Podcast: Secretive strata managers face fines

In this week’s podcast we wonder whether the announcement of fines for strata managers who don’t reveal the various deals and relationships they have with developers and service providers signals a sea change in how NSW Fair Trading regards strata professionals who play fast and loose with the facts.

Quite clearly, this is a response to the allegations aired last year about Netstrata hiding insurance commissions from its clients. But is it enough?

Netstrata is not the biggest strata management company involved in this, nor, in all likelihood, will it be the worst offender. Will we ever find out?

Meanwhile, strata schemes should not be mistaken in thinking it’s your strata manager – the one who turns up at your AGM who will be fined.

This is about the companies, large and small, whose culture has evolved from support and service to profits at all costs. Your strata manager is probably only doing what their job description dictates.

Also in the pod, we look at a new drive to build homes specifically for essential service providers like nurses, cops and firies.

We discuss the likely impact of the new releases of designs from the NSW pattern book for low-density apartment blocks.

And we mull over what should be done about a spare chunk of common property that has been annexed by an enterprising owner.

That’s all in this week’s Flat Chat Wrap.

Transcript in full

Jimmy

Looks like everybody in government is back from holiday. Press releases are pumping out.

Sue

That’s right, making up for lost time.

Jimmy

Maybe. So this week we’ve got three press releases. One is about the new strata manager laws, more to the point about the fines that could be imposed for not obeying them.

Then there’s one about a push for a bill to rent for essential workers and the new pattern book and how that will make it easier for developers to develop. And finally there’s something, a little curiosity that I’ve pulled off the forum, the Flat Chat forum. I’m Jimmy Thomson. I edit the Flat Chat website, flatchat.com.au

Sue

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

Jimmy

And this is the Flat Chat Wrap.

So we saw new regulations come in at the beginning of this month about transparency by strata managers. Obviously this is in response to the Netstrata scandal where people, at the very least, were saying we were not aware that we were paying commissions on, you know, insurance, brokerage and stuff like that and various fees.

And that’s expanded out into a whole thing about what some strata managers are not telling their clients about how they’re making their money.

Sue

Right, oh wow.

Jimmy

So the government has brought in new regulations. Basically the strata managers have to disclose any connections with suppliers and developers, including the nature of their relationships, which means, for instance, that if your strata manager at your first AGM turns up, they have to say, oh by the way, we’ve provided or built the bylaws and all the documentation for this developer four or five times in the past two years.

Sue

Right, so people can start thinking, well they do have a relationship. Is it a cozy relationship or is it a fair meeting of equals really?

Jimmy

Yeah, and are they still gonna do the best for the owners?

Sue

Are they influenced or are they not?

Jimmy

Yeah, and then when it comes to suppliers, when the strata manager says, oh look, we’ve got these plumbers that are gonna come in and fix all this stuff. By the way, we use these guys all the time and we think they’re not the cheapest but they’re the best. Again, the owners can say, well can we have a look at some others if they feel suspicious?

Sue

And presumably they’ll say, we do actually have, we do get commission from these plumbers.

Jimmy

Yes.

Sue

They would actually have to say that now.

Jimmy

Yes, they would have to, yeah, talk about commissions or kickbacks. Strata managers have to provide detailed breakdowns of insurance quotes, including commissions and brokerage fees. So they, you know, they have to say, look, we checked three different insurers for your insurance and these guys, we think they’re offering the best deal.

Oh, and by the way, they give us a 20% commission.

Sue

And that’s kind of following that, the ABC Four Corners documentary.

Jimmy

Yeah.

Sue

I think some people were paying double what they should have been paying because of really high brokerage fees.

Jimmy

Yeah, but at the same time, because the strata managers did not have to declare brokerage.

Sue

They had no idea.

Jimmy

They had no idea this was going on.

Sue

Yeah. And is that report out yet on Net Strata?

Jimmy

No.

Sue

That they were doing an inquiry into? No.

Jimmy

Now, according to another ABC report, and we’ve got this on the website, Net Strata, who paid for the inquiry voluntarily, have issued a 70 page document disputing some of the claims that, or some of the findings in the original report, which nobody else has seen. And including some, quote, factual evidence that was not provided to the inquiry in the first instance. Now, my first question is, why?

Sue

Why not?

Jimmy

Why did you not tell them this stuff? What’s wrong with you that you couldn’t? Maybe they just assumed it was going to be just another…

Sue

Whitewash.

Jimmy

Yeah. And it turns out that maybe it’s not, or maybe it is. We wait with bated breath.

Sue

I guess we’re gonna have to wait for a bit longer if it’s 70 pages of disputes.

Jimmy

Yes.

Sue

It’s gonna take forever.

Jimmy

Yeah. And as part of the new legislation, Strata managers have to report in real time if any of these things change.

Sue

Hmm. That’s good because you lay out all your cards on the table before you win the contract and then you might start shuffling them differently.

Jimmy

Yeah.

Sue

Yeah. But now you’re gonna have to declare that as well.

Jimmy

Absolutely. And also the Strata managers have to declare any supplier and developer connections in an annual report which presumably would come up at the AGM of every building. I just want to say that when we think of the Strata manager, we think of the person who turns up at your AGM and sometimes at committee meetings.

But this is really directed, I believe, at the…

Sue

Owners of Strata management companies.

Jimmy

Yeah. The big Strata management companies. And they are the ones who are going to have to pay, according to this, up to $110,000 fines for not obeying these new regulations.

Sue

Wow.

Jimmy

Now that is… It’s quite a lot of money. It is.

It’s a significant difference in attitude from fair trading. Fair trading, up until now, you’d phone fair trading and you say my Strata manager has done this bad thing and done that bad thing. In fair trading, and I’ve had this from the horse’s mouth, a fair trading executive who was in charge of this department, his job was to call them up and say you’ve been very naughty, stop doing it.

Sue

Hmm.

Jimmy

Nobody ever lost a license, nobody ever got suspended, nobody ever got fined. But now they’re saying that they’re going to pursue a more aggressive or assertive program with Strata managers. So it’s not like they will be wandering around looking for Strata managers to fine.

But when owners call them and say we don’t think these guys are fulfilling their obligations, then fair trading, rather than phoning them up and saying naughty, naughty, please stop, we’re going to say, all right, we’re going to have a look at this and if they are not doing the right thing, we’re going to possibly fine them, which is a huge difference. Yeah.

Sue

And then they’ll presumably keep an eye on them to make sure that they don’t do it again in the future. They’ll keep a much more closer eye on the people who transgressed in the first place.

Jimmy

Yeah. The Fair Trading Minister, Anna-Luc Chantivong said, Strata owners deserve clear, timely and honest information from their managers and these laws provide a vital step in restoring trust and supporting better decision-making for Strata communities. And this is what we’ve been saying for ages.

It was great what David Chandler was doing as building commissioner, making buildings more reliable. But then people who should be buying these apartments are going, well, do we really want to get into this when we can’t trust the people who are supposed to be looking after us? And that’s the key.

Strata managers are there to look after the owners at best interests. And what has evolved over the past few years is that some Strata managers, a lot of Strata managers and Strata management companies have been more concerned about maximizing their profit rather than maximizing their service. But I think this is geared towards fixing that to some extent.

Sue

Which is great because there’s two pillars that need to be fixed really.

Jimmy

Absolutely. So we’ll see how this pans out. We’ll see if anybody gets fined.

I mean the other part of this is presumably when Strata management companies are called to account and fined, they will be named publicly. It doesn’t say that here. I wonder if they will.

Sue

Surely. It has to be a matter of record if they’re fined.

Jimmy

Yeah, but there are records and records, you know. How often do we hear even about the Strata managers who have been disciplined with the strongly worded phone call. You don’t hear about it.

All right and we’ve got the story on the website and there’s a link to the fair trading website that explains all of this for people who didn’t get it. When we come back we are going to talk about a push for bill to rent for essential workers and what those buildings might look like. That’s after this.

So Sue, what is this push for bill to rent for essential services all about?

Sue

Yeah, the New South Wales government has invested 450 million dollars to deliver housing for essential workers. So that’s kind of, you know, the people, teachers, police officers, paramedics, firefighters, health workers, all the people we really need and who often don’t get paid very much. So they just can’t afford to live anywhere near their jobs.

So we’re often seeing them having to commute long, long distances to come into, say, Sydney.

Jimmy

Yeah.

Sue

And it costs them an awful lot of money as well. So the government is now saying they’re going to start building a lot more bill to rent apartments for these essential workers.

Jimmy

Right.

Sue

So they’re going to build at least 200 units to start off with.

Jimmy

Right.

Sue

And let them, you know, quite affordable rents really. And then later on they’ll be building another 300 units and that will include some affordable rental housing as well. And it will also include some private units too for other people.

Jimmy

Right.

Sue

So, I mean, it won’t be just a ghetto of all those essential workers.

Jimmy

A ghetto of cops and nurses.

Sue

That’s right. It will be kind of a bit mixed later on as well.

Jimmy

I wonder what the committee, well they wouldn’t have committee meetings if they’re billed to rent.

Sue

No, no, because they keep ownership. The landlord.

Jimmy

Yeah.

Sue

So the government will keep ownership or they’ll probably do it through a company who specializes in that really.

Jimmy

Yeah.

Sue

And they will have a building, I mean the good thing about bill to rent is that they off, well I think they always have a building manager on site.

Jimmy

Yeah.

Sue

The people who rent their apartments can have a lot more freedom. They can put stuff on the walls, all that kind of thing. The rent is controlled so it doesn’t go up by too much.

They can’t just suddenly turn around and say, next week you have to pay double the rent that we’ve seen some people in private housing having to pay.

Jimmy

Yeah.

Sue

And there’s often nice facilities we bill to rent as well, you know, like a pool or a gym.

Jimmy

Yeah.

Sue

And that might be great for people like health workers and people who have very stressful jobs.

Jimmy

Yeah. And people that we need. We need around us.

Sue

And we want them to be happy and healthy because, you know, as you say, we do need them. So we want to look after them really.

Jimmy

Absolutely. Do you think this is going to make a big difference to rents overall in our cities? Will it keep rents lower because the demand will be decreased?

Sue

Well, I think there’s still huge demand and it’s still this massive under supply of rental homes. These are just for essential workers really and many of the essential workers wouldn’t be operating the same market as many private renters because they just can’t afford it really.

Jimmy

Yeah.

Sue

I mean, we’ve got a one-bedroom apartment next door to us that rents out for about $1,200 a week.

Jimmy

Yeah. That’s more than a lot of people earn.

Sue

Exactly. More than I earn I think.

Jimmy

Yeah.

Sue

So I think it won’t affect the market. But what is affecting the market is the government is also has just released some more designs in their pattern book. Do you remember the New South Wales government said we’re gonna have a certain number of designs and then if developers come to us and say we want to design a building with this design, you know, we want to build a building this design, then it can be fast-tracked through the process.

Jimmy

Right.

Sue

And so they released a few more designs.

Jimmy

Yeah.

Sue

Mostly for low-density housing. They’ve done the big high-rise designs already.

Jimmy

Yeah.

Sue

But now they’re releasing some more for manor houses and for low-rise apartments.

Jimmy

So what’s a manor house?

Sue

A manor house is kind of where…

Jimmy

Is it one building with like four apartments? Is that kind of thing?

Sue

That’s right. Yeah.

Jimmy

So instead of actually taking a manor house and dividing it into apartments, you build a building that’s got… That’s right.

Sue

And it can be like a new generation boarding house as well.

Jimmy

All right.

Sue

So kind of smaller studio apartments or smaller one-bedroom apartments, but there are some communal facilities that everyone can share. There may be a communal laundry, that kind of thing.

Jimmy

Right.

Sue

There may be a big communal kitchen.

Jimmy

Yeah.

Sue

In these apartments they may have really minimal small kitchens.

Jimmy

Right.

Sue

You know, with a microwave and an air fryer.

Jimmy

Yeah, you have an air fryer these days.

Sue

So it kind of covers a lot of areas. And it’s great that they’ve got these panels because hopefully Sydney will look a lot more kind of pleasant.

Jimmy

Homogenous?

Sue

No, no. We don’t want it to look homogenous, but we want it to be well designed.

Jimmy

Right. Because we’re surrounded where we live by apartment blocks that were obviously thrown up at a time when… I mean, basically, you just had to trot down to Sydney Council and hand over an envelope full of non-sequential banknotes and you could build whatever the hell you wanted.

And they were built… They’re cheap and cheerless looking.

Sue

Yeah. And these designs are designed to withstand the test of time, really.

Jimmy

Yeah.

Sue

They should look as good in 20 years time and 40 years time as they do today.

Jimmy

Right. And they should fit in with the community. And again, that must help with the nimbyism that is stopping a lot of apartment blocks being built in some areas where people quite rightly are saying, we don’t want these concrete chicken coops popping up everywhere.

And the government can say, well, look, there’s a beautifully designed architect design building and it’s pre-approved and we’ve checked it all out. And so what’s your problem?

Sue

It’s going to be a real addition to your neighborhood.

Jimmy

Yeah.

Sue

It’s going to really help the values of your neighborhood as well, you know, emotionally and spiritually as well as financially.

Jimmy

Psychologically.

Sue

Psychologically, yeah, okay. It’s going to make it much more of a community with a few more people in. It’s going to attract more services, going to attract more retail.

Jimmy

Yeah.

Sue

You know, attract more amenity all the time. I mean, there’s a lot to be said for high-density living.

Jimmy

Yeah. And there’s a lot of people who just don’t want any of that stuff anywhere near them because they’ve got a nice big house and they’ve got plenty of food in the larder and they never go out for coffee and they don’t go to the gym and they’ve got their own swimming pool.

Sue

But most of those people live out of town now, don’t they?

Jimmy

That’s where the problems are. That’s where they’re resisting desperately the building of low-rise apartment blocks, which would be perfect in some of these areas. When we come back, we’re going to talk about an issue that’s come up on the forum and it’s a curious little thing about somebody stealing space that nobody wants.

That’s after this. I’d be interested to hear what you think of this next issue. It’s come up on the forum this week and basically it’s somebody, they live in an apartment block and there’s a kind of, if you can imagine, a light well.

So it’s a hollow space that runs down the building. It’s got walls on three sides, I imagine. And it’s so that the apartments on both sides can get light coming in at the side.

This creates a space at the bottom of the building, which is common property. But is it usable common property? So the people in one of the apartments immediately next to this space have fenced it off years and years ago and basically said, we are the only people who can make any use of this space, so we’re going to use it.

And nobody should really have a problem with that. What do you think? That sounds like a land grab to me.

Sue

It does to me as well. And those people should be faced to pay for it. We had a similar situation in our building many years ago.

The people in one of the penthouses, the two penthouses, one of the penthouses, there were kind of a couple of areas that only they had access to because they were only allowed on that part of the building. So they had a key that would allow them.

Jimmy

That was an old plant room that was unused.

Sue

That’s right, yeah. That was meant to be used for something or other, but in the end the designers never used it at all, so it was just left empty. So the owner of that penthouse said, well, I’m the only one who can use that, so you should let me use it for free.

And we said, no, you have to pay for it.

Jimmy

Yeah.

Sue

And he ended up, you know, buying it from us really.

Jimmy

Well, because it was enhancing the value of his property.

Sue

Exactly, because it was fantastic storage space for him.

Jimmy

He used it as a wine cellar, I think.

Sue

Yeah, I think so.

Jimmy

Right, which is perfect, you know.

Sue

Yeah, so that really increases his value. So he paid us for that extra floor space in accordance with the unit entitlements and the kind of sliding scale of what people should pay for that kind of thing. And everybody in the end was happy because he’d had extra value.

I mean, he’d had to pay for it a little bit more, but he really wanted that space. And because we were determined not to give him that space unless he paid for it, I mean, which does sound a bit bloody-minded really, we wouldn’t let him use it. So I think the owners corporation have to demand that that person pay for that space.

Jimmy

So these, I mean, you can assume that the people who are now using that space, like three or four owners down the cycle, and they’ve bought in, believing that that space was part of their…

Sue

Surely their lawyer would have checked the contracts. It wouldn’t have, well, their lawyer should have checked the contract. So, I mean, I don’t think ignorance is any excuse.

Jimmy

No, it’s not. But this space, this little square space at the foot of the building, probably doesn’t get a lot of sunlight because it’s at the foot of the building. It’s probably not useful for very much at all.

Why would the owners corporation want anyone to pay for it?

Sue

Well, why would the person want it?

Jimmy

Because they can put a couple of deck chairs and a barbecue out there.

Sue

Fantastic. That’s worth a lot of money, isn’t it really?

Jimmy

And I’ve got a problem with that because I don’t want to be in any of the apartments above there where they’ve got their barbecue going off every weekend.

Sue

I think you could have a separate bylaw saying no barbecues inside.

Jimmy

So, basically what needs to happen is the owners corporation needs to take control of that space. How do they do that best? Do they sell it?

Sue

Well, they offer to sell it with an exclusive use bylaw.

Jimmy

Hmm. I think they should lease it. I think they should say to the owners of the apartment, we’ll lease this to you under these conditions, but it’s still common property.

So, we still regulate like if you’re going to go out there every night at 10 o’clock and practice drumming and play disco music or whatever, then we’re going to have an issue with that, which they would have anyway, they could have anyway. And the other thing about every time you sell a piece of land, there’s a stamp duty involved.

Sue

Hmm.

Jimmy

It’s probably better in these situations, I would think, for the owners corporation to say, yep, you can use it and only you can use it. You can use it for this, you can’t use it for that and you’re going to have to pay us. And as soon as you stop paying us, we’ll take the fence down and reinstate the gravel or whatever was there before.

Sue

But if it’s a lease, will the owners, the other owners have to pay tax on the earnings?

Jimmy

Theoretically, yes. And that tax would be on every owner in the building would have to pay for that income. But then once it’s spread, I mean, the worst thing that can happen to people is that they don’t realise that they should be declaring that tiny amount of income in their tax and they get tripped up.

Sue

But if it’s a tiny amount of income, it’s not going to make much difference, is it really?

Jimmy

No. But you know, that’s income that can go back into the running of the building. You know, every little bit helps.

But I think the most important thing is for the owner’s corporation to establish control over the space.

Sue

Yeah.

Jimmy

It’s common property for a reason and they shouldn’t give that up too lightly. And they certainly shouldn’t give it up without getting some sort of compensation, whether they lease it or sell it.

Sue

Absolutely.

Jimmy

All right, solved that problem. Thanks, Sue. Busy time for you.

The book’s apparently going really well.

Sue

Yeah, apparently so. It’s fantastic.

Jimmy

The governor, his wife and his mistress is the latest Sue Williams historical fiction.

Sue

Yeah, I had a meeting with the publisher yesterday and I said, oh, why do you think it’s going so well? And we think it’s because the promise of sex from the title.

Jimmy

Right.

Sue

Nothing to do with the quality of the writing.

Jimmy

Of course not.

Sue

Of course, the writing and the story is fabulous, but sex sells, I think.

Jimmy

Well, you’ve had two books in a similar vein which have sold quite well, but this one was already outstripping them and was in the top 10 historical fiction books in the Sydney Morning Herald the other day.

Sue

Fantastic.

Jimmy

Oh no, the Australian.

Sue

Yep, the Australian. So, my next book is called Sex, Sex, Sex. No, it’s not at all.

Jimmy

Sex and the Single Servant Girl.

Sue

Oh God, that sounds awful. Oh my goodness.

Jimmy

Sell like hotcakes, that will. Thank you all for listening and we’ll talk to you again soon.

Sue

Bye.

Jimmy

Bye. Thanks again. Talk to you again next week.

 Transcribed by TurboScribe.ai.