Podcast: Unfair contracts plan to beat the BS

This week we take a deep dive into the next swathe of proposed NSW strata reforms which will include attempts to cut through the baloney and BS and make it easier for owners to overturn unfair contracts.

What does that mean, exactly?  Well, when you realise that the maintenance fee for your stormwater drains actually includes the cost of installing them – which should have been borne by the developer – then that would be unfair.

Or when your strata management contract has a clause that says you and not they will be liable for bad decisions they make on your behalf, that seems kind of unfair too.

By the way, the final proposals will be posted for consideration and comment in April, so keep your keyboards poised for that.  There’s a lot more about this and many other major proposals in the pod.

Also this week we wrap up our trials and tribulations over our legal right to hold the strata roll and emails, and a very big strata firm’s country branch’s efforts to keep them from us.

Finally we have a very spicy Lock Up and Leave tour of the sub-continent. That’s all in this week’s Flat Chat Wrap. 

TRANSCRIPT IN FULL

Jimmy Thomson  00:00

Well, we’ve just come through some big changes in strata and apparently, there’s more on the way, Sue.

Sue Williams  00:06

Well, it’s good if they are good changes; are they good changes?

Jimmy Thomson  00:08

I think they are good changes. We’ll have a chat about that. And I might bring people up-to-date with our issues over getting hold of the strata roll, because that seems to be a big problem for a lot of schemes. And we’ll have a really interesting ‘Lock up and Leave,’ for people who are thinking of getting away from it all. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue Williams  00:31

And I’m Sue Williams and I write about property for Domain, the Sydney Morning Herald, the Melbourne Age and the AFR.

Jimmy Thomson  00:37

And this is the Flat Chat Wrap.

[MUSIC]

Jimmy

I had a chat last week with the Strata Commissioner John Minns and his senior policy adviser (among many of his titles), Lachlan Malloch and they were telling me that there are big changes coming in strata law. So we’ve already had a few that came through in December, but there’s quite a few new ones. One of them kind of sounds a bit arcane, but they’re tightening up the regulations around building committees in multi-strata developments. So you can have maybe three buildings; three blocks, that come under the same community strata scheme. Within those blocks, you can have commercial entities and residential and it gets very complicated. We had a story last year, where one block had a minority in the whole scheme, but because they had one vote on the community committee, they were able to block, because the rest of the committee wanted to get rid of the guy who was the representative of this one building, and they were able to block that, because it would have required a special resolution. And so he came along and said “well, I’ve got more than 25% of the overall vote, so you can’t do that.”

Jimmy Thomson  02:13

Whereas, there were three little cottages that were part of the original area, who had been promised a vote on the community committee, and so they could out-vote…

Sue Williams  02:13

And there’s been lots of things like that through history, haven’t there?  There was a big scheme over in Pyrmont, where they had more buildings than they had places on an overarching building committee, so one of the buildings (which ended up being the biggest building, which was almost the last building in the scheme), ended up having no votes at all.

Sue Williams  02:49

Mascot Towers, as well. You’ve got the commercial; the shops down at the bottom of Mascot Towers, who don’t want to sell off the scheme, whereas many of the residents do. So you’ve kind of got an immediate conflict of interest there, as well.

Jimmy Thomson  03:02

I remember a hotel on the north shore in Sydney, where there was a hotel part and the residential part and every time the hotel wanted to do a refurb (which was about every two years or so, because of wear and tear), the owners in the residential part had to contribute to the refurb of the hotel. It was really messy, so hopefully, they’re going to tidy all that up.

Sue Williams  03:25

It’s a big issue, isn’t it? Talking about it then, you suddenly realise  it’s got huge potential to stuff things up for owners.

Jimmy Thomson  03:35

And the potential to un-stuff, if they get it right. One of the other proposals that is being considered is to bring Owners Corporation law into line with other corporate law.

Sue Williams  03:50

What does that mean?

Jimmy Thomson  03:51

Well, what it means is that things like unfair contracts can now be considered under the same terms as other unfair contracts in corporations, which means Fair Trading can get involved. The two obvious areas for this are embedded networks, where owners have been persuaded to sign up for services, when they’re actually paying for the installation of the infrastructure, because of inflated fees. And the other one that’s going to cause much gnashing of teeth and tearing out of hair in the strata management community is they will be looking at the standard strata management contract, which is, let’s just say, lopsided and has been for years. I mean, we just signed up for a new building, an investment property and a strata management contract, which came in five-point type, so you had to use a magnifying glass to read it. Most people wouldn’t even bother. They would assume, as many people do, that the government would not allow things to be too far out-of-kilter, because there is a general fairness. Well, that doesn’t apply in owners corporations. So a standard strata management contract includes things like, they are not liable for anything that goes wrong, even when they deliberately set out to do something wrong.

Sue Williams  05:22

Like what? What could they deliberately set out to do? Well, maybe agree to the embedded networks…

Jimmy Thomson  05:27

Exactly, and push that through. They have no responsibility to say to the owners at the initial AGM “by the way, this contract is unfair; by the way this contract means that you’re paying for the infrastructure being installed, as well as for its upkeep and maintenance.”

Sue Williams  05:47

Which the developer would normally do.

Jimmy Thomson  05:48

Well, when you say normally… They should do and in the past would have done, but now that they’ve found a loophole… And that’s the kind of thing where a strata manager should be saying; they should have a duty of care to their clients. And it’s another weird aspect of strata law, that the strata manager is there initially with the developer and then during the course of one meeting, they are voted by a bunch of people who have never met each other before; many of whom have never lived in strata before. They are told “okay, now you’re not working for the developer; now you’re working for the owners.”

Sue Williams  06:27

And you just do assume that strata managers are on your side, don’t you, as an owner?

Jimmy Thomson  06:31

In many cases they are. I get accused of being hard on strata managers. I’m hard on bad strata managers and dishonest strata managers and strata managers that hide themselves behind clouds of legalities and nonsense and obfuscation and obstruction.

Sue Williams  06:53

Because we do want transparency, don’t we, in our buildings?

Jimmy Thomson  06:57

That’s what this is all about; it’s all about transparency. And apparently, once the law has changed, so that unfair contracts become actionable, Fair Trading, is possibly going to become much more active in that area. In the same way that David Chandler’s Building Commission checks building structures to make sure they’re okay, Fair Trading, will be able to step in and say “these contracts that you’ve been asked to sign or you have signed, are unfair, and we will support you, when you challenge them.”

Sue Williams  07:30

Fantastic! Because I always assumed that they did come under corporate law; you know, they’d have the same standards, but obviously not. It sounds like corporate law is much tighter than strata law.

Jimmy Thomson  07:40

Somewhere in New South Wales law, it specifically says that owners corporations of strata buildings are not subject to corporate law.

Sue Williams  07:50

Wow! Oh, that’s fantastic, that they’re meshing the two back together again.

Jimmy Thomson  07:54

Yes, that’s huge. I mean, that should deal with embedded networks, and it should deal with unfair contracts with strata managers. So, we’ll see. I mean, the unfortunate thing is that it’s still very much up to the owners to say “we are going to take you to the tribunal; we’re going to take you to court to challenge this.” And you know, when you’re up against a big corporation, that can be quite daunting.

Sue Williams  08:21

But then again, if there’s more publicity around this, people might have more confidence about taking action. And if Fair Trading become more powerful, then maybe they’ll have more people and there won’t be such long waits for adjudications, as well.

Jimmy Thomson  08:37

Yes, absolutely.

Sue Williams  08:39

That will be great; that’s excellent news.

Sue Williams  08:41

That’s interesting, because usually, when you get compulsory strata management its really difficult. I mean, people think it’s going to be the panacea to all their problems, but in fact, you don’t have any say in your building at all, because that compulsory strata manager doesn’t have to consult with the owners at all and they make all the decisions. Which is great, if you’ve got a really good compulsory strata manager and huge problems and they’re being tackled well, but it can be…

Jimmy Thomson  08:41

It’s funny, talking about strata managers… There’s a long post in the Flat Chat forum from somebody who managed to get rid of their strata manager. Basically, it’s a step-by-step blueprint, on how to get rid of a bad strata manager. They did this by seeking the appointment of a compulsory strata manager, but only for limited responsibilities. So they said “we want the tribunal to appoint a strata manager for us, but we only want that strata manager to do normal strata management duties; we want to still have the committee,” and they got that; they won that.

Jimmy Thomson  09:49

Careful what you wish for, kind of thing.

Sue Williams  09:51

 That’s right, so that sounds a really good compromise.

Jimmy Thomson  09:53

And it’s always been in the law; it’s always been in the law that the strata manager can be appointed to take over all, or a limited number of responsibilities. This is the first time I’ve heard of this happening. Check it out in the Flat Chat forum. I might actually publish it on the front page of the website.

Sue Williams  09:54

It sounds really useful.

Jimmy Thomson  10:13

The funny thing about this particular case is the person who’s posted the note, says that this manager has been sacked by four other strata schemes, but has been appointed as compulsory manager by at least one other strata scheme, by the tribunal, which is ridiculous. It’s like the left hand not knowing, or caring, what the right hand is doing.

Sue Williams  10:41

You’d think they would look at their CV, before they make that kind of decision.

Jimmy Thomson  10:44

Just ask them, like you get asked when you arrive at the airport here, “have you ever been in this country?” Or “have you ever been guilty of a jailable offence?” They should ask the strata managers who are seeking compulsory appointment, “have you ever been sacked for not performing your duties properly?” If the answer is “yes,” then don’t appoint them. And if the answer is “no,” but they’re lying, then take their licence away.

Sue Williams  11:14

Absolutely. And I think there’s also something in there about building managers, as well.

Jimmy Thomson  11:17

In the new reforms, yes. Very simply, they’re going to say… At the moment, with strata managers, you go to your first AGM, and the strata manager can only be appointed for one year initially, and then for three years thereafter, at a time. Your building manager, who has a much closer relationship with the owners than most strata managers, gets an appointment for 10 years. And so what they’re going to do is bring that into line with the strata management structure. It’s one year initially, so that they get a chance to show what they’re capable of to the owners, and then if the owners still want them, then three years after that, which  makes perfect sense, really.

Sue Williams  12:03

As well, the building management contracts… I mean, we had one in one of our buildings, where it actually stated in the contract that the owners were never allowed to cancel a contract. That wasn’t signed by the owners; that was signed by strata managers without our knowledge, or consent. There are some strange things going on with some of those building management contracts, as well.

Jimmy Thomson  12:35

Another thing that’s coming up in the possible reforms… and I’ve got to say a shout-out to Strata Plus strata managers here, because even though I had this chat with John Minns and Lachlan Malloch… I found this post by Strata Plus, that outlined everything we talked about. I’m now reading from their document, so good on them. There’s a tweak to the law on maintenance… It’s always been the case that strata schemes are required by law to maintain and repair common property, but it kind of gets a bit muddy, when they are in a dispute. They’ve got a defects claim against a builder, or they’re using other excuses… “We don’t have the money at the moment;” things like that. And it seems like there’s a proposal to basically say “you’ve got this responsibility and that is separate from any other thing that you’re doing. If you don’t have the funds, get the funds. If you’re in dispute with your builder or your developer, well carry on with that dispute, but maintain and repair common property in the interim.” And they’re even talking about David Chandler, or the Building Commission, being able to step in, as they do with dodgy developments, where the work isn’t being done properly…. To be able to step in and say “there’s serious maintenance issues here; you need to attend to them. We are going to issue orders to the owners corporation.”

Sue Williams  14:10

Oh, interesting. That’s going to be quite contentious, I would have thought. We had that in our building; we had a door that was installed wrongly and was not fit-for-purpose and that door was there, hanging off its hinges for years. We kept saying “we can’t fix the door, because it’s part of our defects claim.” And eventually, we decided that no, it has to be fixed, so we replaced it. But really, we could have just taken photographs and done documents and just shown what it was, instead of having to live with that awful door, for all that time.

Jimmy Thomson  14:43

It was a safety door as well; it was a fire-safety door. I mean, there were other issues there, that were more serious than the overall defects claim, which was huge; this was just a minor part of it. Well, it sounds like if all this goes through (and there is still a question mark over a lot of this), that it’s not going to be a decision anybody will be able to make. If you’ve got defects in your building, then you’ve got to fix them. I wonder if the downside to that is that owners corporations will be less keen to identify the defects?

Sue Williams  15:16

Oh, let’s hope not. We all know that having defects found and then rectified, increases the value of the building; much more than keeping quiet and pretending you don’t have any. Nearly all buildings have defects, but the difference is whether the defects are rectified quickly by the developer and the builder, or whether they’re not. And maybe in the future, owners will be really suspicious of buildings that say they’ve never had any defects.

Jimmy Thomson  15:42

Absolutely. It’s something we’ve often said here… If you’re looking at the records of your apartment block, and there’s no reference to a new apartment block ever having had any defects, that’s a red flag. Whereas, what you want to see is that defects were identified and fixed. Other things that are coming up for possible reform are measures to assist owners struggling with levie arrears. I mean, again, getting back to the deal that we signed with our strata managers in our investment property… They got us to agree to follow their procedures for debt recovery. Now, their procedures for debt recovery are a series of warnings, but 40 days after the debt has not been paid for levies, then they start applying interest, which is mandatory, unless the owners corporation decides not to apply interest. And then there’s a procedure, which involves their favoured lawyers taking legal action, possibly leading to bankruptcy. Apparently, there was a big symposium on levies arrears recently, where the strata managers were congratulating themselves on how efficient they were in recovering debt and somebody from a bank was there saying “you guys are part of the problem;” that people should stop paying their mortgage payments, before they stop paying the levies. In fact, most people are doing it the other way around, because the banks have hardship systems in place…

Sue Williams  17:26

So they will look after them, whereas…

Jimmy Thomson  17:27

They will look after the owners, if they can’t pay their mortgages, whereas strata schemes and strata managers and their team lawyers are all geared up to screwing the money out of the owners who are in arrears, regardless of the personal cost.

Sue Williams  17:48

There has to be a balance there, doesn’t there? I mean, people need to pay their levies, because it’s unfair on the other owners and if there’s building work needed and maintenance needed, and they don’t have enough money to cover that, it’s important. But yes, there’s room to be a lot more understanding.

Jimmy Thomson  18:04

You know, if you’ve got a serious default on levies, you can always get a strata loan, which would be more or less covered; the interest on the strata loan would be covered by the interest on the levies, if it gets to the point where the person’s going to pay them when they’ve sold the apartment. The other part of this automatic pursuit of levies arrears is that when it is presented to owners, it’s always presented in the terms of, this will cost you nothing… To the owners corporation at the general meeting, the strata managers are saying quite rightly “this will cost you nothing, because all these legal costs; everything else, the interest… It all slate’s back to the person who’s in default.” So people are saying “wow, we’re going to get our money back, and it’s not going to cost us anything. Let’s vote for that.”  I think one of the things that Fair Trading is looking at is having a system whereby people who are in serious debt with their levies get advice from the strata managers; probably the strata managers, about where they can get financial help, where they can get other advice, specific advice, before they start wheeling out the big guns and making them bankrupt.

Sue Williams  19:23

Absolutely. Also looking at things like buildings who want to sell their building to a developer and have a new building put in its place. There’s so few of them done, because the law is too complicated.

Jimmy Thomson  19:41

And then there are people taking advantage of it. People who are jumping in and buying a couple of apartments, before the strata renewal proposal goes through and then hoping to profit off that when it happens. But I think they did make some changes; they quickly put them through in December. Meaning that people couldn’t use the law for profit…

Sue Williams  20:06

Which is good. So congratulations to John Minns on this schedule. Let’s hope he manages to act on a lot of it.

Jimmy Thomson  20:14

I think they are talking about having the Bill in place in parliament later this year, so they are moving ahead with it. But often what happens with these things is that the industry sees them coming and starts adjusting their behaviour accordingly, so that they’re ready for when it happens. When we come back, we’re going to talk about strata rolls, email addresses, and all the other things that your strata manager might be telling you that you don’t have access to. That’s after this.

[MUSIC]

Jimmy

So right, regular readers of our newsletter; my little message at the top of the newsletter, and other parts of the website, will know that we have been in dispute with strata managers in our new building over access to the strata roll.

Sue Williams  21:14

And has there been any development on that?

Jimmy Thomson  21:16

First of all, this is out in the country. So it’s out in the regions and strata managers out there have a different way of doing things, so you have to bear that in mind. Our specific strata manager basically turned up at the first AGM and said “look, we generally just look after everything and a couple of times a year, we’ll have a strata committee meeting, and you can talk to us about what you want and what you don’t want, but otherwise, we’ll make all the decisions.” And we said “nah,, that’s not how we work. We want to have a proper functioning committee, and we want to make the decisions ourselves.” “Okay, that’s fine,” they said, and then we said “now, can we have the strata roll?”

Sue Williams  21:57

 To get in touch with all the owners.

Sue Williams  21:58

How ridiculous! That would really alarm people, wouldn’t it?

Jimmy Thomson  21:58

To get in touch with all the owners and tell them what’s happening. And they said “no, it’s private. It’s a matter of privacy and we don’t do that,” they said. We said “well, if you look at the law, the law says you’ve got to do it.” And then basically, all hell broke loose. They delayed and they obfuscated and obstructed, until I sent an email saying “okay, you are in breach of the Act, because this is what the Act says; the Act says that owners must have access to all documents. The Act says that the strata secretary has to maintain the strata roll.” And we’re saying “well, how can the strata secretary maintain the strata roll, if you don’t give it to them?” So then they said “oh, we’ll give you the strata roll, but we’re not giving the email addresses, because they’re private.” And we said “no. The privacy laws don’t cover strata generally and in any case, it actually says in the law, that the strata roll must contain the email addresses. So if you are giving us the strata roll, it should have the email addresses on it.” And then it became this huge thing about cybersecurity. It made me think… When these laws were written, there was no such thing as cybersecurity. You could click on an email, thinking it was a genuine email from me, or from somebody who has previously clicked on the same email, and go “I wonder what this is; it says ‘here’s a nice picture for you…click on the picture.’ The next thing you know, all your email addresses have been sent out into the dark web. And this happens; we know this happens. I thought about this; the law says one thing, but experience in reality suggests there might be other things. So we were getting to this point… In fact, the strata managers wanted to put a motion on the strata committee agenda, basically saying “we’re reluctantly handing over the strata roll with the email addresses, because even though we think there’s a huge danger of this being misused and mishandled and somebody picking it up and using it on the dark web and your privacy will be at risk….”

Jimmy Thomson  24:14

Exactly. And I think it was intended to. So we said “no, you’re not putting that on the agenda. We’ll put on the agenda that we want you to hand over the strata roll, with the email addresses.” We got to the meeting and in the meantime, I’d spoken to John Minns and Lachlan Malloch. And I said to them “look, as far as I’m concerned, the law says they’ve got to give us the strata roll and the email addresses; can you give me a definitive response, a definitive answer on that?” They went very quiet. They went “yes, the law does say that.” I said “yes, I’ve just said the law says that,” and they said “well, that’s what it says.” And then I realised that there is a conflict between what the law says, and what is the right, or good thing to do. So I went to the meeting and said “give us what the law says that you’ve got to give us, but we will make it secure.We’ll put it behind a double firewall, so that it won’t accidentally get out into the wild and we won’t misuse it.” And somebody asked “well, what about if we want to send a message out to owners?” I said “then you give it to the secretary, and they will send it out, providing it’s not defamatory, or illegal or anything like that.” And everybody went “yes, great! Let’s do that.”

Sue Williams  25:48

Problem solved.

Jimmy Thomson  25:49

Until somebody comes up and says “you’ve got to give us the strata roll. We are an ordinary owner and there’s the law and it says we are entitled to see this.”

Sue Williams  26:00

But they can get it from the strata manager…

Jimmy Thomson  26:06

They can work it through. The strata manager could turn around and say “well, they’ve told us that this is what the law says, so we’ve got to follow the law.” And the problem is that it is a loophole in the law. There should be some recognition that the world has moved on, and not in a good way. To keep people’s email addresses secure, because there are warehouses full of people in Southeast Asia, who are just sending out… What do they call it? Catfishing messages, and trying to get your details, so that they can rob you.

Sue Williams  26:43

My mother died recently and I’ve got her phone, and can access her email account and it’s amazing, how many messages she gets and how many phone calls, and they’re all kind of scammy things. It’s just awful;  they really target older people, who panic when they get things saying ‘your bill is overdue,’ or something. I’m just amazed by how many things she receives.

Jimmy Thomson  27:10

I got a message the other day, saying ‘if you don’t click on this link immediately, your email address will cease to function.’ And I thought well, that’s an obvious scam. Unfortunately, and coincidentally, at the same time, my email server was clogging up and so it did cease to function. Should I have clicked on that thing? No, actually. I did the right thing by not clicking on it, but I should have just taken that as a prompt, to go into the email server and see if I still had enough memory to keep functioning

Sue Williams  27:47

And there’s a horrible thing that’s happening at the moment; I don’t know if you’ve received it… I keep getting a text saying ‘hi, my phone is broken; I’ve got a new phone. Phone this number and mum, it will be okay.’ I thought how scummy; how horrible these people are.

Jimmy Thomson  28:06

One of these days, I’m going to write a drama about somebody who’s had enough of this and just decides to go and hunt them down.

Sue Williams  28:13

I’m sure it’s already been written!

Jimmy Thomson  28:15

Well I know there’s somebody in Australia, whose hobby is to… You know the Nigerian prince, or the relative of somebody in the army, who’s now in jail? ‘I’ve got all this money and can you help me get it out of the country?’ His hobby is to get them to put money in his account!

Sue Williams  28:34

Oh, good; to test it first!

Jimmy Thomson  28:40

As long as he gets $1.00 in there, he feels “yeah, I’ve won.” Then he can say “I know you’re a scammer; go away.” When we come back, we’re going to look at happier things, which is a terrific trip in ‘Lock up and Leave.’

[MUSIC]

Sue Williams  29:01

The fantastic ‘Lock up and Leave’ deal this week is a 15-day trip around Sri Lanka and India.

Jimmy Thomson  29:09

With TripADeal.

Sue Williams  29:10

Yes, that’s right. I can’t believe that they can do things like this for that price. And it’s funny; sometimes I think with TripADeal, the prices are so low, you think there must be terrible accommodation and stuff. But my brother has actually been on three of them now; three TripADeal trips. I’ve actually been on one as well and no, the accommodation is really good. They just obviously buy in bulk and so they manage to keep the prices down. This looks like a fantastic trip.

Jimmy Thomson  29:40

It’s India and Sri Lanka. Now we’ve been to India; you’ve been to India a couple of times… I’ve never been to Sri Lanka.

Sue Williams  29:49

Sri Lanka is wonderful. It’s kind of like India-light, almost. India can be a bit hassley; it can be a bit confronting. Sri Lanka isn’t like that, it’s much gentler; it’s much more chilled, it’s much more peaceable, with fabulous sites and great people.

Jimmy Thomson  29:49

What’s the food like?

Sue Williams  30:08

 The food is amazing!

Jimmy Thomson  30:10

That’s all I’m interested in, really.

Sue Williams  30:13

Well, there’s a new Sri Lankan restaurant just near us, I think, which we haven’t tried yet. Sri Lankan food is often not quite as highly-spiced and you have the tradition of egg hoppers, which come from colonial times, I think. It’s just really delicious. It’s much more kind of fragrant, and delicately-spiced than Indian food, but as we know, Indian food is pretty magnificent.

Jimmy Thomson  30:43

Indian food is fabulous, but it varies from north to south.

Sue Williams  30:45

And there’s lots of vegetarian options, as well.

Jimmy Thomson  30:50

Our nearest Indian restaurant is, basically, their food is south Indian and you were constantly trying to get them to put Palak Paneer on the menu and he resisted for ages. But I think everybody was coming in and saying “we want the cheese and spinach thing.”

Sue Williams  31:06

And now it’s on the menu, and it’s one of the most popular dishes they do; yay!

Jimmy Thomson  31:11

Let’s hear it for Palak Paneer. That’s making me hungry. Sue, thank you for taking time out from all the other stuff you’re doing to come and talk to us. We will be back with you next week, with more from Flat Chat.

[MUSIC]

Jimmy

Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website flatchat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify or your favourite pod-catcher. Just search for Flat Chat Wrap with a W, click on subscribe, and you’ll get this podcast every week, without even trying. Thanks again. Talk to you again next week.