Graft and greed exposed in strata industry
Apartments are a favourite choice of downsizing seniors. But a recent media investigation found the rules governing strata living are being abused.
If you are interested in moving from the family home, with all its maintenance costs, into something smaller, you are not alone.
More than 2.5 million Australians now live in an apartment. Many of these people are seniors and, as governments look to boost housing availability, apartment numbers are set to soar.
Whether you choose an existing apartment building or have signed up and paid for an off-the-plan residence, you will be subject to the strata laws of the state or territory where you live.
But as a recent ABC Four Corners program exposed, many strata residents fall victim to questionable and even nefarious practices, including by those they pay to manage their strata developments.
The program questioned what it described as the dearth of government intervention and lack of meaningful consumer protection.
The investigation exposed how the strata industry was rorting apartment owners who were largely unaware of hidden fees, secret commissions, and kickbacks being pocketed at their expense.
In one instance, a big strata insurance broker was found to have recommended a more expensive policy, offered by a firm it owned, without showing clients a cheaper quote from a competitor.
The broadcast also revealed a subsidiary of one of the world’s largest strata companies had charged a $945 fee for a report that Sydney apartment owners could not account for.
In another case, a management firm was accused of charging two apartment owners in a Melbourne complex more than $100 to chase up a 60-cent debt they owed on their levies.
Earlier this year, the ABC also revealed a firm had been charging insurance brokerage fees as high as three times the usual rate and was receiving kickbacks from contractors and suppliers it hired using apartment owners’ strata funds.
Many people believe buying off-the-plan locks in the price of an apartment – but that is not the case.
As well as developers having the option to vary the price, high levies, hidden costs, and inflated contracts can come to light only after you have moved in. Then, there is the potential cost of pursuing your developer to get defects fixed.
Other dodgy practices include strata managers who, at the developer’s request, deliberately understate levies to make the purchase price more attractive.
That estimate will change when the treasurer of the owners’ corporation must find the money to pay for actual running costs.
Strata living laws are different across the states and territories. Writing in the Australian Financial Review, strata living advice expert Jimmy Thomson provides the following general advice to people who have moved into a strata development:
Ask fellow owners in a new block not to agree to anything at the first annual general meeting (AGM). The initial AGM is the last chance you’ll get to accept or reject contracts and any deals agreed to at the meeting are locked in, good or bad.
Elect your committee and defer decisions on everything else until you have had a chance to get independent advice on the contracts. Don’t worry, the electricity and water will keep flowing.
If the strata manager says they won’t do any work until their contract is confirmed, they have already failed a critical test. It is easy to find a new manager who will look after you, the owners, rather than the developer.
Four weeks in limbo won’t make any difference to the running of your block, but it will give your committee a chance to scrutinise the contracts properly and, if need be, look for better deals elsewhere.
Question your strata manager.
At the slightest hint of suspicion, question everything. Is there really only one insurer prepared to take your building on? Ring around a few and find out.
Are the multiple layers of vertical integration to your benefit or theirs? The strata manager says they aren’t taking commissions on insurance – but what about the company’s broking arm? It doesn’t have to declare anything to anyone, so look out.
The maximum term for existing strata managers is three years and there are plenty of good operators who will work for you rather than against you.
You can watch the Four Corners investigation here.
Australia’s top consumer groups have written to the Federal Treasurer, Jim Chalmers, calling for an urgent inquiry into the strata management industry.
A national probe into the sector has also been supported by the New South Wales and Queensland governments, and industry groups.
The open letter to Mr Chalmers has been endorsed by Choice, the Owners Corporation Network, the Australian Consumers Insurance Lobby, and seven other groups.
It requests that Mr Chalmers immediately direct the Australian Competition and Consumer Commission (ACCC) or the Productivity Commission to conduct an inquiry into the sector.
Also, consumer groups and strata owners’ organisations have called on the ACCC to investigate practices within the strata management industry that are potentially unlawful, including assessing both the transparency of remuneration models and the adequacy of existing regulation.
They also want better consumer protection mechanisms, and pursuit of unlawful activities.
Will it make any difference? As Jimmy Thomson said, “I'm not sure. All we can be sure of is that the genie is out of the bottle and these issues are not going away any time soon.”
