Dodgy Strata Contracts NSW

vv285 on 07/07/2022 - 12:31
Last edited 07/07/2022 - 14:49

We had an AGM meeting for our Apartment recently and every time we are getting a feeling that we are being ripped off by the Strata management.

For e.g.: After two years the owners of the apartment now realize that we need to pay a 5% increase in the building manager contract which now sits at 150K. Now the contract with Strata Management stands for a total of 7 years and at this rate looks like we are getting ripped off with a contract the owners corporation agreed to sign when they were naive (new to a lot of things). In the next 5 years at this rate we might end up paying a lot more on this one expense itself among other expenses that dont feel right.

Usually Building Managers get paid at an average of 80-100k on seek and paying 50% more on that plus 5% more over the year seems really ridiculous to me and everyone else in the apartment.

Can anyone here direct us if there is anyway we could get out of such dodgy contracts?

Edit: I forgot to mention that our strata fees due to similar increases in other expenses have now jumped to 25%.

Financial

Comments

  • randomusername2017 on 07/07/2022 - 12:34
    +4

    Building manager ≠ strata management contract

    • vv285 on 07/07/2022 - 12:38

      Yeah not too educated on all the terms and how it all works but the owners corporation signed this off and now we need to keep paying 5% extra every year on this already inflated contract. Would be nice if you could shed some light on what we could do further.

      • randomusername2017 on 07/07/2022 - 12:47
        +1

        🔦💡

        You are privy to the contract particulars.. are they fulfilling their end?
        breach and terminate?
        Termination clauses?

        Any advice you get is going to be general in nature and may not even be relevant to your situation.

        5% is not that exorbitant, 7 years is questionable but that horse has already bolted.
        Not so much the terminology, was just suggesting you can't really comparea 100k seek position to strata management contracts.

  • Drakesy on 07/07/2022 - 12:47
    +3

    Someone's definitely doing the dodgy if they're signing 7 year contracts.

    Also if you're taking on a building management company they'll put their overhead on top of it - hence the $180k price

    I don't think the strata would be in a place to take on a full time manager by themselves, too much risk would fall on the strata.

  • Eatslikeacat on 07/07/2022 - 13:00
    +6

    The Strata Schemes Management Act 2015 (NSW) changed the law so that strata manager contracts were capped at 3 years and are deemed to have an option to renew of a maximum of 3 months. See https://legislation.nsw.gov.au/view/whole/html/inforce/curre… Furthermore, any strata manager with a connection to the developer was banned from being the strata manger for 10 years from the strata plan registration date See: https://legislation.nsw.gov.au/view/whole/html/inforce/curre… Those caps were introduced to stamp down on the questionable practice of strata managers being installed with long terms and long options to renew from the very start when owners didn't have a real choice. They were barnacled on and were difficult to remove. The new law means that if a strata scheme is not happy with the strata manager then at least the term is capped at 3 years.

    Don't confuse strata manager with building manager. A building manager has a different definition and used to be called the caretaker. A building manager's contract is capped at 10 years with no option to renew. Before the cap building manager contracts could be effectively evergreen, for example 10 years with crazy successive options to renew.

    The purpose of the caps was to allow financial certainty for the strata managers and building managers but without giving them too long.

    Getting out of such contracts is fraught with legal risk as strata schemes face being sued for breach of contract. The strata scheme has 3 main options. Option 1: Engage a strata lawyer to get advice on terminating the contract. Option 2: Get enough owners together to get enough votes to vote out the strata manager when their 3 year term is up. Option 3: The strata scheme negotiates with the strata manager to see if they will voluntarily leave, perhaps with some agreed payout, as they might be just as sick of you as you are of them.

  • Eatslikeacat on 07/07/2022 - 13:41
    +7

    Your strata scheme should also get some quotes to see if you really are paying too much. The flaw in your logic is that you looked up the cost of an employee building manager at $80K-$100K. You can't expect any building management company out there to provide services for no profit. You're looking at a scenario where the strata scheme hires its own 1 employee to run the building. That 1 employee has no economies of scale, company resources, and very importantly other staff. What if your 1 building manager gets sick or goes on annual leave? Who's going to manage the building then? The cost of a building manger also depends very much on the nature of your building. Is it a standalone buiding? Is it nested with other strata schemes with shared facilities with major infrastructure to manage? Is it sitting inside a community scheme or neighbourhood scheme? Is the building manager there part time, full time, or off site? Are you getting other services in the contract that are more than the building management?

    You need actual quotes from other building managers who have assessed your building to see what they charge for your building. Only then will you know if you're being overcharged or not. Guarantee you that it won't be $80K-$100K as you can't expect them to work at cost for you.

    Also, a 5% annual increase is not unusual. If you want them to work for no profit then at best you're looking at annual CPI increase which will be about 3% anyway. So a 4-5% annual increase is not a problem.

    It appears that what you think is unfair is that your building thinks that they can go it alone themselves at cost price. Beware, your building might be biting off more than it can chew and owners will start complaining that the building is not being managed properly. Nobody attending to leaks, damage, contractors, compliance, fire safety, inspections, proper cleaning, air conditioning dosing, etc. At that stage expect that there will be a revolt and the strata committee be voted out and with the building not being maintained properly it'll all cost you a lot more in the end. Then what if someone dies on site because your building engages cowboy contractors for the lowest possible price? Who's going to face the music then?

    So your building should do it's homework to get quotes to know whether you're really being ripped off or not. If you're in a race to the bottom dollar you could end up paying dearly in the end.

  • amazonaddict on 07/07/2022 - 13:54
    +2

    One of the selling point for the Apartment I bought was low strata fee. The next year the Strata company came and said, you all fools will be paying pay 20% more. And every year they bill another $300 for repairs claiming it is too much to be covered by the strata fees. And the builder who picked this strata company gets all the repairing contracts from them. Since the properties are mostly positively geared no one bothers about this in the AGMs.

  • JimmyF on 07/07/2022 - 14:33

    Usually Building Managers get paid at an average of 80-100k on seek and paying 50% more on that plus 5% more over the year seems really ridiculous to me and everyone else in the apartment.

    If it is so ridiculous, why did everyone sign it?

    Also there is 'more' to a contract than just what the building manager is being paid.

    5% ATM is under inflation BTW.

    • vv285 on 07/07/2022 - 14:57

      Because when people are new and they don't know the rules around the just nod to everything. The strata management was assigned to us by the builder and they have both have a nexus going on to rip off customers.

      • randomusername2017 on 07/07/2022 - 15:13

        Might help if you elaborate a bit more… Consensus among owners or just you?
        How many lots involved?
        What services are included in the contract?
        Analysed the financials(probably rorting you there too)? Admin costs..3rd party incidentals etc

      • JimmyF on 07/07/2022 - 18:19

        and they have both have a nexus going on to rip off customers.

        You lack a lot of details, so how are they ripping you off?

        Because when people are new and they don't know the rules around the just nod to everything

        Reading a contract and seeing a 5% YOY increase, isn't that hard.

        • vv285 on 07/07/2022 - 18:37

          5% yoy increase where the term of increase is not explicitly stated. Today the term could be 1 year. Tomorrow they could specify the term as 1 month.

          Also, our strata payments went up by 25% overall per quarter. Does that sound like good management? Anyone here in their right mind cant afford to pay 25% increases every year.

          • JimmyF on 07/07/2022 - 19:19

            @vv285:

            5% yoy increase where the term of increase is not explicitly stated. Today the term could be 1 year. Tomorrow they could specify the term as 1 month.

            They can't make up term lengths like that. It will be defined in the T&Cs.

            Also, our strata payments went up by 25% overall per quarter. Does that sound like good management? Anyone here in their right mind cant afford to pay 25% increases every year.

            For a new building like yours, yes it is pretty common indeed.

            Nothing to do with 'good management' or as you tried to imply, bad management, they got handed a hot mess to deal with as is the case due to most building companies stacking the strata fees on the lighter side of things so they look 'great' to buyers.

            Then once everything is sold, and handed over to the strata company they find out they are short on funds so up strata fees go.

            Its pretty common issue for new buildings sadly. So nothing to do with good or bad strata management as you seem to think, they didn't set those fees the first time round your builder did.

            • Eatslikeacat on 07/07/2022 - 22:14

              @JimmyF: So true, so true. Feel sorry for the owners. Understating the strata levies to make it more attractive to off the plan purchasers is very common.

              • JimmyF on 07/07/2022 - 22:29

                @Eatslikeacat:

                Understating the strata levies to make it more attractive to off the plan purchasers is very common.

                Yep it certainly is and sounds just like what has happened to the OP.

            • vv285 on 08/07/2022 - 10:20

              @JimmyF: Well its the stratas job to fix up building defects that the builder didnt do right in the first place. But since these guys are scratching each others backs these guys never did that. Also most apartments around pay way less. That increase isnt really justified.

              • JimmyF on 08/07/2022 - 11:22
                +1

                @vv285:

                Well its the stratas job to fix up building defects that the builder didnt do right in the first place.

                But do they have the money in the first place to fix these issues or is this why the strata levies are getting put up so they can fix them?

                You do know how all this works right? Strata needs the money upfront to do the work. So if the strata levies have been set too low by the builder, then there isn't any money to do these fixes. So up strata levies go!

                Also most apartments around pay way less. That increase isnt really justified

                So it should be easy for you to list something over the top that the Strata money has been spent on?

                • vv285 on 08/07/2022 - 15:03

                  @JimmyF: I know how it all works. What you seem to not understand is the nexus between Strata and Builder who eventually keep ripping off Owners.

                  Strata and Building managers needed to fix these defects pointed out by Owners in the warranty period which they havent and now we need to fix it out of our own pockets and that's not really fair.

                  • dabs on 08/07/2022 - 15:19

                    @vv285: How old is the building? And is the building still under warranty?

                    I would say it's the strata/building managers job to pursue the defects against the builders before warranty is up.

                    After this period, then the repairs indeed come from the owners' pockets. But that's what levies are for.

                  • JimmyF on 08/07/2022 - 15:23

                    @vv285:

                    What you seem to not understand is the nexus between Strata and Builder who eventually keep ripping off Owners.

                    I've asked a few times for you to give some examples…….

                    Strata and Building managers needed to fix these defects pointed out by Owners in the warranty period which they havent and now we need to fix it out of our own pockets and that's not really fair.

                    Honestly that is the way it normally is. Builders HATE fixing things once handed over. Most owners, apartments, free standing houses etc, spend forever chasing builders to fix things and in the end, most give up and just fix it themselves out of their own pocket.

                    So the Strata has one of two options. Do nothing and keep nagging the builder to fix it or pay to fix it.

                    I'm perplexed, you seem to think they are in bed together, so is the strata paying the building company to fix things that should be under warranty or are they paying someone else to fix them or are they doing nothing at all?

  • tsunamisurfer on 07/07/2022 - 15:58
    +2

    We felt the same about our Strata Manager, our resolution took about 2 years.

    Year 1) We were notified of a management fee increase which we did not like, so I and some of the other COO's went looking for quotes and paying more attention to what the SM did. This is important because its hard to compare apples with apples with different SMs who will often give you the base price and then add plus plus / sundries.

    Major Step : At the AGM firmly tell the strata management from now on the SM contract will be for 1 year and renewed at each AGM.

    Year 2) More increases, now we have a better idea of what services they render we really went out to market and found another comparable SM, but not in time to switch over for year 2, it was at the end of year 2 that we engaged the new SM and told the old SM their services were not required.

    To make this change the COO have to be proactive and not fencesitters or apethetic.

    • vv285 on 07/07/2022 - 16:06

      I personally felt like whatever services the Strata manager does, he tries to get a cut from the people he brings in. Some of the invoices have no bills associated and when questioned they get delayed or never answered. Shady AF.

      • tsunamisurfer on 07/07/2022 - 16:14
        +1

        I often wondered the same, it is ripe for abuse.

        So for big ticket items like gardening and major repairs, we got the quotes ourselves and compared it with the SM's quotes.

        If at least to show the SM we are vigilant.

        • JimmyF on 07/07/2022 - 19:22
          -1

          Normally when its for a 'Strata' arrangement, there are long delays in getting paid plus so many other issues like access, all these rules, and access time limits etc, plus don't forget the pissy Strata managers to deal with, so yeah the quotes have a 'Strata' tax on them aka jacked up in price!

          • vv285 on 08/07/2022 - 16:56

            @JimmyF: Are you a strata manager?

            • JimmyF on 08/07/2022 - 17:17

              @vv285: hahaha not at all, hence the 'pissy' strata manager comment…. are you? Honestly its not worth the hassles of dealing with these companies if you're doing it on the cheap! Too much pain for very little gain.

              • vv285 on 08/07/2022 - 17:34

                @JimmyF: Honestly you sounded like our Strata manager who was justifying some of the expenses in our last AGM. Like an elevator maintenance work which just shot up by 20k in a year without any invoices etc.

                • JimmyF on 08/07/2022 - 17:51

                  @vv285: You clearly didn't read until the end then as I was far from being pro strata….. You wanted to know why prices are high, its called the 'Strata' tax.

                  Companies/trades HATE dealing with these Strata companies for many reasons like the ones listed above, so prices are increased to make it worthwhile to them.

                  Put it this way, I can go out and do job 'A". Not have any issues and get paid without issues for say $5k.

                  or I go do job 'B' and have endless issues with the 'Strata', access, don't get paid for 6-12 months, having to chase them for the money and still get $5k.

                  Which job do you pick, Job A or job B? So now you can see why when Job 'B' pops up and I know that strata company is going to be a pain to deal with, that $5k job suddenly becomes a $8-10k job to make it worthwhile for the pain and suffering.

                  I don't make the rules, just saying how it works and why the quotes you are seeing are not on the cheap side.

      • WT on 08/07/2022 - 08:03

        they do

        Unless you are on the committee and organize your own quotes

        Real estate and strata all do it even though they are paid to arrange these services a lot of the times they will get a kick back. The really dodgy ones will invoice you. Say you get a plumber in but the invoice comes from the REA (looking at you bell properties) and he didnt even fix the problem, just turned off the Hot water tap

        • vv285 on 08/07/2022 - 10:16

          Yes this has been happening frequently too. Garage doors have been claimed fixed and they keep malfunctioning

  • Eatslikeacat on 07/07/2022 - 17:12
    +2

    Yes, a huge problem is that especially at first annual general meetings the owners just agree to everything. In NSW the law says that any contract that the developer enters into with a strata manager and building manager ends at the end of the first annual general meeting. That's supposed to protect owners but in reality owners are very vulnerable and are ripe for abuse. Often at the meeting the strata manager stands up there and woos the owners by telling them how they manage other buildings well, and what is common property, and what is private property, and then they launch right into voting in the strata manager. They rush it through to try to get everything waved through. I was at one meeting of hundreds of owners where our group of owners were prepared. Our aim was to give them all 12 months to prove themselves. I told them to do a good job for 12 months and then if they did a good job then at the next meeting we'll love them forever and give them a longer term. The facilities manager was not happy, he said that they might not take the job, and we were like don't take it then. They all grudgingly took the 12 months. You can only tell by giving them time to prove themselves before they are awarded a longer term. Actions, not words. The facilities manager was so dodgy, he kept saying that their contract was "3 plus 3". It's "3 plus 3". However, when looking at the 1 page of the contract buried in a stack of pages it was not "3 with an option to renew of 3 years". It was actually "3 plus 3" which meant 6 year fixed term. He just didn't want it to sound so long so it was "3 plus 3". Also, with "option" is it an option for the building to exercise or an option for the contractor to exercise? The devil is in the details and owners often don't read it and just agree to everything and then too bad for them. It all starts with a smile people. So when they tried to wave the motion through I stood up and told them that I had something to say …. you all get 12 months to prove yourselves. With strata managers some of them are bait and switch. They quote a low rate and then gouge you with hourly charges and the like. Depends on the building but some strata managers are more fixed cost with some additional charges whereas others are very much death by a thousand cuts. Owners love to hear that costs are going down and that levies are going down, but in the race to the lowest dollar the building falls into disrepair and they all regret it later. A building should be spending money and levies need to be enough. It depends on how your building is run.

  • 451065314 on 08/07/2022 - 15:09
    +1

    80-100k pa is the salary of building manager. But 150k per year is building management contractor cost. Same like you pay plumbing company $100 per hour for service but the plumber only get paid less than $50 per hour .Also 5% increase is standard in the industry

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