Sorting Out Strata Management with 3 Simple Contract Changes
Just strata sayin …
There’s been an ongoing debate about how to improve the quality and value of strata management services to strata buildings, committees and owners so they'll differentiate between them and pay what the service is actually worth.
It’s caused a number of issues such as.
A race to the bottom between strata managers competing solely on price.
Strata mangers promoting a low ‘face’ price but increasing revenues with hidden or surprise charges for things like email handling fees, fixed disbursements, survey charges, etc, etc, etc.
No differentiation between strata managers and strata management businesses and the services they provide.
No variability or differences in the pricing models for strata management services.
Strata buildings, committees and owners devaluing strata management services.
Strata buildings, committees and owners believing strata management is an all inclusive service.
Bolstering strata management business profitability with insurance and other commissions, referral fees, related business investments and other non money benefits.
It’s a really a chicken and egg problem in my opinion.
On the one hand: strata managers feel like they’re not paid enough so want to do less [and less] for their charges, can’t, won’t or don’t innovate, won’t improve productivity, etc, etc, etc.
On the other hand: strata buildings, committees and owners feel that they’re not getting the service they want or need, see all strata managers as the same, consider strata management as low quality service, and have no incentive to pay more.
I don’t know whether one caused or causes the other or vice versa, but it doesn’t really matter anymore.
And, there doesn’t seem to be very many [or any] good ideas for change from either side.
But, I think there’s a simple cause for these problems that isn’t obvious, most stakeholders will argue about, and is structurally embedded into the way strata title management works. And, I believe that changing that cause will fix these problems through normal and competitive market forces.
So, what’s the cause, and, what should change?
In my opinion, the cause of this strata chicken and egg problem is the inherently conflicted but advantageous position strata managers find themselves in vis-a-vis strata buildings and the services they provide to them.
You see, strata managers enjoy the following leverage.
They have contracts with strata buildings [usually for a locked in fixed term] to provide specified services on terms that include when and how they are provided and how much they are paid for them.
They hold strata building money in their trust account with independent authority to spend it.
They charge strata buildings [typically monthly and often in advance] for their services.
They pays their own invoices with strata building money [and usually their contract authorises them to do that].
So, unlike virtually all the other service providers to strata buildings and almost every other business in the world, strata managers are being paid regardless of what they do [or don’t do], paid on time [or in advance], paid without requiring customer approval, and, paid by themselves under their own authority and control.
Plus, strata management business have no debtors’ book or bad debts and enjoy positive cashflows, so don’t face the usual small to medium business commercial and capital risks.
I wish my businesses were all like that.
So, it’s no wonder there’s no incentive on strata managers to change anything, improve things, innovate or differentiate themselves from other strata managers.
And, it’s caused a tragic malaise.
But that malaise could be easily fixed by making 3 simple changes to strata management contracts as follows.
1. Invoice after doing stuff
Strata managers should invoice strata buildings and strata owners for their work and other charges after the work is done or the charges are incurred [and not in advance].
2. Charges must get approved
Strata manager invoices for charges must be provided to the strata committee for approval.
3. Payment only after approval
Strata managers cannot pay themselves until their invoices are approved by the strata committee [in a meeting or by paper/electronic majority vote].
I can hear the strata managers’ screams already [and have covered my ears].
But I don’t know why they’d complain, since every other strata building service provider has to do those things.
And, honestly, if strata managers did these three things, they’d experience significant sector change very quickly in unexpected and exciting ways. Plus, strata managers and their strata customers would be happier and more profitable in the future.
Now, tell my why I’m wrong.
Just strata sayin ...
August 30, 2024
Francesco ...