Unit buyers beware – the Qld disease is spreading

The true extent of the price apartment owners pay in Queensland due to its distorted management rights system is becoming apparent.

And even more alarming, it looks like the “Queensland disease” of the pre-signing of management rights contracts is spreading south into NSW.

A couple of weeks ago I wrote in the AFR on how Strata Community Association (QLD), the peak body for strata professionals the Sunshine State, was asking the state government to do something about the sale of 25-year management rights contracts, as it had promised to do.

In Queensland, but in none of the other large states, developers are allowed by law to pre-sell 25-year management contracts for apartment blocks to the highest bidder. 

The apartment owners – who are obliged to service the contracts – have no say in who gets the contract or what their terms and conditions might be. The contracts are also virtually impossible to rescind or revise.

We now hear that developers of at least one building in northern NSW have decided to follow the Queensland model.  At their up-coming first AGM, our spies tell us, the owners will be presented with a 25-year management contract.

In NSW, any agreements made before the first AGM of a strata building must be approved at that meeting or they are invalid. After that, however, anything agreed to sticks.

These owners will also be expected to vote in favour of a number of embedded network and exclusive use contracts, all of which are designed to funnel money and property value back to the developer.

The strata first-timers will doubtless be told that all of this is “standard practice.”

Fair Trading NSW has been alerted – it will be interesting to see if its officers try to put a stop to this, even just by turning up at the AGM and advising owners to reject the contracts.

Back in Queensland, an authoritative report has confirmed that developers are rorting the “module” system to maximise the benefits they get from the pre-sale of management rights.

There are basically two modules for apartment blocks in Queensland.  The “standard” module is for buildings that are intended for owner-occupier use.  The “accommodation” module is largely for holiday rental blocks.

The maximum length of a standard module caretaker manager contract is 10 years. The maximum length of an accommodation module contract is 25 years.

Obviously a 25-year contract is worth more, and the Unit Owners Association of Queensland (UOAQ) has conducted a benchmarking study which found that 88% of strata residential buildings built in the last 10 years in Queensland have been assigned management rights under the accommodation module.

With management rights locked up for 25 years, just the lack of competitive pricing is costing Queensland owners an additional $140m a year, says the report.

Meanwhile, even a 10-year contract may be no protection, with managers habitually asking for extensions to maintain the value of the contract so they can sell it on before it expires.

One Flat Chat correspondent has told us that his building’s original 10-year management contract has been extended eight times to benefit three different management firms, bolstering it to an effective total of 30 years.

Owners often agree to the extensions because they fear repercussions by a frustrated manager, or they simply don’t realise they are under no obligation do so.

The Australian Resident Accommodation Managers Association (ARAMA) has strongly objected to the views previously expressed in my AFR columns.

But it’s worth noting that the organisation proudly boasts on its website: “ARAMA’s biggest achievements to date have been ensuring our members are protected from undue or untoward legislative change.”

The legislative change we are suggesting is to simply let the people who pay the bills for contracts decide on who gets them and what their terms are – as you do in every other aspect of life and in every other state.

Imagine if you bought a car and you were told by the car salesperson that it would be serviced by mechanics of their choice, under their terms, at a cost determined by them, for the next 25 years – and all because they had pre-sold those contracts and pocketed the loot.

Enough said.

It’s an unholy mess but the Qld state state government could stop all future contract sales right now, while it works out how to untangle this. It needs to do something before the Queensland disease becomes incurable and continues its cancerous spread south.