Podcast: Strata manager scandal isn’t over

As you’d expect, a lot of this week’s podcast is taken up with the resignation of the SCA-NSW President and Netstrata boss Stephen Brell, as well as the ABC News story and its follow-up that exposed his company’s business practices..

We’re taking the stance that Netstrata is not the only strata management company engaging in dubious (though not illegal) practices. And allegedly concealing what were effectively strata insurance commissions is not the only breach of trust between many strata management companies and their customers – strata owners.

In short (and at greater length in an accompanying article) we highlight all the areas in which the prevailing strata management culture in NSW is failing both strata owners and the strata managers who simply want to make an honest buck.

But first off, and at no cost to its members, SCA-NSW needs to disband its owners’ section and stop saying they represent owners. That’s like banks saying they represent account holders, car sales people saying they represent motorists or Uber drivers saying they represent Friday night drunks.

And listeners might want to click on one of the links to the ABC stories (above) and scroll down to the section calling for your stories about strata managers.

Also in the Wrap this week we discuss the new Pattern Book about to be released for comment by the NSW state architect, in an effort to show that apartment blocks don’t have to be huge and ugly.

And our Great Escape takes us to India with a couple of Masterchef judges. That’s all on the menu for this week’s Flat Chat Wrap.

TRANSCRIPT IN FULL

Jimmy   00:00

It seems like there’s only one piece of news in strata in this past week, Sue.

Sue   00:05

There’s one piece of news, but it seems to be dominating everything else, doesn’t it?

Jimmy   00:08

Yes and I’m talking, of course, about the Netstrata scandal and the resignation (one would have to say reluctantly), of the President, Stephen Brell. We’ve got a lot about that, because it has stirred up a closer look at how strata management works in New South Wales. And you’ve got a piece about the pattern books for medium-rise apartment blocks. And we have a couple of suggestions for great escapes. Lots to talk about   and we’re already running out of time. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  00:48

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

Jimmy   00:53

And this is the Flat Chat Wrap. Alright Sue; Netstrata and the SCA President resigns, and thanks to a big story on ABC, both in the news service and on the 730 report, people are saying, what is going on with strata managers?

Sue   01:27

Yes, it’s like they’ve suddenly discovered strata managers really, but you’ve been writing about this for a long time, I think, haven’t you, Jimmy? You recently had a collision with Netstar yourself, and you were left most unimpressed and also, with the SCA.

Jimmy   01:49

Well, the problem was that the president of the SCA was also the CEO of Netstrata and then the ABC inquiry discovered that Netstrata had an insurance arm. And while they were saying to people “we’re not charging commissions for insurance,” they effectively were and in one case, they found people’s insurance policy had a 60% commission (roughly calling it the word ‘commission’), on top. As often happens in these things, that led to the thread being pulled and suddenly, the whole way that Netstrata operates became subject to close scrutiny, let’s just say.

Sue   02:40

And what’s happened to Stephen Brell, the head of Netstrata and also the head of the Strata Community Association New South Wales?

Jimmy   02:48

Well first of all, he said he was stepping aside (but he wasn’t stepping down), so that they could conduct an inquiry; so the SCA could conduct an inquiry. And then the next morning, the SCA CEO, who has a paid role in the SCA, turned around and said no, he has resigned. He could be seen on camera being kind of trapped; you know, it was rabbit in the headlights stuff, I believe. But then people are saying well, what’s been going on here? I happened to connect with Amanda Farmer’s weekly live podcast and she had Cathy Sherry on. Cathy Sherry is, she reckons, the only academic in Australia teaching strata law at the moment, which if that is true (and I believe it is), is ridiculous, and she was just saying that the whole thing is a mess. All the strata management contracts are one-sided, to a ridiculous extent, and the way that strata managers operate… I mean, consider this; the developer gets a strata manager in to set up the scheme and put in all the contracts and proposals and agreements, ready for the first AGM. Now, everything up to that point… Everything is cancelled and all the contracts have to be renewed. So it’s somewhere in the middle of that first AGM, that the strata manager ceases to operate for the developer (theoretically), and starts working for the strata scheme. It’s such a conflict of interest right there, because they have put forward all those proposals and contracts in the agenda and then the other people (that you would expect to be able to say “hey, this contracts’ a bit dodgy; don’t sign that),” are promoting it.

Sue   02:48

Yes. So what’s the solution?

Jimmy   04:48

Well I mean, one of the instant solutions for anybody who is about to go to their first AGM, is to stand up and say “we are going to elect a committee and we are not going to approve any contracts until that committee has had an opportunity to review them.” I think that would stop it dead in its tracks. But that requires somebody at the meeting (and these meetings tend to be dominated by people who have never lived in strata before and don’t have much knowledge of what they could and should be doing)… It depends on somebody standing up at the meeting and saying the above, as I did at the first AGM of our investment property recently. We didn’t stop all the contracts; there were a couple of embedded network contracts that got through. We hadn’t realised how complex all that was, but we stopped a couple of them. Now what needs to happen in the longer term is that the government needs to say “look, you’re going to have a two-stage first AGM. The first stage will be where you elect a committee and that’s it.” And then the committee goes away and comes back in maybe a month or six weeks, and says “okay, we’ve had a talk; we’ve had a chance to look at all the contracts. We’ve consulted with lawyers, and we’re not accepting this, and we’ve got a better offer for that;” that kind of thing. That’s what needs to happen.

Sue   06:08

That sounds like an excellent idea, because otherwise, this will just carry on and on. I mean, it has been carrying on, for as long as there’s been strata in New South Wales and in the rest of the country.

Jimmy   06:20

One of the things that’s happened significantly in the past year or so is that the Strata Community Association New South Wales has achieved professional status, which means that they can now officially call themselves strata professionals. What that comes with though, is a code of conduct, and they have to behave transparently and honestly with their clients. And I would say that that professional status is now under serious threat, because the body that issues that status (a government body), they’re pretty serious about it. They have to jump through a lot of hoops to get that status to begin with and I think for the first three years, they are under some kind of probation. I’m not sure about that, but I think that’s the case. So they could easily find that the professional standards body is saying “you’re not fulfilling our Code of Conduct; you’re not being open and transparent with your customers.” At the risk of wittering on, without any interruption or input from Sue…Looking at our talking points, as I’ve said, the strata managers who set up the strata scheme should not be the ones to run them. The owners should not agree to any contracts at the initial AGM. I think strata managers at that initial AGM should give full disclosure of the effects of any embedded networks that they have actually promoted.

Sue   07:49

That would be really, really important, because that traps owners into huge bills for many, many years.

Jimmy   07:55

Well, we discovered that at our investment property, there was a contract there that allowed the stormwater drain people to increase the payment by 10%, every year, for 15 years.

Sue   08:08

Wow! So within 10 years, you’d be paying double?!

Jimmy   08:11

Yes. By the end of the 15 years, you would have paid double what the quoted amount was in the initial contract, which is almost criminal.

Sue   08:22

And these things are always so incredibly underhand. I mean, nobody knows about these deals, because you really have to go through the small print of all the contracts beforehand And some conveyancers and lawyers; maybe they’re not up on strata matters and they would have no idea that these kinds of things exist, really. I think most people think “gee, that can’t possibly happen,” but it bloody does and with increasing regularity as well; alarming frequency, too.

Jimmy   08:54

This enabling of these embedded networks is all part of the culture of strata management, not just in New South Wales. I mean, I asked Stephen Brell (when we were still talking to each other), what his position was on embedded networks. And he came back with well, you know, we’re very concerned and there are problems there. We’re looking at it and we’re talking to the Strata Commissioner about it. Big deal! You’re talking about it; you know what the problem is. You know how this affects owners… Just stop doing it. Tell your strata managers that ‘SCA New South Wales does not think you should be doing this and we will not support you, if your clients complain about it.’ Simple as that, because the problem with strata managers is they go to the developer, the developer says “I’ve got this dodgy deal here. It saved me all this money from installation of electrical metres, or whatever. You just need to push this through at the first AGM and tell the owners that this is a standard practice and we’ll be sweet. If you don’t do it, by the way, we will never work with you again. You’ll never get any business from us.” So you take the sting out of that, by saying to all strata managers “don’t do it,” and then they’re not under threat from the developers.

Sue   10:08

Do you think some of them sometimes get a kickback from the developer, apart from the promise of more work?

Jimmy   10:14

Absolutely. There’s no question that they’re in each other’s pockets to a disgraceful extent. And the problem is that it’s in neither of their interests to change anything. And the so-called code of conduct that the SCA is supposed to ascribe to… They don’t even aspire to; they don’t even bother. They know what the problems are. And the thing is that it was a senior strata manager in a big company, who told me about these embedded networks in the first place. He came to me and said “you’ve got to look out for this thing that’s happening. It’s becoming widespread and it’s a big embarrassment to the industry.”

Sue   10:58

It’s amazing, isn’t it, because the SCA really wanted to clean up its act. They put together this code of conduct and they were very persuasive in saying that this is going to lead to a whole new era of trust and openness and transparency. It’s amazing that perhaps a year within that code of conduct coming out, this has happened.

Jimmy   11:22

The trust and transparency thing is now totally blown out of the water. I think it’s a huge embarrassment. And the thing is that I do not think that Netstrata are the only company. In fact, I know they’re not the only company. They’re not the only major company that’s doing this kind of thing. The other thing that needs to be attended to is strata managers, making debt collections through their favourite or subsidiary lawyers, a major source of income, because the strata manager will come to the owners and say “hey look, if any of your owners get into serious debt, we’ll do the debt collection. We’ll pursue them; it will cost you nothing, because the law says they have to pay all the costs.” What is happening is that people who get into a bit of financial strife suddenly find that they’re on the verge of bankruptcy, and they’re having to sell their home, because a predatorial strata manager and their lawyers are coming after them, thinking ‘we can make loads of money here by ramping up these charges, which they legally have to pay,’ and the rest of the owners (who are the ones who are actually holding the debt), don’t care, because they’re not having to pay anything, and they’re getting their money at the end of the day. That’s another loophole that needs to be shut immediately. And finally from me-ranting at you from Saigon-where is the Strata Commissioner? Where is he?

Sue   12:52

Yes! Because isn’t he worried about embedded networks as well, and worried about strata companies not doing the right thing?

Jimmy   13:00

Supposedly… That’s his job. I mean, he’s been talking about bringing the strata law under Consumer Law, so that unfair contracts can be challenged. But that’s just wrong to begin with, because why should owners have to go to court every time they find that their service providers are not doing the right thing? Why isn’t the government saying to strata managers “don’t do this, or we will come after you.” I understand that this is a big issue and a very complicated issue for John Minns, the Strata Commissioner, to deal with, but he needs to realise that there is a perception in the strata community that he is in the strata manager’s pockets. He’s an ex-real estate guy; he’s an ex-strata manager himself. He apparently used to turn up at meetings (when he was only Property Services Commissioner), with Stephen Brell, the SCA New South Wales President on one side of him and Chris Duggan, the SCA National President on the other. That was the head of the table and it was supposed to be an open forum for people in the property, business and consumers. I think that speaks volumes and obviously now that he’s the Strata Commissioner, he has to change his priorities. But people are wondering if the culture has actually changed at all, and whether it will change, because the government needs strata managers to run strata buildings, but it also needs people to think that living in a strata building is a good idea. If they get the feeling that on the one hand, the building could fall down…David Chandler has taken care of that. On the other hand, they’re going to be ripped off left, right and centre, with no recourse against the people who are doing it…That’s not going to encourage people to move into strata buildings, is it?

Sue   14:51

Absolutely. I think that’s a subject very, very close to your heart, Jimmy. I can hear the anger in your voice. I was going to say ranting, then I thought I’d just change it to anger. I thought I’d be nice.

Jimmy   15:08

It’s funny; in the piece that I posted last week, about my dealings with Netstrata, I recounted the email I got from Stephen Brell, basically saying ‘you keep saying all these negative things about strata managers, and it’s really unfair. Can we have a lunch? I do realise that you’re driven by clickbait and you can’t let the truth get in the way of a good story.’

Sue   15:35

What?! How incredible!

Jimmy   15:37

I thought that this is a guy who’s reaching out to be conciliatory and I couldn’t believe it.There were several exchanges between him and I, which got worse and worse and worse, and eventually I said ‘look, I’m cutting you out. I’m not even taking your emails. They’re just ridiculous.’ I ended up with him sending emails to the office bearers of our investment place, saying that I was deliberately misleading them. I was gaslighting them, I was lying, I had my own agenda… And if I hadn’t resigned by the end of the week, he was going to send all the owners this same defamatory email. This is a guy who starts this off by saying ‘hey, I think you’re being unkind to strata managers.’ Well, hey Stephen; I know you’re probably not listening to this, but guess who was right and guess who was wrong? Guess who had to resign? And on that note, you’ve got some positive news about apartments and apartment design. Sue, we heard a while ago about pattern books for the apartment building industry; what are they and where are we at with them?

Sue   16:58

We heard this week from New South Wales Government architect, Abbie Galvin, and she was saying that they’ve done a study that shows a lot of people are really interested in moving into apartments, but that they really favour medium and low-density apartments; maybe up to 10 levels, or maybe less. The New South Wales Government are really keen on increasing the amount of medium and low-density housing, so they’ve said that they were going to contact architects and talk to them about the elements that will make these kinds of developments look good. They were thinking of producing a pattern book of proof designs that other architects could kind of emulate, and really try and extend these all throughout New South Wales. If it works, maybe the Victorian Government would pick up on the initiative as well, and elsewhere in Queensland, Western Australia… Everywhere else. They think that this might be an answer to part of the housing crisis. I mean, there’s no one solution to the housing crisis, but it would be one. The government architect is now saying that she’s going to release 120 best-in-class low and medium-density housing designs for public feedback. I think you’re probably going to put these onto the Flat Chat website aren’t you, but you can actually look at some of the good designs that they reckon have come out over the last 10 years, and the ones that they think look good and could be emulated elsewhere. They’ve got a few examples; they’ve got a place in Chester Hill, Biara St and they’ve got a place in Glebe. They’ve got a place in Cronulla, in which they redeveloped an old church and the buildings around it. They’ve got all sorts of different things; churches, which have become apartments. They’ve got purpose-built apartment buildings from the beginning. They’ve got warehouses, which have been redeveloped into apartments. So it’s really, really interesting looking at them, and looking at how nice many of them look. They’re going to probably end up, after public feedback, with about four designs for each type of dwelling. Four low-rise unit blocks, four manor house designs, four terrace designs. We’ll have a lot of choice. The pictures are really good.

Jimmy   17:45

Maybe we can run a poll then, on our website… ‘What’s your Favourite Design?’

Sue   19:25

That’s a good idea. Some of these look quite magnificent, really. I suppose the idea is to get rid of the NIMBYs, as well. If the NIMBYs can see some of these buildings and think ‘actually, that would look really quite nice on my street; I wouldn’t mind living close to that. That could really lift the profile of the street as well,’ then getting rid of that kind of opposition will be really good. I think it’ll take a bit more than that. It gets rid of that element of uncertainty, when people strt thinking ‘I’m going to have this massive tower,’ but if they’ve got this really nice medium-density building, that looks really good in their street, maybe they’ll think ‘I could live with that; that wouldn’t be so bad.’

Jimmy   20:10

I think that what might work is if the council’s say ‘look, we’re going to build medium-density in this lot and here are the options,’ so that they do engage the community, and then say to the community ‘it’s not will we do it, it’s we will do it, but you still get to choose what you want to see in your local environment.’ I think engaging people on that level would be terrifically helpful.

Sue   20:36

It certainly would. And I mean, it’s never really happened before. I mean, people have to give their feedback when the DA has gone in, but you know, it’s usually you either say yes, or you say no… You can’t really say “well, actually, I don’t think the block is being used to its full potential. It could look much better if it was done this way.” I mean, there’s obviously no room to do that kind of thing, but yes, if you gave them a choice between a number of different patterns, that would be kind of nice.

Jimmy   21:01

It used to be that these things were determined by how much money was in the brown paper envelope given to the local councillors. But I think we’ve moved from the era of kickbacks to feedback… Do you like that?

Sue   21:15

Oh, that sounds great. If only were true; I hope it might be!

Jimmy   21:23

So we’ll put that up on the website this week, and people can have a look.

Sue   21:28

And have we got a Great Escape this week?

Jimmy   21:36

We certainly do. And we’ll be talking about that, after this short burst of music.

Sue   21:49

For Great Escapes this week, you’ve chosen something to do with food, haven’t you?

Jimmy   21:53

Again! Last month (or was it the month before), Luxury Escapes did what they call one of their ‘signature tours,’ where they got a couple of former Master Chef judges to go and investigate a foodie tour in Vietnam. And we’re talking about Matt Preston and Gary Mehigan and they came to Vietnam (where I am now), and they went around and they found everything from Michelin Star-level cuisine, down to street food and they took people with them. They explained what the food was all about and what the menus were all about. So Luxury Escapes put that on their website and it pretty much crashed the website. They were over-subscribed almost immediately.  I think they were coming in about $12,000 per head, because of the celebrity factor. You’re looking at the kind of thing that if you did it just as a luxury accommodation with a curated food tour, it would probably come in about $4,000 or $5,000. But anyway, they sold out. So now, they’ve come up with one to India; a food tour of India.

Sue   22:00

That’s a good idea! Fantastic! Indian food is one of my favourites.

Jimmy   22:09

Again, they’ve got Matt Preston and Gary Mehigan and they’ve been trotting around India, tasting the food in various very high-end hotels, one of which I think you have stayed in, but I haven’t. But you would rate a food tour of India with Gary and Matt? Would that be worth the shekels?

Sue   23:36

I think that will be absolutely amazing!

Jimmy   23:41

We’ve got a link to that on our Great Escapes and that will take you to the Mild Rover website, where we’re trying to focus a bit on local hotels and resorts, because people seem to like the idea of saying “let’s go away for a weekend and here’s a cheap deal at a nice new hotel,” that they hadn’t heard of before. So we’re calling them our ‘local heroes.’

Sue   24:06

Oh, fantastic. That’s a good idea. And why, Jimmy… I mean, last week, when we did this podcast, we did it over Zoom as well and you said “no, I’ll be back in Sydney next time and we will be doing it face-to-face” and you’re not; you’ve extended your time in Vietnam, haven’t you?

Jimmy   24:23

I have, because somebody’s email service crashed and I spent half a day fixing that.

Sue   24:30

Thank you for that! You got behind on your book again. We’re both on these bloody deadlines for novels and you got a bit behind and I’m still a bit behind. So you decided to stay there for a few more days, so we could each work in isolation. It’s incredibly hard. I didn’t even leave my desk yesterday (at all I think, for the whole day), and we can get it done and then you’ll be back definitely by next week.

Jimmy   25:02

Definitely by Thursday, so I can get to all this stuff we’ve just promised to put on the website.

Sue   25:11

Fantastic! Well, I hope you’re getting lots of work done over there!

Jimmy   25:15

I am. It’s great to be able to just sit down and knock off two chapters in one sitting, which for me is 5,000- 6,000 words. My only problem is that I’ve had a brilliant idea for a plot change and I’ve been rewriting some stuff, so that it all fits together at the end. It’s fun, and I’m really enjoying it, but I am also looking forward to being home.

Sue   25:42

Well, I’m looking forward to seeing you.

Jimmy   25:44

Man does not live by banh mi alone. Well, on that note, thank you all for listening. I hope this has been helpful and edifying and Sue, thanks for being there at the other end of this call.

Sue   26:01

No problem at all, Jimmy. All the very best; enjoy the last few days there and I’ll see you soon! 

Jimmy   26:10

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.