Qld strata: Confusing one day, corrupted the next

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Even with interstate travel restrictions tightening, rather than easing, we can be pretty sure that travel within Australia will be possible before international destinations come back on line.

With that in mind, the idea of buying a flat in Noosa, Brisbane or the Gold Coast, and letting it to holidaymakers for most of the year while having it available when you want it, will have considerable appeal.

Ideally, other people would pay for your Sunshine State pied a terre, but don’t be surprised if the numbers don’t stack up.

As many migratory southerners have discovered, inflated management fees and letting commissions can make it more of an indulgence than an investment.

Add the fact that there are five different types of strata and they can have two different forms of levies within the one block, and you can see how confusing it could get.

In short, it’s a mess and that’s because in Queensland, apartment owners are more of a commodity and less of a community than they are in the southern states.

Legalised corruption

A commodity? There are literally billions of dollars invested in the legalised corruption of Body Corporate caretaker management pre-sales in Queensland.

This aberration at the heart of the body corporate business is all about taking money out of apartment buyers pockets and putting it into developers coffers. It serves no other purpose.

Corruption is a pretty strong word, but what else do you call it when two parties buy and sell a contract where the people who have to pay for it have no say in its terms, can’t cancel it and it lasts 25 years.

Even worse, the pre-sale of caretaker contracts is so embedded in the system, and is worth so much money, that state governments, regardless of their political hue, can’t even look at changing it. 

And if they did, you can bet the banking system would remind them of the billions of dollars they have tied up in loans to companies and individuals, allowing them to buy the rights in the first place.

This is how it works.  A developer puts up a new building and then sells the rights to manage that building to an individual or a company. The prospective owners of the apartments have no say in its terms or the choice of manager, a transaction that is illegal in NSW and other states.

Why does it happen in Queensland?  It means developers can get more money and retain an element of control over their blocks to possibly even head off embarrassing issues like defect claims.

As in most jurisdictions, all other contracts have to be approved by the new strata owners at their first AGM. But it’s far from unusual for developers to also sell off those rights too, and con owners into approving them.

Management rort

As one member of the Unit Owners Of Queensland put it recently, “good luck finding those details in a 600-page prospectus”. The UOAQ is the victims support group for Queensland apartment owners … just joking! They’re a strong and vital voice in the body corporate space.

Back to the onsite caretaker management rort. The caretaker borrows a shed-load of money, buys the management contract and sets the fees to cover their services plus, you’d assume, a premium to pay off the initial loan and interest.

The people ultimately paying for all this, the apartment owners, have no say in the terms of the contract and have little chance of redress if the caretaker turns out to be a dud.

According to the long-suffering members of the UOAQ, failure of caretakers to perform their duties – just about the only basis on which contracts can be rescinded – rarely if ever flies in Queensland Civil Administration Tribunals.

Why? Tribunal referees and maybe even lower court judges won’t find that a caretaker has failed in their duties because the contract could be terminated if they did.

Extended contract

It gets worse. Caretakers can buy and sell their contracts and the apartment owners have no say in this, although the incumbent might try to “persuade” them to extend the length of the contract to make it more attractive to potential purchasers.

Some even ask their Body Corporate to convert their 10-year “standard” (mostly residential) contract into a 25-year “accommodation” (mostly holiday rental) contract.

Why would any group of sane people go along with that? Imagine if the person running your building, whom you can’t get rid of, was angry with you.  The stories of harassment and neglect are legion.

I’m sure there are some caretaker managers in Queensland who are treasured members of their communities who give excellent value for money.

I am just as certain that there are some who control their rental rolls with malicious intent, favouring the owners who go along with their various schemes with first pick of tenants, while punishing those who complain with weeks of vacancies.

By the way, it’s interesting how Airbnb has undermined all this. Now that you can advertise your own flat and get an outside company like MadeComfy to change the linens and hand over the keys, the residential caretaker has serious competition.

Commission

For years I’ve been fielding emails from full-time residents who’ve been treated as second-class residents because they didn’t provide rental commission.

And then there stories about the tradies who can’t even quote for jobs until they have negotiated a suitable “commission” for the caretaker. And it seems, regardless of how bad it gets, the caretakers can’t be shifted.

Even in cases where the caretaker management company has gone bust, the management rights belong not to the apartment owners, but to the liquidator who can (and probably will) sell them to the highest bidder, regardless of the preferences of the residents.

It should be noted, however, how anyone could go out of business with such one-sided, feather-bedded deals in place, is a mystery.

Big money

There is big money in all of this. Eight years ago, the last time the Queensland government seriously looked at this issue, its discussion document said individual management rights businesses sold for between $200k and $6 million.

“The total value of management rights arrangements in Queensland ranges from around $2.5 billion to $6 billion,” says the document, adding, “Conservatively, business transfers may involve outlays of $600 million or more each year.”

That was then but, clearly, that kind of turnover isn’t just from management fees.  Caretakers can run the rental roll for the block, taking a commission from every let. And they can provide extra services for additional fees.

I have to say something about the Queensland branch of the strata managers association SCA.

A year or so ago they threatened to take the publishers of my weekly Flat Chat column to the Press Council because I wrote that SCA-QLD thought the pre-sale of caretaker management rights was “fine and dandy”.

A correction was published as it was only my opinion and the SCA-QLD had never actually said those words. So how do the feel about the pre-sale of caretaker management rights.

A spokesperson told me that they had no official opinion on this as they had never officially discussed it.

Really? It’s only one of the most contentious issues in Queensland body corporates; I wonder if they have got round to officially discussing it yet.

Review

There was a major review of body corporate law in Queensland in 2012, including caretaker management and the stranglehold they had on the rental rolls in their blocks

And what reforms were brought in ?  Caretakers no longer had the monopoly on rentals in their block, but they continued to be the only people allowed to have a rental office on their premises.

Well, that would have fixed everything. The body corporate system in Queensland is a mess and it will stay that way for the foreseeable future . even a Queensland University study that recommended doing away with the two-tier levies system was rejected.

There’s not doubt that Queenslanders are comfortable with the cartaker manager system and it would be hard, if not impossible, to sweep it away. But that’s no reason for not changing the law to give back basic consumer rights to the people who pay the bills.

Put a limit on the length of the contract and include realistic performance guarantees that allow owners to sack dud caretakers.

And let the people who have paid their money for what is essentially a bribe, be compensated by the people who benefitted most – the developers.

Until that happens, I would never invest in Sunshine State strata: Things that start corrupt, tend to stay corrupted.

An edited version of this column first appeared in the Australian Financial Review.

One Reply to “Qld strata: Confusing one day, corrupted the next”

  1. Jimmy-T says:

    This is now being discussed in the Flat Chat Forum

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