FIXING THE STRATA MANAGEMENT MACHINE 02: According to Robert Van Aalst

or, a strata lawyer's approach to the strata management dilemma …

A Quick Read

Almost everyone agrees strata management needs to change, but the harder questions about that are: What? Why? When? By whom? and How?

So, as part of the GoStrata Media series on fixing the strata management machine, here are the views of long-term NSW strata lawyer Robert Van Aalst.

[a 32:50 minute read, with 6476 words]

In the article, Does the Strata Management Machine Need Fixing? we used a motoring analogy to ask whether the strata management machine needs fixing, and if so, to discuss what kind of fixes and to outline the issues that may impact those fixes.

Does the Strata Management Machine Need Fixing?

Now, there’s a series of articles by interesting strata stakeholders outlining how.

Here’s what long-term strata lawyer Robert Van Aalst thinks.

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THIS IS NOW, DON’T SQUANDER THE OPPORTUNITY

by Robert van Aalst

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Introduction

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?

1. From inception, strata management has been closely tied to services providers whose primary concern was and remains themselves.

2. For years mega strata businesses have been gobbling up smaller strata management practices, eroding competition and misrepresenting that those smaller businesses remain independent.

3. Some strata management practices have set up businesses in competition to strata service providers, the result being that conflict of interest is rife.

4. 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 at https://www.flatchat.com.au/podcast-strata-trap/.

This an Opportunity

The reactions and responses adopted by many after the two ABC programs were 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 have 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, which 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 the years, there have been numerous amendments to the Strata Schemes Management Act 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 this 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 backhanders. 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 communal living.

On the 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 to 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 governed by states, not the Commonwealth.

NSW should continue to lead by example and 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 who 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 they regarded that as the cost 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 around the edges, 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.

Realistic and Comprehensive Reform

What will be required is realistic and comprehensive reform that addresses the existing publicized issues, conflicts of interest, and disclosure. This reform should assist the many ethical and professional strata managers and deal with and expose offenders, ensuring they are brought to heel. In addition to major fines, extreme and repeated breaches should result in the revocation of their licenses.

Strata Schemes Committees and Company Title Boards

Strata Schemes and company title buildings are also businesses. Large ones deal with millions of dollars of annual income and expenditure.

Few committees and/or board members, all of which are volunteers, are equipped to deal with the complexities of the law of accounting and meetings.

Their roles are also part time and often thankless.

Their mandatory legislative duties and responsibilities are onerous, and to make matters harder, they are often surrounded by self-interested and/or apathetic owners and residents.

Committees and/or boards must work co-operatively with their strata managers, stop the blame game, and use their time together productively.

Linton added “..there are lots and lots of personalities that live in apartment buildings and in strata schemes. Not all of them are easy to get along with. All of them, good and bad, expect to be served by the strata manager, and the workload that these people at the front line have really is almost impossible, at some firms, dozens of buildings. I had one strata manager tell me they had a portfolio of 100 buildings to manage. Now, I don’t know how that is possible, 100 AGMs a year, just that alone, let alone all day-to-day stuff.”

Some committees/boards treat their schemes and companies as their fiefdom and strata managers as their serfs or domestic help. Those situations also call for review in a similar way coercive control is being studied and solutions developed.

Shooting the messenger needs to stop. Some committee/board members, owners and residents would benefit from civility and anger management lessons.

Othering

During and since COVID, keyboard warriors came out of their caves. There has been an exponential increase in “othering.” I am not sure if this was a result of some people having too much time on their hands or wanting to blame someone and allow inherent biases to bubble to the surface.

For those unfamiliar with othering, according to the Cambridge Advanced Learner’s Dictionary and Thesaurus, it means the act of treating someone as though they are not part of a group and are different in some way. Strata managers seemed to fit the bill of not being part of the group and different in some way.

People search the internet and/or social media to find information that supports their thinking and encourages their unreasonable behaviour and demands.

Like never before, there is a means to broadcast unsolicited views, biases, suspicions and divisive behaviour.

Some of these people believed COVID was not real and vaccination unnecessary. They were uncomfortable with what they did not understand and could not control. This unhealthy attitude has rolled over to other things including how strata management is misunderstood.

I think othering is also a reason why strata management, in general, finds itself under more negative scrutiny and attack than usual. The reaction to the outrageous behaviour of some has been the poison chalice for all. The perpetrators doused fuel on the fire of suspicion and distrust against strata managers generally.

Complexities

My experience is that some committees, owners, and residents either don't know or don't care about the day-to-day burdens and complexities faced by strata managers. They want and demand instant answers that are either not available or unreasonable to expect. Owners sometimes misguidedly say, 'You will do what I ask; I pay your fees.' Owners pay the strata contributions, and the owners corporation engages the strata manager and pays their fees.

Owners also forget that at the relevant AGM or general meeting, they approved both the appointment of the strata manager and the terms of the strata management agreement. They also forget that they were provided a copy of the agreement with the agenda and had time to consider its terms and raise any concerns either before or at the AGM/General Meeting.

The same applies to the financials, which are also attached to the agenda and available for scrutiny and questioning both before and at the meetings in which they are considered.

Unreasonable expectations are a result of ignorance, apathy, selfishness, or a combination of all. Knowledge, patience, and participation are the answers.

Professor Sherry has written, “Strata title raises extremely complex questions in property law. It creates individual and collective titles to land/air space, as well as governing the ongoing rights and obligations between people in the resulting communities.” Despite strict statutory obligations, many committees and, by extension, owners know little about these complexities. Nor do owners have proper knowledge of their mandatory legal duties. Hence, my recommendation for the education of office bearers, committee members, and owners is also important. New legislation is in the mix for this too, but I believe that what is proposed is a knee-jerk reaction.

Strata Management Agreements

Irrespective of the terms of the strata management agreement, the ultimate decision making remains with the owners and, in the case of company title, the board/shareholders.

Before strata management agreements are put in place, the owners corporation should obtain legal advice, but on a majority of occasions, they don’t, opt to be penny-wise and pound-foolish.

It is pointless being a member of a committee or the board if they do not use their voice and vote in the best interests of the owners corporation or company even if that voice is in the minority.

Don’t blame strata managers if before entering the agreement people do not exercise their right and legal duty to properly read and understand the management agreement and/or the relevant legislation governing the managers’ duties and obligations.

Ignorance of the law is no excuse, owners, committee/board members and office bearers cannot obfuscate their legal responsibility.

The Solution is Education

The solution to the problem is not moaning, groaning, and finger-pointing. It is education, education, and more education for strata managers, committees, owners, and residents. With education and taking responsibility, there would be less ignorance, vulnerability, othering, and blaming, and there would be increased confidence, trust, and respect, which are currently missing.

Strata or community living is a democratic process and demands knowledge and cooperation. It’s not for everyone. If one finds the processes too burdensome, they should not buy into strata or company title. If you have bought in but find it all too much, sell up and buy a house where one can be the king and/or queen of their castle, no questions asked.

Professor Sherry writes, “governments, the judiciary and citizens need to better understand the ramifications of private communities. When we understand the property rights and obligations involved, there is a better chance for co-operation and harmony on all levels and less unreasonable expectations and disharmony.”

She also acknowledges there is both “the good and not so good side” to community living. In an interview she acknowledged as an academic at times to “being a bit negative about the law” but having said that she also believes “it’s a pretty good system with some inherent problems.”

Those inherent problems need attention and resolution because, like bad habits, they die hard, but if remedied, community living will be better.

It’s Not Just Insurance

Insurance commissions and brokerage, and the cozy relationship with Steadfast and other suppliers is a problem, but a lot more needs attention.

I maintain the real problem is cultural and a change of culture is very difficult. It is time consuming and often costly, but when done properly, it is worth the time, effort and cost.

Having said this, if you want to delve into the details and understand strata insurance, I recommend the paper published and co-authored by Professor Nicole Johnston called “A data-driven understanding of strata insurance in Australia and New Zealand.” Here is the link.

Brokerage versus Commissions

I am not sure most people know the difference between brokerage fees and insurance commissions and their effects on fees charged by strata managers.

Commission is a percentage of the premium paid by the insurer (insurance company) to a strata manager or the broker for introducing or maintaining a policy. Crudely putting it, it is a referral fee for referring or renewing a policy with the insurer.

The commission is paid directly to the strata manager.

A brokerage fee is a payment to a broker for providing professional advice, comparing policies, and handling insurance matters on behalf of the strata scheme.

An insurance broker may be engaged by the strata manager on behalf of the owners corporation.

Commissions are paid by the insurer as a cost of acquiring business.

Brokerage is typically paid directly by the client (owners' corporation) or built into the premium by the insurer. This can be shared with the strata manager.

Cost Impact:

Commissions may increase the total cost of the insurance premium since they are a percentage of the premium charged by the insurer.

Brokerage fees may be an additional cost on top of the premium or negotiated separately.

Transparency:

Commissions are often embedded in the policy cost and may not be as clearly disclosed unless required by law. Hence the recent changes to disclosure requirements.

Brokerage fees are usually explicitly agreed upon and disclosed upfront.

Under the current law, strata managers can lawfully receive both commission and brokerage fees if they are licensed to act as an insurance broker and, as such, provide advice or administration.

Netstrata pushed the boundaries, as did some other strata businesses, by forming wholly owned brokerage firms, which they did not properly disclose and collected brokerage fees and commissions. These fees were astronomical.

The latest amendments do not make either practice unlawful. They do tighten the disclosure requirements, which I will discuss later in this paper.

Some strata managers don’t collect commissions, some collect them and pass them back to the owners corporation, and some keep the commissions but adjust their fees down in favour of the owners corporation.

If in the future commissions are legislated as illegal, it is my view there will be an increase in strata fees so strata managers are able to make up their loss in income.

ABC 7.30 Report

The focus and exposure in the 7.30 Report centred around the interview by Linton Besser with Stephen Brell of Netstrata. That highlighted the lack of disclosure, conflict of interests, ignorance of fiduciary relationships and double dipping and kickbacks.

Netstrata has a number of subsidiaries through which it carries on side businesses, Strata Insurance Services Pty Ltd (the brokerage firm), WinFire Pty Ltd (the fire protection arm), Resolute Maintenance Group and PG Martin Plumbing.

The nub of the allegations against Netstrata was its failure to make a full, frank and proper disclosure about its ownership of these companies.

Linton referred to the financials of Netstrata which disclosed substantial income earned in addition to strata management fees. I doubt many owners know how to access the Netstrata financials and, if they did know, how to read and understand them. The same applies to the other big players who have wholly owned subsidiaries.

The recent amendments are designed to increase upfront disclosure but not make this questionable business practice illegal.

Strata Management Fees

Although some people feel strata management fees are too high, in relative terms, across the board, they are low. The workload of strata managers is often greater than that of most lawyers and accountants, and despite the lack of available educational standards, their responsibilities and exposure to being sued for professional negligence are as high, if not higher.

It is my view that despite the recent exposure, strata management fees need to increase.

Some strata managers may move from hourly charging to fixed fees, which will result in less charging for extraneous items but increase management fees. That is what happened when lawyers moved away from time costing to fixed fees.

No need to panic, water usually finds its own level. One benefit of fixed fees is that management agreements may become simpler.

Disbursements will still be charged either way. Fixed fees won’t cover additional fees being charged for extraneous professional work outside the scope of day-to-day management.

The owners corporation and company title buildings will need to consider which option best suits their requirements, and independent legal advice should be obtained before entering these agreements.

I agree with Michael Teys, who has written about the overcomplication of strata management agreements and suggests they need to be reviewed and made simpler. That will make life easier and more certain for both strata managers and their clients.

Some members of the Australian College of Strata Lawyers have been very vocal about what they suggest is wrong with strata management, including strata management agreements, and generally what needs fixing. Maybe since they profit from strata generally, they could put their collective heads together and design what they suggest are new fairer strata agreements and offer those free to both owners corporations and strata managers.

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 of 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 that are either ignored or partly adopted but rarely fully adopted. They are often constrained by political masters who write the terms of reference, 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 that 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:

1. Be referred matters to conduct research and consultation.

2. Prepare and release consultation papers and reports.

3. Call for submissions from all interested parties.

4. Conduct face-to face consultation.

5. The consultations should include tertiary educators with a view to encouraging universities to create strata management degree courses.

6. Table the final reports to be adopted and implemented by the government through legislative and administrative action.

7. From time-to-time legislation would be reviewed, and if necessary, changes would 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 a “$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 managers are the multitude of suppliers, each with their own financial interests.

See https://theconversation.com/many-strata-managers-who-handle-apartments-are-conflicted-heres-how-238683

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 that 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 the use of stairwells, lifts, parking spaces, gardens, gyms, pools, plants and solar panels, embedded networks, etc. All these common interests can and do stir up different views and emotions on 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 upgrading 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 that 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 is quarterly contributions deposited by owners to administrative and capital works funds. This is unique to strata and company titles 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 their 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 is 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 homes.

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 a purchaser buys shares in a 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 are 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 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 stop 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 of suspicion and disharmony.

This can include huge bills, including the upgrading of older buildings and bad builds.

The Best Approach

I set out 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.”

December, 2024

Robert Van Aalst

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