One-sided SM contracts exposed… yet again

COMMENT

Back in the dark days before Flat Chat, when developers were chucking up shoddy apartment blocks like they were building sandcastles – only with less structural integrity – and the Owners Corporation Network (OCN) was just a bunch of disgruntled owners with a mountain of legitimate grievances, Strata Community Australia (SCA) was called the Institute of Strata Title Management.

One of the first things some OCN members tried to do, to fix the myriad problems in strata, was to remove oppressive and unfair conditions from the standard strata management contract, such as the strata manager not being liable for any errors they made, even if they knew they were wrong when they made them.

That, it has to be said, was just part of it.  There were other clauses and conditions that made these deals so one-sided that they were closer to a ransom note that a business contract.

OCN, if I recall correctly, offered their own version of the contract with the fail-safe protections for the strata manager removed, as well as clauses that meant you’d virtually require testimony from the Archangel Gabriel for a strata manager to be deemed not to have fulfilled the terms of the deal.

ISTM’s response to the edited contract was that it was their copyright and anyone who rewrote it would be sued.  But where would you start with a new one, since the terminology would be exactly the same, as would the responsibilities it defined?

Meanwhile strata managers refused to sign any contracts with edits or excisions on the grounds that they were standard, provided by their industry body, written by lawyers and could not be changed.

In other words, take it or leave it.  If you want a strata manager, you have to do it their way or no way. 

It should therefor come as little surprise that back then half the blocks in NSW had no strata manager. However, the rapid increase of large buildings that needed strata managers also saw an influx of strata newbies who naively assumed that they would be protected by consumer law, if nothing else. Ha!

But that was 20 years ago and so much has changed in strata management since then. The ISTM is now called the Strata Community Association and … um … yeah.  The industry has grown exponentially but the culture remains pretty much the same, as evidenced by the Netstrata secret commissions and industry ethics scandals of earlier this year.

As we discussed in our podcast back in February, the NSW government was considering changes to what was and wasn’t allowed in strata contracts. Submissions were due for consideration in April.

However, coincidentally, that was when the strata management sky fell in thanks to the above scandals. Stephen Brell of Netstrata felt compelled to resign as President of SCA-NSW, and later Strata Commissioner John Minns was stood aside after allegations of conflicts of interest (the latter situation, sadly for all of us, is yet to be resolved).

However, the age-old problems with strata contracts were brought home this week with yet another expose of SCA-NSW on the ABC’s news pages.

In it, and our related story, the ABC reports that none other than eminent lawyer Bronwyn Weir has called for a comprehensive review into strata management contracts and to create a more balanced model established by governments.

If her name is familiar it’s because in 2018, in the wake of London’s Grenfell Fire tragedy, Ms Weir co-authored the Building Confidence Report with Professor Peter Shergold which was commissioned by Ministers of Australia’s nine jurisdictions. She was also hugely influential in the development of former Building Commissioner David Chandler’s battle against dodgy developers.

According to Weir Legal and Consulting, of which she is managing director, that report continues to influence policy and reform on building regulatory matters around the country. She has also advised regulators in areas such as education, health, environment, animal welfare, intellectual property, water and building.

In other words, she’s no slouch when it comes to strata matters in general and legalities in particular. So when she describes the standard management contracts promoted by SCA, as “appalling”, “disgraceful” and unfair to consumers, someone should pay attention.

The SCA’s response was that its state-based template contracts were intended as a helpful resource only.

“Our members can choose to use these templates, but they are not mandatory,” an SCA spokesperson said. “Ultimately, any contracts are between the client and the company.”

This is, of course, utter BS and that last statement may be intended to avoid SCA being accused of acting as a cartel – limiting competition while imposing mandatory conditions on its customers.  The proof of that particular pudding is in who can swallow it.

It’s worth noting that one of the proposals mooted under the reforms of strata contracts was to bring them under Australian consumer law.  That alone would shake things up dramatically

There’s a lot more detail in the ABC article and it’s really worth reading.  Also, while you’re on their website do a quick search for “strata” and all the ABC’s stories about how and why that industry is under fire will come up.

Meanwhile, to all the strata managers who feel aggrieved that they are being targeted again, all I can say is, we know there are plenty of good and diligent operators out there – individually and as companies.

But this is your professional body, you pay the fees that keep it going and you elect the executives who maintain the culture, good or bad. You can change that culture, collectively, in ways that politicians and commentators can’t.

And if what your professional body’s execs say is true, you don’t have to insist on your clients signing these deeply flawed contracts. In fact, any owners corps that doesn’t insist on changes is almost as culpable as the SCA.

I’m not sure what happened to the OCN’s alternative strata management contract, but now that the SCA bigwigs say theirs isn’t mandatory, it may be time to wheel it out again. You can check with them on ocn.org.au.

Thanks to our regular readers for alerting us to the ABC story. And you can discover the many, many times this issue has been raised on this website by searching for the word “contract”.