High cost of choosing pros who tell porkies

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We are conditioned to trust professionals, especially when they tell us what we want to hear. But what happens when they betray that trust and it costs us money, time, energy and a chunk of faith in human nature.

Now, before we go any further, I have to say there are plenty of totally reliable, professional and trustworthy strata and building facilities managers around; and good, honest strata committee members who are all trying to do the right thing, often in trying circumstances.

But, just as last week we examined areas of construction and renovation where cutting corners can be costly, sometimes horrendously so, in the long run, the same applies to the management of your scheme, from the strata committee that you elect, to the strata manager and building facilities manager whom that committee persuades you to hire.

It may not be immediately obvious, but the damage that a badly run committee in conjunction with a poorly performing manager can do to a block can cost the block and all its owners tens of thousands of dollars in unrepaired defects and the result of poor maintenance.

In recent years both NSW and Victoria have felt compelled to introduce elements to their strata laws that require schemes to include on the agenda of their initial AGMs a motion to seek out and employ a building surveyor to identify any defects in the construction and finishes that may be covered by building warranties.

They also forbid those developers who still have votes in the owners corporation from being involved in that choice.

But that’s just one part of the picture, albeit an instructive one. Strata and building facilities management firms that are too dependent on the developer for current and future contracts, can steer less savvy strata committees towards myriad poor decisions.

We only have to look at the work being done by NSW Building Commissioner David Chandler’s team to see that apartment blocks are being constructed badly and their resulting defects ignored, under the not-very watchful eyes of strata professionals.

And, at your initial AGM, you could find that your strata manager is pushing owners to sign up for maintenance contracts for elements of infrastructure that the developer has been given for free .

These so-called embedded networks are the latest scam by which unscrupulous developers can profit by getting something they would normally pay for, for free, provided they persuade naïve owners to sign ultra-long-term inflated maintenance contracts.

Then there are overly parsimonious committees.  These tend to be dominated by absentee investors whose major priority is to avoid levies (or fees) going up, ever.

Because they don’t have to directly experience the results of their choices, investors can often be blind to the deterioration of the fabric of a building, especially if defects aren’t reported, repairs aren’t carried out or basic maintenance and even cleaning are neglected.

And the costs just mount up as long-suffering tenants migrate to better-run buildings, pushing rents down. If the pandemic has taught us anything it’s that the property rental market, over-inflated by short-term lets in some areas, isn’t so much a bubble as a balloon out of which air can and does escape.

A smart investor should work out pretty quickly that, as demand for purchases and rentals diminishes, their shabby apartment block will be at the end of the queue for renters and purchasers.

Personally, either as an investor or resident, I would never elect a non-resident to any of the offices on a strata committee. 

Choose people who are literally going to have to live with the consequences of their decisions, and that includes how diligently they check the track records of prospective managers.

Finally, a word about Queensland.  There the tricky decision about who to hire as your caretaker or building facilities manager is likely to be taken out of your hands and pre-sold by developers, purely so that they can put more money in their pockets.

Supporters of this system say that the savings you make by the cost of the management contract being deducted from the price of the apartment, more than compensate for your years of being locked into contracts which you have to service and which must include a premium so that the managers can recoup the cost of the contract in the first place.

Sure they do. And if anyone can provide proof that this contention is any more than grossly optimistic wishful thinking, I’ll send them the magic spell I use to summon my flying pigs.

Taking your right to choose the manager of your home, and selling it behind your back to someone who will have a profound effect on your lives for decades to come, isn’t just morally corrupt, it’s unAustralian.

A version of this column first appeared in the Australian Financial review.

One Reply to “High cost of choosing pros who tell porkies”

  1. Ross Anderson says:

    Jimmy… I appreciate your reference to the practice in Queensland whereby the developer pre-sells the management/caretaker rights for large sums of money, pockets the $$$S and leaves the real owners holding a 25-year contract with someone they had no choice in, and no real control over. Most of the big problems in our QLD strata world derive from these caretakers, especially those who can’t or won’t do what is expected of them. The Unit Owners Association of Queensland (UOAQ) deplores this statutorily sanctioned corruption against owners and has long campaigned against it.
    The problems really emerge when the caretakers come along to the owners seeking a 5-year top-up to an already grossly over-long contract – which request normally occurs just before they sell-up and move on. If there is any suggestion the owners may say NO, then the caretakers go completely feral. One of their many ‘lies’ they employ is… If we don’t get the top-up, we can’t sell the business. What they are really saying is they CAN sell the business for a lot if they do get the top-up, ie the longer the contract then the higher the price.
    You make a very interesting point that supporters of our management rights regime argue there is a long term savings to owners because the developer is able to sell the units to the initial owners for a reduced price. I agree with you…this is nonsense.
    More and more schemes in Queensland are saying NO, and keep on saying NO to the top-ups, and they are now enjoying the benefits of being able to obtain the caretaking services at much reduced cost. The UOAQ doubts there is little chance of the Government banning the current system, but we feel it will eventually die out because the owners will vote it out, by saying NO.
    Ross Anderson UOAQ EXEC

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