by Robert Van Aalst of Lawyers Central
Part 3 of 3
Strata Reform Commission NSW
Long-term solutions should be explored and built upon.
I suggest a permanent independent think tank be created along the lines of the Law Reform Commission which would study and discuss the future development of strata management and strata and community living. One of the aims should be the creation a Strata Management Professional Association (SMPA) to replace the SCA. Like the Law Society and by extension the legal profession, the SMPA should be created and governed by separate legislation and membership restricted to strata managers.
A Royal Commission into Strata Management is not required and would be money thrown away. Most commissions make suggestions for reform which are either ignored or partly adopted but rarely fully adopted. They are often constrained by political masters who write the terms of references thereby confining the power of Royal Commissioners.
On 10 September this year, an open letter was written to the Federal Treasurer Jim Chalmers seeking an urgent enquiry into the strata management industry to be conducted by the Australian Competition and Consumer Commission (ACCC) and suggested “This action is necessary to safeguard the interests of millions of Australians currently living in strata-title properties and to protect the interest of future strata owners.” There were no proper proposed terms of reference. This was an example of a knee jerk reaction by well-meaning but ignorant consumer groups supported by the NSW and Queensland governments who want to appear that they are listening and doing something.
NSW Strata Commission (“NSWSC”) should be established as a permanent and independent statutory agency which would provide expert advice to the government.
Hopefully, other States and Territories would follow suit resulting in Australia wide uniform strata legislation and education qualifications for strata managers.
Like the Federal and State Law Reform Commission (“FSTLC”) the NSWSC would study and discuss the future development of and regularly review the law governing strata development, strata and community living, and strata and building management.
Also using the FSLRC models, the NSWSC would:
- Be referred matters to conduct research and consultation.
- Prepare and release consultation papers and reports.
- Call for submissions from all interested parties.
- Conduct face-to face consultation.
- The consultations should include tertiary educators with a view to encouraging universities to create strata management degree courses.
- Table the final reports to be adopted and implemented by government through legislative and administrative action.
- From time-to-time legislation would be reviewed and if necessary, changes be made so the legislation and by extension the professions stay relevant and up to date.
The following links will help if you wish to learn more about the model established by FSTLC:
https://lawreform.nsw.gov.au/about-us/what-we-do.html and https://www.alrc.gov.au/
There are plenty of retired judges who could be appointed to chair and act as assistant or co-chair of the NSWSC.
Contributors to the NSWSC may include reputable strata managers, strata community groups, owners, residents and strata service providers all of whom are at the coal face, as well as strata academics that specialise in the study of community living and education, preeminent strata lawyers and accountants, and information technology experts who have association with and understanding of strata technological needs.
I repeat, proper and permanent solutions, take time and are expensive, but the results would be worth it because strata living is growing fast, as are the demands on strata management.
The problems are bigger than reporting on “$945 fee for a report that Sydney apartment owners could not account for” or “charging $100 to chase up a 60c debt owed on levies.”
Strata Is Growing and Not Going Anywhere
According to the well-respected authors of The Conversation which include contributors like Professor Hazel Easthope, “an estimated 16% of Australians – four million people – live in strata and community title properties. They own their own residences but share common ownership of shared spaces, including the buildings and grounds.” These include units, townhouses, and apartments all of which are growing fast.
According to Strata Care data in 2020 there were over 340,000 strata schemes in Australia. The growth is ongoing mainly in the big cities in New South Wales, Victoria, and Queensland and it won’t be long before the remaining states and territories follow.
The owners are a mixture of occupiers and investors, with different agendas. Behind the strata owners and the strata mangers are the multitude of suppliers each with their own financial interests.
Relatively few strata buildings are self-managed. That is another story for another day.
It is a mistake to only land the recent publicised problems at the feet of strata management and the cosy connection with the insurance industry. This is a problem, but not the only one.
Strata involves many players of various stripes who were and remain contributors to current issues and all who had and have their fingers in the strata pie.
Democratic Co-operatives
When one owns their own property, they independently oversee their destiny. It is in their discretion if, when and how they look after their home. Not so for living in strata.
A “body corporate” says Professor Sherry is like living in a democratic co-operative where various people with various needs and agendas own different parts of the property while sharing the common property.
She points out when purchasing an apartment, the purchaser in a strata building is also inheriting monetary obligations to maintain the strata building, its grounds and common facilities, known as common property. There are rights in common with others that allow use of stair wells, lifts, parking spaces, gardens, gyms, pools, plants and solar panels, and imbedded networks etc. All these common interests can and do stir up different views and emotions how these should be maintained and paid for.
Purchasers rarely properly examine the costs associated with these and how those additional costs and sometimes future costs affect them. People living in a ground floor apartment unlike those that live in upper levels are not as interested in contributing to the costs of maintaining lifts. Some people don’t use gardens, gyms, or pools and resent contributing toward the maintenance cost or up grading these common facilities.
The unequal financial contribution has been and remains a source of dispute.
Few realise when purchasing into a strata property that automatically the new owner becomes a member of the governing body corporate. That comes with legislative obligations including the obligation to maintain and repair the common property and associated costs.
Professor Sherry has also pointed out though tenants make up a large section of the residents in strata properties they are not members of the body corporate and have no say on how it is governed.
Sharing the Costs – Tenants in Common
Professor Sherry notes in her book that owners are tenants in common of the common property and their share is based on the unit entitled attached to the unit they own. The statutory obligations to maintain and repair as well as others are shared equally but not the associated costs.
Each year budgets are prepared which estimate the costs of running the scheme for the following year. The source of those funds are quarterly contributions deposited by owners to administrative, and capital works funds. This is unique to strata and company title and different from owning your own home. It is not unusual for investor owners as opposed to resident owners to want to keep contributions low. There are occasions when owners are asset rich but income poor and seek to keep the contributions low. This is a short-sighted approach for an asset that has been increasing in value in every capital city.
By-laws Private Regulation
Another issue in strata are by-laws which enable people to regulate how the property is used. Professor Sherry refers to these as a private legislative power. They not only govern how the common property is used but also can affect how owners use their own properties. This can come as a shock to people who previously lived in their own home.
Lawyers and conveyancers need to turn their minds to advising clients about this power before their clients buy into strata schemes.
There should be no hidden surprises. When purchaser’s buy shares in company title properties balance sheets and profit and loss statements are attached to the purchase agreement, maybe this should also become the thing for contracts for the purchase of strata units.
Be aware of the powers of the owners corporation, often people don’t know and understand the rules. By-laws on the use or enjoyment of the common property is a very powerful tool particularly for micromanagers on committees and boards.
Third-party businesses
Bigger strata developments in particular result in the creation of third-party businesses including strata and build management businesses which owners know little about when they buy in. Professor Sherry points out that the more management agreements the more complex. She agrees these complex agreements can and should be simplified and the term they remain in force considered.
Recently strata management and building management agreements have come under scrutiny and the flow on is often another source of disharmony and distrust. Earlier I mentioned the need for all owners to know and understand these service agreements and for the owners corporation and company title boards/shareholders to obtain independent legal advice before entering these.
Power Delegation
Professor Sherry pointed out that because owners are in the main apathetic, power is delegated to strata managers some of whom are good and others are bad. “Still the real power remains in the power of the owners” which I don’t think is properly understood because of a lack of education which I referred to earlier in this paper. Owners need to take more notice because at the end of the day, the buck and legal responsibility stops with them.
Mixed Use Buildings
Because of divergent interests, mixed use buildings are even harder to run and sometimes the residential owners are disadvantaged by the commercial owners. On occasions commercial lots are retained by developers thereby allowing the developer to retain a great deal of power. Mixed developments are another source suspicion and disharmony.
This can include huge bills including upgrading of older buildings and bad builds.
The Best Approach
I set below the concluding paragraphs of the Conversation article because I believe it is a good place to end this paper.
“The best approach will probably be co-regulation, with government regulators and professional associations acting as partners, each playing to its strengths.
But increased regulation by itself will not be enough in the context of aggressive competition between firms and the massive amounts of work expected of individual managers.
Giving them legal and contractual frameworks that allow them to push back, along with professional support, will also go a long way.
There’s never been a better time to start fixing things than now.”
My next paper will deal with the recent legislative amendments.