by Robert Van Aalst of Lawyers Central
Part 1 of 3
In 1813, during the Battle of Lake Erie, the United States Navy defeated the British Navy. Master Commandant Oliver Perry wrote to Major General William Henry Harrison, “We have met the enemy, and they are ours.”
Don’t wait for more years to pass, recognise your enemy is ‘ourselves’, roll up your sleeves and fix things.
The dust has settled since Linton Besser’s 7.30 Report and 4 Corners program on the ABC and strata living and strata management is not going to “hell in a handbasket” as suggested nor has the sky fallen in.
Trust has been Eroding for Years
The trust in strata management has been eroding for years. The question that needs to be examined and answered is why?
- From inception, strata management has been tied to closely to services providers whose primary concern was and remains themselves.
- For years mega strata businesses have been gobbling up smaller strata management practices, eroding competition and misrepresenting that those smaller businesses remain independent.
- Some strata management practices have set up businesses in competition to strata service providers, the result being that conflict of interest is rife.
- Education of strata managers and their support staff has not kept pace with the increasingly complex services they must provide and as a result hampered their expertise.
The losers are the strata managers and the clients they service.
Strata Managing Agents Legislation Amendment Act 2024
The Strata Managing Agents Legislation Amendment Act 2024 attempts to address some of what was raised by the ABC as does the second trench of amendments. They are reactive band aid solutions to far more complex questions.
In her book Strata Title Property Rights, Professor Cathy Sherry wrote “Acts have consistently become longer and more complicated, endlessly trying to plug holes and address problems that have relentlessly arisen in the complex legal and social environment of multi- owned properties.”
Linton Besser
Linton is neither anti-strata managers, nor anti-strata living.
In a Flatchat interview aired as a podcast on 11 September 2024, Linton told Jimmy Thomson, that years ago, he had lived in strata and said, “it was a great little experience.” I know what he was talking about, I have lived happily in a company title block for 31 years.
You can listen to the interview on https://www.flatchat.com.au/podcast-strata-trap/.
This an Opportunity
The reactions and responses adopted by many after the two ABC programs was panic, fight or flight when calm objective reasoning was required. Strata managers and strata owners were inundated with criticism deserved or not.
Positive change will result if lessons are learnt from past mistakes and bad practices stop.
Stop panicking, better times are ahead for those at the coal face of strata management and who grab the opportunity with both hands to make things better.
Don’t be afraid, be creative and make the radical changes that are needed.
Strata Community Association
One radical change I believe would be a step in the right direction is to abandon the Strata Community Association both National and State (“SCA”). As the supposed peak body of strata management, they are all gloss and no substance. For years and years, the SCA’s membership make up has been deeply flawed and conflicted.
Rather than being the peak body it suggests it is, the SCA resembles and operates like a local chamber of commerce.
Linton argued “the SCA aspires to professional status like accounting and the law, but on the other hand, says it’s perfectly acceptable for the industry to take commissions, to be paid rebates, to accept kickbacks from everyone from a major insurance company through to the bloke who mows the lawns.”
Some past SCA board members, and their businesses have been the biggest beneficiaries of the publicized shady practices. They have been influencers within the SCA and the ISTM before that and strata management is paying the price for their greed.
Some middle sized strata firms are following the example of the major players.
The newly appointed board of SCA NSW have been passed the poisoned chalice.
The SCA needs to be replaced by an independent statutory body whose membership is restricted to strata managers, and which is genuinely dedicated to the support of independent ethical and professional practice.
Michael Teys in the September 2024 issue of The Professional Newsletter sums up so many things that need attention and I agree with his criticism of the SCA both at the State and National level. He is also critical of the Professional Standards Council that has been asleep at the wheel and has not lived up to its duties https://michaelteys.com/article/7-reasons-why-sca-in-its-current-form-deserves-to-fail
The inherent culture of the SCA is one of lip service and that makes real cultural change unlikely. The mantra of the SCA’s Professional Standards Scheme (PSS) is “Accountability, Recognition, Consumer Protection.” At the most recent self-congratulatory SCA AGM one influential supplier was heard to say, “let’s not look in the rear mirror” even though it is obvious that is what needs to be done.
According to the SCA “The New South Wales Strata Sector is now leading the way for the property Industry with the highest form of consumer protection.”
According to the SCA(NSW) the PSS “scheme has been approved for an initial period of 5 years commencing from 1st July 2021. This approval means strata manager members of SCA (NSW) must adhere to a Code of Ethics including professional standards and is monitored by Professional Standards Australia.” The current bad practices have been going on during that period. Some whose business practices are under the microscope were board members, including some past presidents of the SCA.
It is unlikely the major supplier members and substantial financial supporters of the SCA will discontinue their influence on the SCA and by extension on strata managers.
Strata Management Companies and the Industry
Linton said, “I think my overall impression is that strata management companies, and the industry more broadly, has been pretty well ignored for so long by the media and by government by and large, that it operates in a kind of vacuum.” I don’t agree strata management has been ignored or has operated in a vacuum. Over years, there have been numerous amendments to the Strata Schemes Management Act and the Property Stock and Agents Act and other associated strata legislation. In addition, the courts, Fair Trading and NCAT have been scrutinising strata management and none of which has happened in a vacuum.
There have been many contributors to the past changes to strata law and strata management, including politicians, developers, academics, lawyers, accountants, strata managers, building managers, contractors and owners.
The problem remains change in strata management has not kept pace with its growth, demands and sophistication.
Linton told Jimmy “I think as some of the malpractice becomes obvious to some managers, once it’s obvious to them that they’re kind of making a choice whether to continue down that road or trying to do something about it.” The bad actors are attempting to put the genie back in the bottle. They are setting up practice reviews but remain conspicuously silent in accepting that what needs to be done is real and substantive reform. If such reform occurs, strata management will be all the better for it.
One needs to accept there will always be bad actors, just as there are bad lawyers, bad accountants and doctors to name a few.
Linton on Education
Regarding education, Linton told Jimmy “I don’t think it’s controversial to say that the qualifications, first of all, that one requires in order to be a professional chartered accountant, or a professional solicitor are quite different to what’s required to be a professional strata manager.” What is needed and has been ignored for years is tertiary education for strata managers. By that I mean university education, which if provided and undertaken, will help change strata management from an industry to a profession.
In addition, there needs to be education provided to strata committees and board members of company title apartments, particularly for the office bearers. This general education should include meeting procedures, the basis of strata and/or company title law and rudimentary accounting. For these people, continuing education classes could be offered as webinars and/or face to face tutorials, and they should be voluntary not mandatory. If made mandatory I believe a lot of these people will not serve on committees and boards.
Linton suggested committees and owners would do well to read the notices of AGMs and learn to read balance sheets, so they know how their money is being spent and looked after.
Building Management
Because the focus has been on strata managers scrutiny of building managers has until now slipped under the radar.
Building management is much more lucrative than strata management and requires less work and attention to detail. It is unregulated, including no legislative review, and has no educational or licencing qualifications for entry. Many are members of the supplier chapter of the SCA. Scratch the surface and it is highly likely corruption will be found to be rife including back handers. Many building managers have cosy relationships with other service providers including plumbers, electricians and others. This is another area that the SCA has failed to properly to oversee.
The Job of a Strata Manager
Linton told Jimmy “I think strata managers who are actually on the tools have a pretty difficult job.” That is putting it mildly.
My last paper listed the enormous amount of legislation that strata managers are required to understand and apply in the course of their work. They must deal with an overwhelming number of daily communications, including emails, telephone calls, and preparation for and attendance at committee and general meetings. These meetings require agendas, minutes, and sometimes budgets, which are very time-consuming, often complex, and voluminous. Additionally, there are other complex matters such as the dreaded fire orders and dealing with building defects, which are rife in newer buildings.
Strata managers are forced to work ungodly hours to keep up with numerous statutory and other time constraints. Strata management remains labour-intensive, even with the growth of technology. Fewer people are doing more work in an environment filled with complexity, unreasonable demands, and high expectations. However, for smart young people prepared to roll up their sleeves, it can be very rewarding, both intellectually and financially, with great prospects.
No Silver Bullet – It’s Complex
Linton said “I don’t think anyone could really sensibly say there’s a silver bullet to any of this stuff. It’s complex. There are lots of factors.” Linton acknowledged the fix will be complex, though he does not offer a fix. It may be inferred he is saying it will take time, energy, and thoughtful hard work.
There are two sides to the problem of strata management and the communal living.
On strata management side, strata managers should accept they need to be at arm’s length and independent of suppliers and proactively demand better education resulting in them being recognised as members of a profession. They already have the foundations from which a profession can be built.
In relation the other part, namely communal living, Professor Cathy Sherry alludes to the reactive attempts to fix strata legislation. “The majority of schemes in all states are residential, and thus particular attention will be paid to homes. All Acts have consistently become longer and more complicated, endlessly trying to plug holes and address problems that have relentlessly arisen in the complex legal and social environment of multi-owned properties.” Note she is drawing our attention to the “complex legal and social environment” of multi-owned properties. These two elements require different solutions.
If tertiary education is developed for strata managers, it should include the study of social sciences, specifically the scientific study of human society and social relationships. This would equip strata managers with the skills needed to deal professionally with the various people they encounter in community living and assist them in handling the day-to-day personality problems they face during business.
Uniform laws
As far as the legal complexities go, I suggest uniform laws are required for strata management and community title living. This is where creative thinking is required because as Professor Sherry points out property law is by governed states not the Commonwealth.
NSW should continue to lead by example, invite and encourage other states and territories to participate in research aimed at developing uniform legislation for management and living.
Stand up and be Counted
Linton said, “I think as some of the malpractice becomes obvious to some managers, once it’s obvious to them that they’re kind of making a choice whether to continue down that road or trying to do something about it.”
It’s time for ethical strata managers to stand up, be counted, and take charge of their professional lives instead of waiting for others to fix what they can fix themselves. If they are brave and do so, they will reap the benefits.
An added benefit in doing so, is they will start to repair the reputational damage caused by the bad players and bit by bit regain the professional respect they deserve. If they don’t, they have no one to blame but themselves.
Don’t sweep the problems under the carpet. Yes, look in the rear mirror and learn but also look forward to better ways to proceed. This episode should be turned from an embarrassing time to an exciting opportunity for self-empowerment.
Linton told Jimmy “I’ve also met some really, you know, bloody fantastic strata managers who are appalled at some of the misconduct they see in their industry, and who have been urging us along in our investigation. You know, who want people to have a greater sense of faith and trust in the industry.” Big players who were trusted have abused their trust, power and role as leaders and tarnished the reputations of those that do the right thing.
Reputational damage is hard to fix but not impossible.
The Price of Business
Don’t expect the big players to voluntarily lie down, sincerely apologise, remedy the error of their ways and behave differently from the way they have for years. I do not believe that’s going to happen.
It didn’t happen to the big banks in the financial crisis.
Nor did it happen to the banks years later when they were exposed as the biggest money launderers for drug cartels and terrorists.
They paid huge fines, and I suggest regarded that as the costs of doing business.
Unless problems such as those faced in strata are properly addressed, the big firms will, like the banks, move on and continue in the same old same old way they have in the past.
Remember when politicians said the banks were too big to fail. Does this also apply to mega strata firms?
I think it is fair to assume the big strata companies and their cohorts performing questionable business practices think the same thing. I suggest it is likely part of their cultural greed to tinker round the edges and sweep the bad stuff under the carpet and keep doing business as usual.
If they were moral and ethical, dodgy business practices would not have started in the first place or at least years ago they would have seen the error of their ways and stopped and mitigated the damage they caused to the reputation of strata management.
It is only through public exposure that they are now doing something.