because they want to have professional accreditation, then they have to have a disciplinary process for owners, as well.
Sue 10:27
Oh, I see!
Jimmy 10:28
So, they’ve concocted these scenarios. I would think if you are an on a committee or in a scheme, and a member of the committee has basically fleeced the sinking fund to beautify their own property, complaining to SCA is the last thing you would do. I think you would be looking at Fair Trading and NCAT, long before you ever got to…
Sue 10:55
But maybe, the strata manager should be instructed to tell everybody and they should, as matter of course, intervene in that situation, shouldn’t they?
Jimmy 11:04
Well, this brings us to what’s not in this guide of possible breaches of the Code of Ethics; things like giving wrong advice, either accidentally, or deliberately, to strata committees. What are the penalties for that? Enabling strata committees to work illegally, with elections and using proxies and things… Turning up at meetings and knowing that the meetings are being wrongly conducted, but knowing that the owners; a minority of owners, can’t do much about it. That’s not addressed here.
Sue 11:43
And the clear conflicts of interest between a strata manager currying favour with an Owners Corporation; with an executive committee he knows favour’s him and his responsibilities to the Owners Corporation, as a whole. It doesn’t really say very much about that, does it?
Jimmy 12:00
No, and that’s a very real issue. We see it all the time, where you get a strata manager who is accused (often very fairly), of being in cahoots with the committee. It’s not that they set out necessarily, to act illegally, or immorally. It’s just that they go “if I allow these things to go through; if I allow these things to happen, then I’ve increased my chances of keeping this contract, with this committee. But, if I object, the existing committee will say we need a strata manager who’s more amenable to us doing what we want, rather than what we should.” If it is addressed in the Code of Ethics, it’s pretty hard to find. I’m sure it is there in some form of words or another, but it should be…
Sue 12:56
Explicitly outlined.
Jimmy 12:57
Yes and that guide to the Code of Ethics should include that kind of behaviour, because that is possibly, the most prevalent, and certainly, the most damaging,
Sue 13:07
And also, where there’s a conflict of interest with the developer as well. I don’t know if that’s addressed within the Code of Ethics, too. Because, in the first AGM, that’s where the bylaws become instituted.
Jimmy 13:22
Become locked-in, yes.
Sue 13:23
And sometimes, developers will put forward a bylaw, which isn’t really in the owner’s interest. I remember, we had a first AGM of a building, and there was a proposal in there, that a big advertising sign be put on the side of the building and nobody had really read through all the bylaws. Nobody really understood it, because we were all very new and it was just that one person actually saw it, and called out the strata manager and the developer on that, and the strata manager had agreed to put that in, on the developers instructions, but hadn’t advised the owners about it.
Jimmy 13:58
No, not explicitly.
Sue 13:59
Yes and of course, when you’ve got so many problems with embedded networks, that’s going to be a big issue. Should strata managers speak up, if a developer has slipped embedded networks into the first AGM?
Jimmy 14:11
Again, that probably exists in the Code of Conduct in some form of words, but it needs to be more explicit and you know, it was strata managers who first brought this to our attention, because they were feeling pressure from developers who were saying ‘you’ve got to get these embedded network contracts in, because it’s going to save me hundreds of thousands of dollars.’ If you stand up at the AGM and say “oh, this is just standard practice,” then the owners at the first AGM will just accept all that and by the time they realise what has happened…
Sue 14:45
It’s too late.
Jimmy 14:47
Do you want to hear what the sanctions are?
Sue 14:49
Oh, yes!
Jimmy 14:50
For naughty strata managers, it’s a long list. They can be required to attend a seminar, or appropriate counselling. This is if they’re found guilty of strata naughtiness. A letter of reprimand can be issued, a letter of censure can be issued; they can prohibit the subject member from holding office in SCA. It’s like they can’t become part of the SCA committee (ooh, scary)! They can require the parties to mediate, they can require the parties to submit to binding arbitration. They can issue a public or private apology in writing, which may include media advertising. Now we’re getting serious! They can have their membership suspended. They can be expelled.
Sue 15:45
They don’t lose their strata management licence, do they?
Jimmy 15:49
No.
Sue 15:50
They’re just not allowed in the SCA.
Jimmy 15:52
The second last one is ‘make a recommendation to the subject members’ licencing authority,’ presumably a recommendation that they have their licence cancelled, which has never happened in the history of New South Wales, apart from strata managers, who are also real estate agents, who’ve been ripping-off funds. It’s kind of like the strata management thing is just an ancillary to what they’re doing. And ‘the decisions can be published, and subject to board approval, any other penalty that the panel determines is appropriate.’ That’s interesting. They’ve got lots of options, of not doing very much.
Sue 16:29
But they can cancel; well, they can apply to cancel their licence, which is obviously an important one.
Jimmy 16:35
I think we would all feel a bit more assured, if there was a table of things… ‘If you do this, you’re probably going to cop this.’ It’s early days; they’re setting up this professional body and that’s a good thing. Accountability is built into that, but really, I would be a lot happier if they were looking at where bad strata managers are really letting people down and, what they’re going to do about them. I’d quite like to see any SCA members who have acted immorally or irresponsibly (just to keep their contracts); kick them out, or at least suspend them and make them reapply to rejoin and actually run a campaign to say ‘if your strata manager is not a member of SCA, you have to ask why.’
Sue 17:31
Yes, that’s fair enough. Will they also be working quite closely with Fair Trading, because most complaints about strata managers from owners, would go to Fair Trading, really?
Jimmy 17:41
This new status that they have acquired, is subject to a five year review by Fair Trading. Fair trading is saying “off you go; we’ll give you the kudos that goes with this status, but we’re watching you for five years.” As we know with Fair Trading, they do a lot of watching; they don’t do an awful lot of acting. When we come back, we are going to talk about property and new buildings and the Building Commissioner; all happening in northern New South Wales.
[MUSIC]
Jimmy
Sue, the Building Commissioner has been blitzing new buildings up in Tweed Heads and Byron Bay and Coffs Harbour.
Sue 18:29
Okay, is that because he fancied a holiday?
Jimmy 18:31
That is a very cynical thing to say!
Sue 18:34
It’s a nice time of year you to go up north, isn’t it, really?
Jimmy 18:37
My question to you is, is there that much going on up there?
Sue 18:41
Yes, there is. There’s a huge amount of building going on, particularly around Tweed Heads; less so at Byron Bay, because in Byron Bay, the problem is the land is limited. There’s not much spare land for development, so a lot of the development there tends to be infill, and it tends to be bespoke private houses…Fabulous homes, because there’s so much money in Byron Bay. I mean, as we know, Byron Bay now; their median house price has eclipsed Sydney. It’s now $1.55 million and it’s risen by 34.8%. Think about that! 34.8% over the last year. That’s incredible and I mean, Sydney’s median price is only $1.499 million, so it’s quite a substantial amount. $51,000 more than Sydney’s median and you know, Byron used to be this barefoot paradise, where you could go and buy cheap coffee and doss out in cheap housing…
Jimmy 19:42
Sleep on the beach. It used to be the dole capital of New South Wales, if not Australia. There was a higher percentage of people there on benefits, than anywhere else.
Sue 19:52
Well, no longer. They have to commute into Byron Bay; they can’t afford to live there at all. I mean, it is a very beautiful place. You’ve got the National Park, you’ve got amazing beaches…You’ve got the star power of Chris Hemsworth there and people like Matt Damon and Zac Efron and Nicole Kidman, filming up there as well. You’ve got all that going on and you’ve got a shortage of land. There’s not much supply and huge demand from COVID. People thinking, ‘I’ve always dreamt of living in Byron; why not action, that plan now?’ People say the community itself is so tolerant and lovely. You know, obviously tolerant of anti-vaxxers and all those kinds of people. They all kind of mix in together and that’s a real draw for people, too.
Jimmy 20:42
But there’s a point where you reach a critical mass of people who are there for holidays and things, when one of the notable things about Byron Bay is that it’s the only town outside of Greater Sydney, that is allowed to put a limit on the number of nights that properties can be let for holiday lets.
Sue 21:05
They’ve had a very proactive local council for that, haven’t they?
Jimmy 21:08
Yes and they have 180 nights, which is the same as Greater Sydney, but the Mayor of Byron wants it pulled back to 90.
Sue 21:16
They’re discussing that now, I think, aren’t they?
Jimmy 21:18
Yes. I don’t know if they’re going to have much joy with that. I think they’re still dealing with the Code of Conduct (another Code of Conduct), plus the new registry coming in and see what kind of effect that has, and I’m sure it will have quite a significant effect. The last count; the number of properties available in New South Wales dropped by 2/3 when the registry came in. I wonder if that’s partly because we’re only now coming into summer, and people haven’t reopened their Airbnb lets? I’m sure it will increase.
Sue 21:53
It’s hard though, because if you think Airbnb drives up the price of renting in places like Byron…It’s difficult, because they really rely on students and people drifting in, to work in their cafes and hospitality outlets there. They’re enduring a real shortage of staff in most of their attractions, so it’s quite hard and if you’re saying to people “well, you know, you can only afford to live 25 kilometres out of town and commute in every day,” and they have to drive in, because there’s maybe no public transport, it’s going to be quite hard for for Byron.
Jimmy 22:35
It’s going to change the nature (if it hasn’t already changed the nature), of the town. Your average barista and yoga instructor probably cannot afford to spend $1.55 million, or even rent a property, from somebody who can afford to spend that money.
Sue 22:56
Their only hope is maybe to work as an au pair to one of the rich people who are living in a fabulous four bedroom house and look after their kids, maybe.
Jimmy 23:06
Or moonlight as a real estate agent. David Chandler’s team has been up there, checking new buildings. One of the disturbing things I heard from Tweed Heads, is that they’re not just having embedded networks (tricking new owners on their first AGM to sign up for embedded networks); they’re also apparently, pre-selling management rights.
Sue 23:32
Oh, no! Not again!
Jimmy 23:34
Same as Queensland, which is just over the border. What they’re doing is, say, they know that that contract only becomes active after the first AGM… But what they’re doing is, going in and saying to people “this 10-year management contract is standard practice.” People in Tweed Heads are going; well, they know people in Queensland, just across the border who have that, and they think it is standard practice. The government really needs to be doing something about that.
Sue 24:05
And tell us what it’s about; what is it selling management rights? Just explain what it is, Jimmy.
Jimmy 24:10
Okay. So what happens is that the developer is setting up a new building, and there’s somebody who wants to be a caretaker/manager, or just an on-site building manager and if they get a lucrative contract, it’s worth a lot of money. So, they pay the developer. Now in Queensland, that means the developer signs a contract and that’s legal in Queensland. It’s not legal in New South Wales; it has to be the Owners Corporation that signs a contract. What the developer does is say “I’ll take this money from you, the building manager, on the proviso that I can convince the owners to sign this contract at the first AGM,” and since a lot of first-time owners have no idea what’s allowed and what isn’t allowed and what’s good and what isn’t good and because this is happening just across the border, apparently they are signing up to quite punitive contracts, because what the building manager then has to do… Okay, they’re going to provide a service, that comes at a cost; they’ve got to make a profit. But they’ve also got to pay off the money that they’ve paid to the developer. So your fees for your building manager are inflated, just to put more money in the developer’s pocket.
Sue 25:25
So as a new owner, I can’t say “we’re not going to have that building manager. I want to choose a building manager of my own.”
Jimmy 25:32
At the first AGM, if you’ve got savvy owners, they will stand up and say, “we’re not signing this contract,” and then the developer has to go back to the building manager and say “well, here’s your money back, because I wasn’t able to sell that contract,” as they would have to do with embedded networks.
Sue 25:49
But if I don’t know any better, I will just agree to that contract and it might cost me $500,000 a year, whereas a regular building manager might only cost me $100,000 a year.
Jimmy 26:00
I mean, it’s probably not quite as extreme as that. But yes, and where’s the strata manager in this? The strata manager (who does know what’s right and wrong), should be the person standing up and saying to owners “hey, you don’t need to sign this; you can get a better deal.”
Sue 26:16
So hopefully, that’s in the Code of Conduct.
Jimmy 26:19
Well, you can hope all you want!
Sue 26:21
We can check.
Jimmy 26:23
As I’ve said, there’s probably behaviour like that, that’s covered in the Code of Conduct, in a form of words that doesn’t make it explicitly clear and it should, definitely. Alright, when we come back, we’re going to briefly talk about representation for owners, outside of New South Wales and Queensland.
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Sue 26:52
So the peak body for apartment owners in New South Wales is the Owners Corporation Network, or OCN… I know they started in Sydney and at one point, they had a branch in Victoria and they had an agreement in Queensland, with another group, but what’s the position now? They’ve got a new system in ACT?
Jimmy 27:10
No, the ACT has been going for a while; it’s just not very prominent. But I discovered this when somebody wrote to me and said ‘we’ve got problems in our building. It’s not just a matter of fixing our building; it’s fixing the law in the ACT. Who is doing this? Who can turn to for help?’ I checked it out on the internet, and there is an OCN of ACT. It’s got its own website; it does stuff. It does seminars and it represents owners. It doesn’t seem to be… Look OCN New South Wales, which you helped to set up, has been going for just about 20 years and it’s very professional. It has a really slick website. It gets funding from government and from councils and from the industry. They’ve got a seat at the table in discussing policy and things like that, with government. I don’t get that feeling, that the ACT…
Sue 28:06
Is so far advanced.
Jimmy 28:07
Yep. Queensland haas the Unit Owners Association, who do a lot of good work, and they’re very active. Although, the government in Queensland is just not interested in what owners need or want. I mean, they are so behind the times (the government is), that it’s just an uphill struggle for any owner’s representative body just to get up to par; just to be able to have a voice that’s listened to, because the government clearly doesn’t want to hear what owners have to say up there. Then there’s Victoria… Now, Victoria had that group We Live Here, which was set up to combat the rampant spread of Airbnb and other short-term rentals in Melbourne. You’d look online, as anyone in Victoria would do… You go online to find somebody who’s going to help and there’s nobody there. I think OCN will give advice where they can, but they don’t have that organisation that’s there, where you type in the word ‘strata help Victoria’ and up pops a body. I think that’s something that could be addressed. I know that there are plenty of unhappy owners in Victoria. I get lots of emails from people in Victoria saying “can you set up a separate Flat Chat for Victoria?” The answer is “no.”
Sue 29:33
But hopefully, there are elements of this Flat Chat, which appeals to Victorians as well.
Jimmy 29:38
I mean, we cover Victoria as best we can and we have a couple of people in Victoria, who give us great advice, because the Victorian law is substantially different from ours. The way they operate there is substantially different, so you can’t just have a one-size fits-all approach to strata law there, but they could really use a group there, that’s not just identifying problems to get them fixed, but is actually working with government to improve the lot of strata owners. Alright, well, we covered a lot of ground today. I am waiting to be disinvited from the SCA’s launch next week.
Sue 30:21
I think I won’t stand anywhere near you, Jimmy!
Jimmy 30:24
But in the absence of that, in a couple of weeks’ time, we might report back and see if there’s been any reaction to this. Thanks, Sue, for your valuable input and insights and thank you all for listening. Bye.
[MUSIC]
Jimmy
Thanks for listening to the Flat Chat 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, Stitcher, or your favourite pod catcher. Just search for Flat Chat Wrap 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.
