Podcast: Company title chaos, strata solutions

In this week’s podcast, we look at why a problem in a company title block would have been much easier to resolve had the apartment been in a strata building.

The story in the Sydney Morning Herald is about a septuagenarian woman who has had to move out of her home because of damp caused by faulty water pipes in common property.

We explain why that problem could have been much more easily resolved had it been in strata.

We also touch on the recent albeit modest recruitment drive in the Strata Commission,  and the areas where the profits from selling apartment are outstripping the gains from flipping houses.

And finally, Jimmy asks whatever happened to Strata Commissioner John Minns’ brilliant idea to have a two-stage First AGM for new strata buildings so that strata committees have time to examine the contracts and reject those that are designed to rip them off.

NB: This was recorded and posted before accusations aired on the ABC that John Minns had not told the government that a family trust had retained morfe than $750,000 worth of shares in a property management company called IPG.  We’ll cover that in this week’s podcast. 

Transcript in full

Jimmy  00:00

I missed a chance at a new job this week.

Sue  00:02

Really?

Jimmy  00:03

The strata commissioner has been advertising for people he wants, anyone who wants to be part of a high performing Task Force leading change across strata and Property Services.

Sue  00:15

Wow, you would have been perfect Jimmy.

Jimmy  00:17

We are now recruiting for three roles to support raising transparency and consumer confidence, regulatory practice reform and high professional standards in the sector.

Sue  00:28

Wow. Those are all things that you’ve been calling for.

Jimmy  00:30

If you love working with a diverse group of stakeholders and industry leaders and making a real difference to New South Wales property consumers. We want to hear from you.

Sue  00:40

How much does it pay? I might say too.

Jimmy  00:42

I think the diverse group of stakeholders and industry leaders might not love working with me.

Sue  00:49

So that means developers, strata managers, owners would love you,

Jimmy  00:54

Yeah, but they don’t count as

Sue  00:56

Strata lawyers.

Jimmy  00:58

Owners,

Sue  00:59

Well, they’ve got the biggest stake,

Jimmy  01:00

I know,

Sue  01:00

The biggest investment,

Jimmy  01:02

The last people to be consulted in these things. Anyway, it’s too late. The jobs have gone. I clicked on the link to see, oh, like, my first thought was, oh, how much is this gonna pay me? And,

Sue  01:12

No, it wasn’t. Your first thought was, Wow, I could really do some good here.

Jimmy  01:16

Oh, yeah, yeah, there was, that was my other first thought, yeah, it’s gone. Jobs have gone been it was posted on LinkedIn two weeks ago, and the jobs have gone already.

Sue  01:25

Oh, my God. Or maybe they’ve changed their mind.

Jimmy  01:30

Maybe some of those stakeholders have said, what you’re going to pay more people to give us a hard time? Anyway, that’s history already. You’ve got a couple of stories. One of them is about the difference on the profits that you will make if you buy and sell apartments compared to houses. And we’re going to look at company title, because there’s been a story in the press, and we’ve had a few posts about it in the Flat Chat Forum. I’m Jimmy Thomson. I write the flat chat column for the Australian Financial Review, and

Sue  01:59

I’m Sue Williams, and I write about property for domain, the Sydney Morning Herald, the Melbourne age and the AFR,

Jimmy  02:04

And this is the Flat Chat Wrap

Jimmy  02:20

So company title has been in the news.

Sue  02:22

Yeah, that was that incredible story just recently about an apartment I think was on the ground floor, wasn’t it?

Jimmy  02:28

Yeah,

Sue  02:29

It was in the Eastern Suburbs of Sydney, yeah. And it had a broken pipe, and

Jimmy  02:35

The woman in the basement flat,

Sue  02:38

Basement flat, yeah, and she was left wading through inches of mud. And,

Jimmy  02:44

Well, I think, yeah, I think there was a problem that was never properly fixed, and that led to the whole flat being affected by mould, by serious black mould. And, you know, she’s in her 70s, so that it’s not a good thing for anyone, but let alone somebody who is of an advanced age,

Sue  03:03

And company title, it makes it very, very difficult to get things done, doesn’t it? Really, if your board of your building doesn’t agree, yes,

Jimmy  03:12

And that’s thing about company title, it’s the board. It’s not a strata committee, and it comes under business law, rather than, you know, like corporate law

Sue  03:22

Refresh us about company title.

Jimmy  03:24

Okay, company title comes under corporate law. Company title was a precursor of strata. And basically, people would form a company to build, you know, a medium rise block, as they thought they were high rise then, but they’re medium rise now. So they would form the company. They would each have shares in the company, and the shares in the company would allow them to live in a certain unit, but the management of the building came under Company Law. So instead of a strata committee, you had a board, and you’d have your chairman and all that stuff, and it all sounds similar until there’s a dispute.

Sue  04:05

And what’s the advantage? Why do some people like company title? Why do they does it carry on till today?

Jimmy  04:09

Well, some people like it for the same reason that some people don’t like it, which is, it doesn’t come under strata law. So, and I don’t know if this has changed recently, because anti discrimination laws might have superseded it. But for instance, you certainly used to have rules articles, as they were called, that would say you couldn’t have children in the building. So if you wanted to live in a child free apartment block, you could you couldn’t have pets, you couldn’t have tenants, if that was in the articles of the building.

Sue  04:40

So some people like it, because they can control their environment much more effectively,

Jimmy  04:43

And they can control the people who come into the building

Sue  04:46

Because I think you have to have an audition, don’t you?

Jimmy  04:48

Yeah, yeah. I actually, funnily enough, I remember when Craig McLaughlin was moving into company title building down in

Sue  04:58

Elizabeth Bay was it?

Jimmy  04:59

Potts Point. And was, not only was he a bit embarrassed to find that he was going to have to present to the board for them to approve his purchase of the apartment, but one of the people on the board was a very prominent journalist, property journalist, in fact, the Sydney Morning Herald. And he, I think he went in and said, Look, I’m not saying anything until I get an assurance that this isn’t going to appear in the paper.

Sue  05:24

(Laughs)

Jimmy  05:26

Oh, fair enough.

Sue  05:27

Yeah,

Jimmy  05:27

Totally fair enough. This was before all his other issues came up, you know. So that did exist back then, maybe 20 years ago. I don’t know if it still exists where you have to go and present at the board meeting.

Sue  05:40

Don’t know if you have to present, but I think they do have to approve you. Maybe you have to write out something right, a little bit about yourself, or something

Jimmy  05:47

Right? So if you are a person of bad character, they can say, we don’t want this person and not approve the sale, which is a big, big difference, which is one of the reasons that they are cheaper. I mean, they tend to be really nice old apartments with high ceilings and and all the rest of it. But they also tend to be cheaper, because you don’t get as big a mortgage for a company title as you would for strata,

Sue  06:13

Yep. And as a result, it might be quite harder to sell when you do want to leave,

Jimmy  06:17

Yeah, yeah. So that keeps the price down, which is another good thing, and they tend to be favored by older people who have got cash. So you know, they’ve sort of downsized, for instance, and they’ve sold the McMansion, and they’ve got a lot of money, and there’s a nice old apartment, and everybody in the building seems to be quite nice, and they think, why not? And for a lot of people, it’s a perfectly reasonable question, why not?

Sue  06:44

Yeah, because those buildings, those old buildings, they tend not to have many facilities,

Jimmy  06:48

No,

Sue  06:49

I mean, the building you were talking about with Craig, I mean, I think that has shared laundries, right, but, you know, so

Jimmy  06:55

That’s going back,

Sue  06:56

Yeah, that’s right,

Jimmy  06:57

It also has a tradesman’s entrance.

Sue  07:00

But, you know, modern apartment buildings with gyms or pools or, you know, meditation spaces and stuff, they’d all be stratad.

Jimmy  07:07

Well, we’ve been in one in the Pott Point area where the kitchens were absolutely tiny, which turns out to be quite a modern thing, but they had what they call a Dumb Waiter, which was a lift that went up to the top floor because they had a communal restaurant there. But communal restaurant kind of sounds like, you think, Oh, it would be nice, you know, you got it in the building. You just, you just wander up there. No, at six o’clock every evening, a bell would be rung and you would be, you’d be summoned to the to the communal restaurant, and “tonight, it’s steak and kidney pie”. And that was it,

Sue  07:42

Because there was one with a ballroom as well on the on the top floor, I think ballroom,

Jimmy  07:48

Yeah, I’ve heard of that. One of them had a cinema. Wow, happy days. Yeah, the, there’s a there are a few around, especially around the Potts Point area, and most of them are still company title,

Sue  08:00

But when there are problems like this woman faced with the broken pipes and stuff, that’s when things start getting really difficult. If the board isn’t on side, I suppose.

Jimmy  08:10

Well, you know, the board in her case might have gone well, we don’t have the money at the moment, so we’ll wait until we do have the money. And had that happened in strata, she would have been able to go to fair trading in the tribunal and say these people have a duty to maintain common property, and they are not doing it. Can you tell them to do it? And probably the tribunal would say, yes, we will tell them to do it. But in company title, she would have to have gone to some disputes can be resolved at the district court, but big money things have to go to the Supreme Court, so you’re already talking about almost doubling any expenses with lawyer fees. Yeah, sure. So she was in a real, really sad situation. She had to move out and go and live with family and friends because the apartment was uninhabitable. Now, again, if she’d been living in a strata building and there was a problem caused by a failure of common property, and they were trying to they were not fixing it immediately, they would have had to have paid for her to go and stay somewhere. They would have paid her rent to go and stay somewhere. But in a company title building, obviously that’s not the case, or you maybe it is the case if you pursue it through a court.

Sue  09:24

Yeah, sure, but that would be expensive, and it would take a lot of time as well. The more complex a case is, the more expensive it’s going to be.

Jimmy  09:31

Just there’s no situation in which taking your neighbors to court is a positive thing for you. You always end up, you know, losing one way or the other,

Sue  09:41

Especially in a smaller building, where you have to face those people every day. Yeah, in a big building, maybe you just don’t see your enemies very much. But in a small building,

Jimmy  09:52

I don’t know what they can do. I think the simplest thing the government could do would be to say, Yeah, company, title, go ahead. Keep your structures. But by the way, we’ve got a new law that comes in that says you’ve got to follow strata law as well.

Sue  10:05

Yeah, maybe that you can go to NCAT, yeah, get your complaints rectified.

Jimmy  10:10

Yeah. So yeah. Sad story, I’m sure it’s not the only one. But you know, we’ve had people writing to the Flat Chat Forum saying we’re a company title, how easy is it to become strata, and is it worth it? And the answer is, it’s not easy, it is expensive, and it’s not worth it, until something goes wrong, and then it really is worth it.

Sue  10:33

Yeah. I mean, it’d be interesting to do a cost benefit analysis really. You know, the expense and how long it takes, yeah, versus how much values of apartments would rise, hopefully as a result.

Jimmy  10:45

Yeah.

Sue  10:45

I mean, it might take a fair few years to recoup that money,

Jimmy  10:49

But as we saw at a conference in the Gold Coast recently, the Strata Impact Conference, Cathy Sherry saying the value of your home is not any value at all unless you’re planning to live in a tent to sell it. Yeah? So you know, it’s all very well to say, Oh, your your property will go up by X amount if you sell it, that’s right, but if you’re still planning to live in it, then it doesn’t make any difference. Yeah, costs go up. That’s about all. So that’s one from the newspapers. When we come back, we’re going to talk about the difference between selling you get from flipping an apartment from you get from flipping a house. It’s after this.

Jimmy  11:32

Sue you found some new figures about the difference between buying and selling apartments and buying and selling houses.

Sue  11:40

Yes. Well, as you know, house values always go up by more than apartment values, and that’s usually because houses have a land value. Capital growth in value of land is much higher than an apartment value, property values, but a new report from Domain, their profit and loss report, has found there are some parts of the country where units actually sell for a lot more money percentage wise, the profits are houses. The profits are higher on resale,

Jimmy  12:09

Right?

Sue  12:10

Which is incredible, really, isn’t it?

Jimmy  12:11

So where are these places where there’s been massive rises in the profit margin on apartments

Sue  12:18

Over houses?

Jimmy  12:19

Yeah,

Sue  12:19

Well, they’re all across the country, really, but particularly in Adelaide, right? Interestingly enough, and there’s a couple of places in Melbourne, as well as one place in Sydney, one place in Perth

Jimmy  12:30

Where in Sydney?

Sue  12:31

So, Sydney, well, it’s not really Sydney, to be honest. It’s Central Coast, but it’s North of Sydney, Long Jetty, right? And Long Jetty is interesting, apartments have gone up. The profit for apartments between the time of buying and the resale time is 130%

Jimmy  12:50

Right

Sue  12:51

And houses in the area is only 84.5%

Jimmy  12:55

That’s still, quite a lot is that over a certain period,

Sue  12:58

It’s between the buying and the selling so it could have been 20 years, or it could be a long time, right? But, you know, houses are usually kept for much longer periods than apartments, so that kind of mitigates against apartments, really. So when you look at the two percentage percentages, so you can say Long Jetty, the unit profit premium over the house profit is 45.7%

Jimmy  13:22

Wow.

Sue  13:23

They must be very clever to work out all these figures, mustn’t they, really? I guess they just put it into a computer, really. But, um, yeah. So there was the biggest unit profit was in a place in Adelaide called Evanston. And in Melbourne, the biggest unit profit was in the suburb of Rosanna, right? And in Perth it was in Pinjara, yeah. And then there’s some other, obviously, some other suburbs as well, where unit profits are much more than house profits.

Jimmy  13:51

Is this an indication that maybe apartments have been undervalued

Sue  13:56

In some ways? Yes, they were certainly undervalued after covid, because much of the demand for apartments came from international students and migrants, and obviously during covid, that wasn’t happening,

Jimmy  14:06

That disappeared. Yeah.

Sue  14:07

So there were undervalued during Covid, when houses kind of shot up in price because people wanted much more space. But more than that, really is it it’s that apartments are still seen as a much more affordable option, and these days, people are looking for an affordable option and to make the most of their money, they’re looking for those kind of middle and outer rings of cities,

Jimmy  14:30

Right

Sue  14:30

So they’re kind of finding a balance between a cheaper property and a cheaper location, and they hit the sweet spot. And all these places are in a sweet spot. They’re kind of middle ring or outer suburbs of the big cities.

Jimmy  14:45

Because I was just hearing on the radio the other day that although the city flight wave has reduced somewhat, there’s still more people leaving the cities than there are coming in.

Sue  14:57

That’s right, the regions are still doing extremely well.

Jimmy  15:00

And the Sunshine Coast, apparently is,

Sue  15:02

Well, the Sunshine Coast is going mad, yeah, prices are absolutely crazy there, because people are just loving going to live there. Yeah. And lots of places have had a kind of a boomerang effect. People go up there and then after a year or two, realize that actually

Jimmy  15:18

It’s not for them.

Sue  15:18

There are some disadvantages living in a region, as opposed to a city, yeah, and they come back, if they can afford to come back.

Jimmy  15:26

Buying back into the market is always tricky,

Sue  15:29

But it’s interesting. People are going to the Sunshine Coast and also the Gold Coast. A bit less to the Gold Coast, because that’s much more of a holiday area than a residential area region. People going to Sunshine Coast absolutely love it and stay there. They love the weather. They love the ease of living. Yeah, and most of them can work remotely or, I mean, we know somebody who went to the Sunshine Coast went to Noosa, and he would commute to Sydney from Noosa, and he would say, well, the flight’s not very long. It’s just the same as maybe living in an outer suburb of Sydney, really, if you’re on a plane versus a train, although with the fabulous new Northwest Metro,

Jimmy  16:07

We haven’t been on that yet

Sue  16:09

No, we’re gonna have to go I think it sounds great. And conversely, I was on one of the really old lumbering XPTs yesterday, and unfortunately, it wasn’t an XPT. It became an explorer train because they had an accident overnight where apparently two XPT trains hit each other, right?

Jimmy  16:29

What’s the definition of an explorer train? Has it got bigger windows or?

Sue  16:34

No, I don’t know. It’s just a different name, but I don’t think I mean, I thought the XPT was much nicer than the Explorer train,

Jimmy  16:41

Right?

Sue  16:41

But that’s because on my seat, I had a huge defibrillator machine in front of me, and I had curtains which covered my window. So I really didn’t like the Explorer train much, and I’m just hoping they’re not going to replace them for much longer. But another friend who was on the next train to me coming back into Sydney. A freight train in front of him had an accident, so he was four hours late arriving. So I shouldn’t be complaining about the Explorer train.

Jimmy  17:09

Yeah, we were talking about this the other day, how in France they tried to bring in this thing that you couldn’t fly anywhere, that would take less than two hours to get by train. They could never bring that in here, could they takes you two hours to get to Newcastle,

Sue  17:26

But it does promote apartment living a bit more when we have a really useless train system, yes, barring the new, fabulous one that we have, because apartments allow people to live close to the city centers.

Jimmy  17:39

Yes,

Sue  17:39

And that’s a great thing, because then you’ve got facilities near you, you often have a view, you know, you can shop really easily. You can walk everywhere. And so it kind of really helps apartment living. If you’ve got bad public transport, of course, you’ve got the all the new apartments going over the transport nodes,

Jimmy  17:58

Yes.

Sue  17:59

So maybe that

Jimmy  18:00

Over this fabulous new railway you’ve just been sprugging will be attracting lots of new apartments. But apparently, Port, not Port Macquarie. Lake. Macquarie is one of the hot spots for people leaving the city.

Sue  18:14

We both know someone who

Jimmy  18:15

We do

Sue  18:16

Left the city.

Jimmy  18:17

Don’t sell your flat yet. When we come back, we’re going to briefly revisit the new laws brought in about strata managers, because we really hopped into them last week and before we’d had a chance to digest what they mean. That’s after this.

Jimmy  18:41

As I said, Before the break, we hopped into the new regulations about strata managers that came in last week, and then we got a quote from customer services and the Strata Commissioner’s Office basically saying, Look, this is just the beginning. There’s going to be more regulations. Are going to be more laws? Good? Yeah, I just wonder about the laws that they are bringing in a minute, I was reminded back in November, John Minns, the Strata Commissioner, came on to this podcast, and he suggested the idea of a two stage first Annual General Meeting, so you get all the owners together, you elect your committee, and then the committee goes away with all these contracts that you’ve just had slid under your nose by the strata manager, usually, and the developer, and goes away and looks at them and goes, well, we could do better than that. And this one is dodgy, and we’re not going to sign this, rather than expecting everybody to approve them, which is what is expected. You go to a first annual general meeting and you say, I don’t think we should approve this contract or that contract, the look of abject horror on the strata managers. It depends on the strata manager, of course, but if they’re in cahoots with the developer to cut down the developers costs, the look of horror on their faces they don’t like it, and the reason they don’t like it is because they are trying to cut down their costs at the expense of the owners. And if the owners have time to analyze the contracts, then they can do something about it, which is, don’t sign them.

Sue  20:20

Yeah,

Jimmy  20:21

And legally, you know, you say this power, this electricity contract, is unfair, we’re not going to sign it in its current form. Legally, the electricity provider cannot cut you off,

Sue  20:34

Right?

Jimmy  20:34

So there’s no threat that. There’s no downside to not signing contracts. If you say to the strata manager, we don’t like the cut of your jib. We don’t like what you’ve presented here. We’re not going to sign the strata management contract. Well, they can say, okay, we’re not going to be your strata managers. You did great. I mean, what’s the problem? Sure. Because there’d be half a dozen other strata managers waiting in the wings who will step in and say, Okay, let us look after you.

Sue  20:58

Because it’s just very challenging, isn’t it that first AGM, you’ve got lots of people who’ve never lived in apartments before, never been to a meeting like that before, the strata manager is the obvious authority figure in the room.

Jimmy  21:09

Yeah.

Sue  21:10

And to go against that strata manager, it can be quite unnerving, really.

Jimmy  21:14

Tell me about it. I mean, I was did it about 10 months ago now, and that’s exactly why you need a two stage meeting. Get your committee elected, get the committee to find out. Well, okay, the strata manager may be really good and really diligent and have lots of integrity, and that’s great, but let’s find out, and let’s get independent opinions about these things, yeah, and then come back and say to the owners, vote for this. That’s okay. Vote for this in an amended form and reject that.

Sue  21:49

Yeah, no, that’s right.

Jimmy  21:50

The sky will not fall in.

Sue  21:52

So there’s still a lot more to be done. And the strata commissioner’s office are saying

Jimmy  21:58

They’re looking at it. Yeah, that’s great.

Sue  21:59

But hopefully, with the new helpers,

Jimmy  22:02

The three people who got my job, people got in front of me. I’m I’d be terrible in an office these days. I mean, the last time I was in an office was about three or four years ago, you know, I’m sitting there working, and it was for a TV show, and somebody came up to me and said, How was your weekend? And my reaction was, what’s it to you? I’m so deinstitutionalized.

Sue  22:27

Well, the last time I went into an office for a meeting, oh my God, it was awful. There were about 20 people there, and I was the only person with the notebook and pen. Everybody else had a computer, right, which they opened up and took notes on their computer. And I thought, oh my god, I look so old writing things down. And then the next time, sorry, that was the penultimate time. The next time I went to a meeting, I went in with my computer, but unfortunately, I didn’t know what the login to the internet was, and so I sat there just pretending to write stuff on my computer and not being able to know what the hell anybody was talking about. So that was a disaster, too. So I agree. I think I’m unemployable as well. Jimmy,

Jimmy  23:05

Yeah, we are both unemployable. It’s just as well we have this gig. Well, there we go. We’ve got, we’ve sorted out the strata manager thing. I think, I hope that when they look at the new laws, they’re not going to leave it up to owners to hunt down dodgy developers and dodgy strata managers. I think they need to put some something in there that says to them, “You call yourselves a professional organization. Well, if you don’t act professionally, there are going to be penalties, and we are not going to expect to come chasing you through tribunals. We’ll come after you just like David Chandler did”

Sue  23:40

Yeah, that would be good.

Jimmy  23:42

Maybe they could get David Chandler, maybe he applied for one of those jobs. He’s at a loose end. That would be funny, wouldn’t it? Yeah, developer turns up at the Consumer Services Offices thinking they’re going to get some wet behind the ears, neophyte, and there’s big Dave sitting there going, Hey, I’m doing strata now. What do you think? And on that note, it’s been good talking to you again. Sue,

Sue  24:07

Thank you, Jimmy.

Jimmy  24:08

Thank you for coming in and thank you all for listening. We’ll talk to you again next week.

Sue  24:12

Bye,

Jimmy  24:13

Bye.

Jimmy  24:15

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 favorite 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.