Podcast: Are strata law changes a mug’s game?

Our deadlines for last week’s podcast meant we missed the chance to talk about the new strata laws proposed for NSW, but that has given us time to think about the proposals and what they mean.

For instance, is compulsory training of strata committee members a good or bad thing?

Will fear of having sales contracts rescinded deter developers from using embedded networks to save money and cheat their apartment buyers?

Will heavy fines stop them from underestimating levies to make their apartment sales unrealistically attractive?

Will the prospect of coming under Australian consumer law mean the end of one-sided strata manager contracts?

We can only touch on a few aspects of the proposed new laws but you can find out more about them HERE  … after you have listened to this week’s podcast, of course.

Transcript in Full

Jimmy

No sooner had we posted our podcast last week than the government came out with a huge announcement, which was a whole set of new strata laws for New South Wales.

Sue

Yeah, this was kind of, it’s amazing that it was done with so little fanfare, wasn’t it? We’ve been waiting for this for a long time.

Jimmy

Yeah.

Sue

And you kind of think they would be saying, oh yes, we’re going to do it next week, we’re going to do it next month.

Jimmy

Yeah.

Sue

But suddenly, just like that.

Jimmy

Just a quiet little press release saying, oh, there’s some changes coming to strata law on the table. The bill has been tabled and you think, all right. And it was only when I went online onto the Parliament website to look at the bill and I thought, my goodness, this is huge.

Sue

So we’ll be looking at some of the changes.

Jimmy

Yeah, we are. There’s a lot to get through. There’s a lot of different changes and some of which I suspect may not see the light of day.

We will kick them around after this. I’m Jimmy Thomson. I write the Flat Chat column for the Australian Financial Review and I edit the flatchat.com.au website.

Sue

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

Jimmy

And this is a Flat Chat Wrap. So this Bill was tabled in Parliament. A lot of detail.

I extracted a lot of information from the summary because these legislative documents tend to be written in a very kind of legislative bureaucrat ease.

Sue

Sometimes you read them, don’t you? And you kind of think, what was that? What were they aiming at?

What does that mean?

Jimmy

And you look at the summary and you think, oh, the way the law is written, it sounds like the opposite, you know, because they do double negatives and things like that.

Sue

Absolutely. But when you think like this sounds as if it’s going to be quite massive, why would they do it so quietly, Jimmy?

Jimmy

Because it’s going to be massive.

Sue

Because it’s going to be controversial.

Jimmy

Yeah, I think so. Yeah. Look, there are things in there that people have been talking about for years and they’ve always been dismissed as being impractical or that they would know they wouldn’t get public support or stuff like that.

And I wonder if some of them are in there either to test the water or as negotiating pawns that, you know, when the objections come in, they’ll say, OK, well, we’ll drop this one, we’ll drop that one. Right. The one that strikes me as being most vulnerable and most contentious is the plan to make it compulsory for committee members, strata committee members to receive training.

Sue

Yes.

Jimmy

Which makes perfect sense, except will people just say, well, I’m not going to get on the committee then?

Sue

Yeah, because they’re people giving up their own time voluntary and sometimes it can be extremely onerous and incredibly time consuming and really, really stressful. And if they have to have training as well. But then is there any indication in the bill of what kind of training it would involve?

Would it be like a half hour course that you can do from home?

Jimmy

No, this is the thing. This is one of these things where they’re going to nail down the law first and then get into the detail later. So, you know, if you imagine this law goes through pretty much intact at some point, someone in fair trading will say, OK, we now have the legislative support we need to have compulsory training.

Who’s going to do the training? What form is it going to take? How are we going to enforce the fact that it’s compulsory?

Because I’m just reading from the explanatory notes from the bill. It says this will require members of strata committees to complete training and to make clear that a member who fails to complete the required training will cease to be a member of the committee. So, I mean, there’s nothing in there about timescales or that kind of thing.

Sue

And strata is very complicated. So if you had a proper training session, you kind of think it would take quite a long time, wouldn’t it really?

Jimmy

Well, how well trained do they have to be? Do they have to go in there and say, look, here are the basics. This is what a bylaw is.

This is what a levy is. This is what your responsibilities are on the committee. These are your rights as an owner and these are your neighbour’s rights as owners.

I mean, even you get into that area, you start thinking, oh, that’s murky. There’s a lot of grey areas in there. I think it would have to be very basic.

Sue

Yeah, like the role of a strata manager, the role of a building manager, the role of a secretary and chair and that kind of thing.

Jimmy

So at least people come out knowing, I mean, we constantly come up against this thing where people write to me and say, oh, the strata said that I have got to do X, Y and Z. And you say, well, who is the strata? And they go, well, it’s the strata people, of course.

And it could be the strata committee. It could be the strata manager. It could be the building manager.

It could be the chair. You know, it’s, people don’t really understand the terminology because it’s quite confusing. I mean, even the bill itself will talk about the responsibilities to report to the secretary, right?

Certain things have to be given to the secretary. Well, who do they mean by the secretary? A lot of the time it turns out that it’s the secretary of fair trading.

Sue

Oh, really?

Jimmy

Yeah. Not the secretary of the strata committee. It’s an official role in the government, high powered role.

And it’s the person who is the final arbiter of a lot of stuff in fair trading and in strata. But, you know, just in the bill, it says the secretary and doesn’t explain that they mean this civil servant that they’re referring to.

Sue

Well, you know, I’ve been kind of writing about strata and in strata for what?

Jimmy

Too long.

Sue

Yeah, that’s true. But 25 years, I’ve never heard of a secretary of fair trading.

Jimmy

Have you not?

Sue

No, never.

Jimmy

You look it up. It’s there.

Sue

I will. I believe you. But it’s funny because I’ve never even heard of it.

So if after 30 or 25 years, I’ve never heard of it. Good God.

Jimmy

Well, yeah. I mean, that specific case, I was reading something, trying to find an answer to a question and I was reading the law and it made reference to the secretary and the secretary must be given the strata role or something like that. And you go, OK, well, why the secretary and why not the chairman?

Blah, blah, blah. And then I went back to the definition of terms at the beginning and it said the secretary in this case means the secretary of fair trading or the Department of Fair Trading. And it is very confusing.

And that’s one of the things it does say in this new legislation that they will attempt to clarify the language in the legislation to make it clearer what they actually mean.

Sue

That would be good.

Jimmy

Yeah.

Sue

Especially as so many more people are going to be going into strata over the next 10 years and many, many, many more over the next 20 years. So really, we just need to have very clear descriptions of who does what, what their rights and responsibilities are and who they are.

Jimmy

But, you know, this thing of compulsory training for strata committee members, I can think of a few strata committee members who would actually welcome it, you know, so that everybody has a basic understanding of what their roles and responsibilities are. I think some people would welcome it. I think some people will just say, no, I’m out.

Sue

Yeah, it’s interesting. I was looking at the OCN kind of conversation about this. You know, they have an email and people write into them and say, I think this is a good idea about, yeah, forum, like your flat chat forum.

And it was interesting because a lot of people were saying this is a fantastic step forward, but probably a larger number were saying, oh my God, not making it even more difficult for us to govern apartment buildings. And so even if, you know, amongst people who really understand what they’re doing amongst the OCN, which is, you know, the peak body for apartment owners, people are really, really divided there as well.

Jimmy

There’s also this thing of, you know, you put in legislation, you put in rules and regulations, who enforces them? I mean, as another aspect of this, strata committee chairs will be required by law to ensure that quote, the agenda is followed at meetings, that order is maintained at meetings to encourage discussion at meetings and to facilitate the fair, constructive and open discussion of matters at meetings. Okay, good idea.

Chair persons have to be inclusive and neutral and they have to be accommodating and they have to keep control. What have they done? What have they done?

Who comes along and says, you haven’t fulfilled this aspect of the law and what are the consequences?

Sue

And how do you prove it? I mean, does somebody have to film a committee meeting? They can’t do that without people’s express permission anyway.

Jimmy

You could have half a dozen members of the committee say, look, this person that we elected to be chair can’t control the meetings and something should be done. But then the same people can just find a new chair. It’s very, very vague.

What a lot of these regulations and laws and sections of the Act are, are signals to people, this is what you should be doing. So you get somebody as your chair who can’t control a meeting or doesn’t allow everybody to speak. Nobody’s going to come along the next morning and say, oh, you’ve broken this law.

You can’t be chair anymore. But what people on the committee can do is go to fair trading and say, this chair is not fulfilling their functions as defined by the law. Can you remove them?

Which is interesting. I don’t see it happening very often. I think it really is a case of somebody on the committee saying to the chair, you know, the law says you’re supposed to do X, Y and Z and you’re not doing it.

It doesn’t look good. And give people a chance to educate themselves about what they should be doing. When we come back, we’re going to talk about a couple of aspects of the new legislation that affect people who are buying off the plan.

That’s after this. Sue, you’ve picked up on a couple of things in the new legislation that affect people who are buying off the plan. What are they?

Sue

Yeah, well, it’s really interesting because, I mean, there is so little regulation about people who buy off the plan and there are so many traps that they can fall into and so many sneers. It’s really good to see the legislation confront this kind of area. One of the things is they’re saying that off-the-plan purchasers should be allowed to rescind their sales contracts if they’ve been duped into accepting embedded network contracts.

That’s amazing. That’s a great step forward.

Jimmy

It is. I have to say that’s not the wording in the Act. You have to look at it and go, what does this actually mean?

But that’s the kind of meaning of it.

Sue

But that’s the gist of it. Because embedded networks are just like an incredible evil, really.

Jimmy

Yeah, they are.

Sue

They’re just a way to extract more money from apartment buyers who often have no idea what’s going on. And that means it might be somebody who installs a drain, says to the developer, OK, I’ll install the drains in your building for free if you can commit all the owners to signing a contract to maintain the drains and to have them serviced and stuff for vastly inflated prices. And so, therefore, the developer makes money and then the service provider makes money as well.

And the only person not making money is the apartment owner.

Jimmy

And this is quite a scare. I mean, this is a real scare tactic. The developer would know that these contracts are in place.

The owners, the prospective owners, their conveyancers and the strata managers even possibly, but not very likely, wouldn’t know that this was going on until they’ve been to their first AGM. You could even have somebody who knew that this was happening and stood up at their first AGM and said, this contract is wrong, we shouldn’t sign it. And everybody else goes, no, no, no, it’s fine.

I’m sure it’s fine.

Sue

Because people don’t believe that other people were going to rip them off to that degree.

Jimmy

So blatantly, yeah.

Sue

Yeah. You’ve probably met the developer, you’ve met the salesperson, and they’re kind of really charming and nice. And you think these people aren’t going to go behind my back and do something as terrible as this one person is alleging.

And in fact, it happens with incredible regularity.

Jimmy

So then what happens is that that person can say, look, this falls foul of this aspect of the act. And I don’t want to go ahead with the purchase. I’m ripping up the contract.

And I mean, I would imagine they would probably have to go to court to do that. But I think it’s again, it’s a signalling issue that the act is signalling to developers, this is bad behaviour. And there are potential drawbacks if you can continue to do it.

Sue

Yeah, because say, owners discover this is happening, and then they publicise it. And then a number of owners could tear up their sales contracts. And suddenly, the developer is in deep shit.

Because, you know, many of the sales contracts, he thought he’d enacted, are no longer there.

Jimmy

Well, the ones he’d taken to the bank to get the finance to build the building.

Sue

Well, that’s right. So suddenly, the bank can say, well, you haven’t sold all these apartments that you said you were going to sell. We’re going to withdraw our finance.

And the whole thing could collapse.

Jimmy

Yeah. And that’s the kind of thing, wake up call that a lot of dodgy developers need. And another aspect of this is the under-quoting of levies.

Now, we’ve known that that’s gone on, and that has been recognised in the act in the past. And I’m trying to find out the reference to it here.

Sue

Because that happens so often. You go in to buy a new apartment off the plan. And you say, well, how much is it going to cost every quarter?

And the salesperson will say, oh, yes, it’s going to be $800 a quarter. And that will pay for a lift and maybe a swimming pool and possibly a gym and lighting, all the common areas. And then a couple of years later, you’re looking at the accounts, and you’re in deficit because it actually costs maybe $2,000.

Yeah, it doesn’t cost anything like that. And you’ve been duped into buying into a building, which is much more expensive to maintain than you’ve been told.

Jimmy

Well, we have the situation in our investment property where the developer had under-quoted on the levies. They have a majority of votes at the AGM. The second AGM was held recently.

A budget, a more realistic budget was put forward, but the developer is still trying to sell their apartment. So they find it very easy to get the rest of the owners on side by saying, do you want to pay more levies or do you not? And they said, we don’t.

And now the budget is going to be in deficit so that the developer can still market the properties with low levies. And it’s good. I don’t know what the penalties are going to be because a lot of the act is talking about increasing the penalties on developers for bad behaviour.

Sue

Yeah, that’ll be great, really.

Jimmy

Yeah. I mean, it’s just…

Sue

It’ll be a fantastic deterrent.

Jimmy

Yes.

Sue

It’ll make developers think twice before they try and rip off their new buyers, really.

Jimmy

But I think the significant thing about this is that it will still be up to the owners to take the developers to a tribunal or to court. There’s not a lot in here that says, if you do X, Y, Z, we will come after you.

Sue

Yeah. And then if the owners are already trained, they’ve gone through that compulsory training course, then they’ll understand that this is a rip off and they’ll understand the processes they have to go through to get justice, I suppose.

Jimmy

And one of the other aspects of this is that the act will empower fair trading to step in on buildings where defects or the maintenance hasn’t been done properly. And where the owners can go to fair trading and say, our strata committee, they won’t pay any money. They’ve got a huge influence over the AGM, but our building’s falling apart.

We need repairs. Fair trading can step in and or the building commission can step in and say, you guys need to get these repairs done and you need to work out how to do it or we’ll do it and charge you the money or take over the process. I think that’s a good thing.

Sue

Absolutely. Because there are so many examples of buildings which just haven’t been adequately maintained. You see there’s lots of mould and there can be black mould.

If you’re not looking after water ingress properly, that can cause incredible amounts of damage. We’ve seen buildings where there’s lots of cracking and that hasn’t been patched up, that hasn’t been investigated, it hasn’t been properly looked after. And when buildings are in areas near the sea and the sea salt winds and things, there can be incredible deterioration.

And so they have to be protected and looked after.

Jimmy

When we come back, we’re going to talk about, guess what, Strata managers and how they will be affected by the change in the legislation that’s after this. And we’re back. Now, all of this stuff is already detailed on the FlatChat website, under a headline about compulsory training for Strata committees.

And it also has links to the legislation. Another point I’d like to make is that, okay, this is New South Wales, but all the states look at each other’s legislation all the time. See what works, see what might work for their states, what won’t work for their states.

I mean, it has worked the other way around recently here. We have followed the lead of Victoria in terms of rental agreements and pets and things like that.

Sue

Yeah.

Jimmy

So they do feed off each other. So if you feel like you’re being excluded here, no, you’re not. We’re the test bed for things that could be coming your way soon if you’re in another state.

Sue

Because it would be great to have a fantastic Strata system that worked really well. And then you could make it a national system. It would just make life so much more simple, wouldn’t it really?

Jimmy

Well, especially for people who move interstate for work and things like that and invest in other states and then suddenly find that the Strata laws are completely different.

Sue

And I mean, it would help even developers as well, because many developers only really develop in one state. You know, you get lots of people who do New South Wales, lots of people who specialise in Victoria, others who specialise in Queensland. If the Strata rules were the same federally, then maybe it would be much more easy to develop wherever you wanted to.

Jimmy

That leads us into one aspect of this bill that is going to take in federal law, which is there are aspects of contract law that the bill projects will come under Australian consumer law.

Sue

Oh, so that’s a national body.

Jimmy

That’s a national thing. And this comes into the, particularly in the question of Strata managers, because under consumer law, you can’t have contracts that are unconscionable and unfair and biased against the client. Now, we’ve found recently that just last week we were talking about Strata management contracts where I think it was Bronwyn Weir, the eminent construction lawyer.

She had to renegotiate her Strata management contract and was absolutely appalled at some of the stuff in there because it was so biased in favour of the Strata managers. Then, you know, you’ve got Strata Community Association, the Strata managers professional body saying, oh, these contracts are, they’re a template. You don’t have to follow them, which we all know is absolute BS.

But if they came under consumer law, they wouldn’t even be able to offer those contracts.

Sue

Yeah. And there wouldn’t be any debate about them because they’d be fixed.

Jimmy

Yeah, it’s unfair. You know, you can’t do it. You can’t cheat people in that way.

You can’t trick people in that way. So that’s an aspect of Strata law that is going to come under federal national law. And I think that’s a good thing.

And it’s not just Strata management contracts. You know, there are other contracts with tradies and developers and things like that. And once they have that different prism that you’re looking through, which is, are they fair on the consumer, then everything is up for grabs, I think.

Sue

Absolutely.

Jimmy

Do you think these laws will get through?

Sue

I hope so. I’d like to see the bulk of them get through, certainly. But I can see how you feel that some of them could be cast aside in the favour of, you know, less contentious ones.

But let’s hope there is a full and frank discussion about them. And presumably fair trading will, before they’ve actually brought these laws up, they’ve had discussions with the various parts of the industry as well. So, you know, developers will dislike some, consumers might dislike others, but maybe they’ll agree that overall, this is a really good thing.

I mean, I think it’s great that they’re getting involved in Strata and they’re looking much more at Strata rather than letting it be some kind of laissez-faire system where, you know, the bullies have their own way and the timid don’t rule the earth at all.

Jimmy

No, they’re meek.

Sue

Meek.

Jimmy

The meek inherit the debts.

Sue

You know what I meant, yeah.

Jimmy

The meek inherit the defects. I was just reading something, I can’t remember the politician’s name, but he’s the federal liberal coalition’s spokesman on housing. And apparently the other day he was saying that it’s time to stop criticising developers, you know, because without developers, you know, we don’t get any houses built, there’s been a witch hunt against them for too many years.

You think, well, there’s been a witch hunt, if you want to call it that, because they have not served the public well in this country.

Sue

And we’ve had some great developers, we really do. And now for the first time in New South Wales, we have that star system, the ISERT rating, so you can tell the good developers.

Jimmy

And you get insurance as well, you get 10 year insurance.

Sue

But unfortunately, there are always those bottom dwellers, the bad developers who are always trying to make a profit at the expense of other people.

Jimmy

Yeah, I mean, I can understand people saying you can’t keep bashing developers because we need developers to build the housing that we need.

Sue

We need good developers to build good housing. We don’t need bad developers to build bad housing. That’s worse than nothing.

Jimmy

And on that note, thanks again, Sue.

Sue

Yes.

Jimmy

And we had a lot to talk about. We wouldn’t have time to talk about it last week, so it’s probably just as well in a few days to think about it. And thank you all for listening.

We’ll talk to you again soon.

Sue

Bye.

Jimmy

Bye. Thanks for listening to the Flat Chat Wrap 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 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.

 Transcribed by TurboScribe.ai.