Podcast: Behind the scenes of the Strata Trap

We rolled the Wrap out a little early this week because it’s connected to the hottest topic in strata right now.

Linton Besser, the reporter who brought you the Four Corners report The Strata Trap on Monday, has come on to the podcast to answer our questions about what he’s found in the strata industry, not only in NSW, but across Australia. 

What questions? How about what piqued his interest in the story that led to the exposure of strata management firm Netstrata and the resignation of its General Manager Stephen Brell as President of Strata Community Association (SCA-NSW)?

Linton admits he almost ignored the story when the first email landed in his in-tray.  But when another came in a few days later, he thought he might start digging.

That led to the 7.30 report on Netstrata and that sparked a tsunami of tips and complaints that led, in turn, to the Four Corners episode.

The podcast is a wide-ranging chat about the culture of the strata business  – not just in NSW – that leads to some big strata management companies believing they can act with impunity while apartment owners are left “incoherent with rage”.

Everyone from complacent politicians to apathetic media operators cops it in this fascinating chat, but he does think some strata managers are suffering too and believes, despite it all, that there is a solution.

And he wonders if someone shouldn’t be looking into SCA-NSW’s recently acquired “professional” standing that officially puts strata managers on a par with Chartered Accountants and solicitors.

All that and much, much more in this week’s Flat Chat Wrap.

Transcript under construction

Jimmy  00:00

Well, that was quite a thing on Monday night on Four Corners.

Sue  00:03

Yes, it was, wasn’t it? It was gripping television

Jimmy  00:06

The Strata Trap. I think we expected it to be a deep dive into the strata management thing here in New South Wales. But of course, Four Corners is a national program, which was good because it exposed the issue across the country, and in fact, highlighted that for all the problems we have here in New South Wales, we’re actually better off than the rest of the country

Sue  00:30

Yeah, because at least we have better representation of owners. I think really, we have a state government that’s prepared to listen to people, even though maybe what it’s done hasn’t been particularly satisfactory. But, I mean, in some states, I think, you know, owners are really floundering,

Jimmy  00:45

Yeah,

Sue  00:46

Really difficult for them.

Jimmy  00:48

They don’t know where to start. So anyway, we managed to get a hold of Linton Besser, who did the report, which was called The Strata Trap, and asked him a few questions, and he very kindly answered us. So we’ll listen to that after this. I’m Jimmy Thomson. I write the Flat  Chat column for the Australian Financial Review.

Sue  01:08

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

Jimmy  01:13

And this is the Flat Chat Wrap. As we said, we managed to get a hold of Linton Besser, the reporter on the Four Corners report on Monday, which was called The Strata Trap, and we’ve fired a few questions at him. So to begin with Linton, what first drew your attention to the issue of strata management and especially insurance commissions?

Linton  01:50

Hi Jimmy. Thanks for having me on. I think I first became aware that there were some issues in this industry when I received an email, actually, in 2023 and it came in amidst many other tips and notes from people, and I actually didn’t pay it much attention, thinking it might have, you know, not warrant spending resources on I thought it might be a kind of minor issue. But then, just by sheer coincidence, I I received another email in a very short period of time, and then ended up talking to someone about these kinds of problems socially, at a, you know, at a thing I was at, and I I reconsidered, and I thought maybe there is more to this than I’d first thought,

Sue  02:41

Yes, there certainly is. So do you live or have you ever lived in strata?

Linton  02:46

I have lived in strata. My first property, I think, like many, many people, was a small apartment in Sydney, a grand 49 square meters, including the bathroom in which we had two small children, so it was, it was pokey, but it was a great little building, an older building with some lovely older people, actually. And it was a great little experience.

Jimmy  03:13

Well, that was, was a good experience for you then, but now, what has surprised you most about the attitude of strata management companies, and I stress companies rather than strata managers. Do you find them arrogant, complacent or entitled, or maybe a combination of all three?

Linton  03:30

I haven’t thought about the attitude question before you asked me. I think my overall impression is that strata management companies, and the industry more broadly, has been pretty well ignored for so long by the media and by government by and large, that it operates in a kind of vacuum. That’s my impression, anyway, and so I to some extent, the attitude of some companies is, I guess, you’d have to say, of impunity, of being able to act with impunity. And certainly, as we’ve discovered, there is so little regulation in large swathes of this country, that it’s probably for good reason that they might have that kind of view, really. Of course, I’ve also met some really, you know, bloody fantastic strata managers who are appalled at some of the misconduct they see in their industry, and who have been urging us along in our investigation. You know, who want people to have a greater sense of faith and trust in the industry.

Sue  04:47

So speaking about faith and trust in the industry, Linton, what about apartment owners? Are they angry and frustrated or resigned to their fates or just simply unaware that they’re being ripped off?

Linton  04:57

Oh, this is an easy one. Apartment owners, they are extraordinarily frustrated. They are despairing. Many of them are, you know, almost incoherent with anger. And you know this isn’t news, probably to your listeners, Jimmy, because we’ve published a couple of stories this year, which have updated as more and more owners and renters, and you know, industry players have written into us to complain about the state of the industry and the state of lax regulation. And yeah, and there have been people also that have, through perhaps greater exposure of some of these issues, suddenly thought to themselves, well, I might actually open that notice of AGM. I might actually turn to the balance sheet and try and make sense of it and make sure that you know my money is being looked after and and this most important asset is being looked after.

Jimmy  05:59

Well talking about being looked after, do you feel that strata managers at the coalface have been let down by their bosses, or are they just as likely to be willing participants in all the schemes and scams?

Linton  06:12

I think strata managers who are actually on the tools have a pretty difficult job. It’s, you know, it’s obvious that there are lots and lots of personalities that live in apartment buildings and in strata schemes. Not all of them are easy to get along with. All of them, good and bad, expect to be served by the strata manager, and the workload that these people at the front line have really is almost impossible, at some firms, dozens of buildings. I had one strata manager tell me they had a portfolio of 100 buildings to manage. Now, I don’t know how that is possible, 100 AGMs a year, just that alone, let alone all the day to day stuff. So I think there’s a spectrum of people who work in the industry who range from young interns suddenly thrust into dozens of buildings with very little training, and you know, they’re kind of sinking or swimming through to more senior people who are seasoned and understand the industry, understand the legislation, understand really, how to impress their bosses and impress the businesses that hire them, and how to make money for them. And certainly, you know, I think as some of the malpractice becomes obvious to some managers, once it’s obvious to them that they’re kind of making a choice whether to continue down that road or trying to do something about it. You know, some are willing participants in what are, frankly, scams. And I’ve spoken with some who have quit companies and moved elsewhere because they’ve been so disappointed by what they see as unethical or sharp practice.

Sue  08:06

SCA, New South Wales, recently achieved professional status, putting them on a par with accountants and lawyers. Do you think this should be reviewed or rescinded after your revelations?

Linton  08:15

Yeah, this question of the professional standard scheme being implemented at the Strata Community Association, the SCA I think that is interesting, and I think it might not be for me, but it behoves an enterprising journalist to take a close look at that and precisely what is going on. I don’t think it’s controversial to say that the qualifications, first of all, that one requires in order to be a professional chartered accountant or a professional solicitor are quite different to what’s required to be a quote, unquote, professional strata manager. On that basis alone, I think it’s an interesting area to look at, and it’s interesting in light of some of what the ABC but also other journalists have published over time, including you Jimmy about some strata management firms and their leadership. Yeah, I think that’s all I could say about that. I personally haven’t looked into it, but it did. I did read a little bit about this, and someone talked to me about it, and I thought, I wonder what’s actually going on there.

Jimmy  09:31

You’ve been doing this for a few months now, going back to your revelations about Netstratastrata, and that was, turns out, to just have been a small part of the problem. Has anybody in the industry suggested an obvious and simple fix that could be employed to put the whole industry back on track?

Linton  09:50

Well, I don’t think anyone could really sensibly say there’s a silver bullet to any of this stuff. It’s complex. There are lots of factors. There are lots of players, both in the industry, among clients and in the regulatory sphere. But I think there are some pretty core principles that the industry has moved a long way away from. And the most obvious of those is that on the one hand, as you referred to in your question a minute ago. On the one hand, the SCA aspires to professional status like accounting and the law, but on the other hand, says it’s perfectly acceptable for the industry to take commissions, to be paid rebates, to accept kickbacks from everyone from a major insurance company through to the bloke who mows the lawns. Now there is no world in which that might be considered acceptable conduct in a chartered accountant’s office or in a major corporate law firm, or any law firm in this country. You have a fiduciary obligation to your clients, and disclosure is insufficient. It’s just so obviously insufficient to remedy that problem, like the the ACCC said in our Four Corners the other night, it does not get rid of the massive financial incentive if you’re copping 10, 20, 30% commission on an insurance policy, for example, why on earth would you ever hunt for a cheaper policy for your clients? It just makes no financial sense. And fixing that, as difficult as it might be, is just the most obvious first step for the industry to take to restore a modicum of trust.

Sue  11:53

There is a sense in the strata community that SCA New South Wales is circling the wagons and waiting until this all blows over. Do you see this too, and should we expect nothing to change?

Linton  12:03

Oh, well, definitely. I mean, we’ll have already seen the strata industry and the insurance industry circle the wagons. I mean, even before we published, the insurance brokers body, you know, put out additional guidance on ethics in strata insurance. And of course, the SCA has put out various new policies this year and brought some forward under pressure from the reporting. And yes, of course, there’ll be people in the industry hoping and waiting for this all to blow over. And this happens in every industry where there’s sharp practice and it gets exposed in the media, you know that the vested interests are always working to protect their patch and protect the status quo, and if there is change, and I’ve seen this plenty of times in my career, where the crises of public faith have occurred through all kinds of means, including through publications in the media. And reform has occurred. Well those vested interests work very hard to claw back the reform and effectively, like Smaug, protect the the horde of silver and spoils on which the dragon sits. So there’s no doubt that lots of powerful and influential people will be lobbying governments around the country to make sure that none of them move to protect consumers. But I’m not sure what is going to happen. I mean our job, as you know Jimmy, is to rattle the cage and to shine a light. It can’t be up to us to do more than that. It’s up to others now, including consumers and apartment owners, to demand better and for governments to listen

Jimmy  13:57

Well now that we can see how bad things are, why do you think successive governments have allowed this to develop? Do you think politicians see strata residents as second class citizens who get what they deserve by choosing not to live in houses?

Linton  14:11

Jimmy likes so many things. It’s the boiling frog syndrome, and it’s gotten to this point through neglect, more than anything else. Neglect by government, neglect by the media. I mean, the media is culpable absolutely for not putting people’s feet to the fire earlier or more of us doing it. I think also, there’s an extent to which state governments dance to the tune of the construction and development industry, and I have a suspicion, and I don’t have hard evidence of this, but I think there’s a logical argument to be made that the property development industry is quite happy with the status quo. It’s quite happy with an arrangement in which strata managers collude in the artificial depression of first AGM budgets in order that levies are attractive to new buyers. I think it’s attractive for developers to have a strata industry on the leash, if you like, for the period of time that they’re liable to fix defects in buildings that they build. If you have a robust, independent and independently-minded strata industry that was ferociously going after the interests of its clients, well, oftentimes, those interests will diverge from the people who have built the buildings in which those people live. I don’t suggest that major property developers are in the ear of government saying, leave strata alone, but I doubt very, very much that very many of them are demanding change, and are demanding change that benefits consumers. But it is, you know, it’s interesting to think about it on the other side of the coin, though, because, you know, what is it? Two and a half million people live in apartments within 10 or 20 years, that number will be significantly higher. That is a very substantial constituency for politicians to consider when they’re drafting their career plans to achieve high office. And I’m not sure that it would take such, you know, kind of political sorcerer, to come up with a with a campaign strategy which taps into what we have seen at the at the ABC, which is a geyser of discontent that is erupting about this industry, and I’m just not sure that governments have quite realized how unhappy people are about this arrangement, and how little faith people have in living in strata because of it. You know, it’s obvious from all the reporting that we have done and from the reporting, the very fine reporting that you have done over many years, that this at some point has to change if these state governments are going to achieve the kind of housing reforms that they go on about and and the re-landscaping of our cities, that seems obvious to me. I guess it’s a question of, when will that happen? And what is the tipping point at which, you know, they do start to listen to people who who live in apartments and live in strata? Clearly they deserve better.

Jimmy  17:49

I think we all agree on that. I think we all think we deserve better. And the problem is, I think for all of us, how do we get the better treatment that we deserve? Big thanks to Linton Besser for coming on Flat Chat.

Sue  18:04

Thankshanks Linton

Jimmy  18:05

And given us quite a lot to think about. That’s after this. It was interesting, wasn’t it, to get the perspective of somebody from outside of the strata sphere?

Sue  18:20

That’s right, and it was a very complex story, but I think with the use of graphics, he captured it very well. You know, it was an interesting I mean, I kind of thought, Oh, why didn’t he talk about other things, like defects, all those kind of things. But I guess it’s just such an enormous subject, he had to deal with one aspect of it quite thoroughly.

Jimmy  18:39

When you look at all the layers of the issues in strata and all the states with all the different laws, could spend years and we have, we have.

Sue  18:49

(Laughs) That’s right

Jimmy  18:51

And he was very kind to us for having kept on the story all these years and recognized that the media has dropped the ball on this for too many years. I mean, he more or less implied that if more media coverage had been done earlier, then maybe these problems wouldn’t be as bad as they are now. Because, as he said, the media gets involved, and you know, we get the usual nonsense, as we’ve had from SCA in the recent past about it all being click bait, but what they’re really saying is, please don’t tell these stories that people are interested in, because it makes us look bad.

Sue  19:31

And it’s hard. You know, it is hard for journalists because it is a very complex area, and it does require a fair bit of work and study and understanding of the issues.  So it’s very hard for journalists sometimes to do these stories, especially when strata companies might be saying to them, oh no, there’s no nothing to see here. And and it’s actually quite hard, in my experience as a journalist, when you’re writing stories about strata you kind of need people to be prepared to speak up, yes. And, you know, have their photo photograph in the paper,

Jimmy  19:41

Yeah,  Yeah.

Sue  20:04

And so people can identify with them and kind of see the difficult circumstances they’re living in,

Jimmy  20:09

Yeah.

Sue  20:09

And often people are very reluctant to face-up. I mean, they want to complain absolutely, and they have every right to do so, because they face terrible issues often, yeah, but unless they face-up to a journalist and are prepared to have their name and age in the newspaper and a photograph, oftenften, it’s really impossible for us to do the story without that human element. And I’ve received so many emails over the years. I mean, I’ll probably receive probably five a week from people saying they’ve got this terrible issue in a building, but they won’t tell me what the building is where it is,

Jimmy  20:41

Yeah,

Sue  20:41

Who’s there? They won’t give me their details. They’re not prepared to speak up. So what did? What can I do as a journalist?

Jimmy  20:48

But you can understand from the point of view of the owner in an apartment block, if they’re thinking, well, if you do a story and you identify the apartment block, then it’s going to affect everybody’s values,

Sue  20:59

Absolutely. So it might turn their neighbors against them.

Jimmy  21:02

And yeah, as I was going to say, if you identify the person, then their neighbors will say, “Oh, great, you’ve just knocked $50,000 off the value of our property. Well done.” And that’s the trap. That’s the trap that has kept everybody under the developers’ and the dodgy strata managers’ thumbs. It’s interesting to hear what Linton said when I asked him about what do you think happens next? Because his view is it’s time for politicians to step up. But the only way politicians will step up is if people in strata and the media start telling their stories.

Sue  21:41

Yeah, that’s right. And I saw Minister Chanthivong the New South Wales Fair Trading Minister who’s looking after strata, I saw him yesterday at the AFR Property Summit, and he was saying, “Oh yes, we’ve got lots of strata reform on the cards.” And he said it was all about transparency and accountability and all that stuff.

Jimmy  22:00

Yeah.

Sue  22:01

But you kind of think, well, when are we actually going to get to see this? I mean, he’s been talking about strata reform ever since, you know, yeah, the government came into power, really, and it just seems to be put on the back burner.

Jimmy  22:13

I was talking to Karen Stiles from the Owners Corporation Network, OCN yesterday, and we were talking about all this. And I said something that keeps coming to the forefront of my mind when we’re talking about all these issues and how people are being ripped off and cheated, and how companies and insurance companies and strata companies, strata management companies, are setting out to defraud people, to mislead, deliberately mislead people. You know, simple things like, you go to your first AGM and they say, here’s the budget we’ve worked out for the building. And you know that the developer has said to them, “Keep the levies low, keep the levies low, makeake it easier for us to sell these apartments.” And so you go in at your first AGM, you sign off on a budget that the people who are supposed to be helping you have created. And then a year later, you go to your first AGM, and you your treasurer says, we’re going to have to put the levies up because we’re not getting enough money in to cover all our costs. And the strata manager says, well, you’re spending too much. It’s not our fault, and that’s just a deliberate attempt to defraud people. It’s quite simple. So as I’ve said, this phrase keeps popping into my mind, “Nothing’s going to change till somebody goes to jail.”

Sue  23:29

 Oh, yeah, you’re probably quite right. Needsto take determined action, really.

Jimmy  23:33

Now we saw a couple of characters on that Four Corners. You think you you you could do for a run up the road to the Big House the way you’re behaving, you’re defrauding people, you’re lying, you’re cheating. The one that took my breath away was the chairman of the building who wouldn’t let people in, he used security guards to not let people into the AGM.

Sue  23:55

Paid for out of their budget

Jimmy  23:57

Yeah, so that they couldn’t cast their votes against his choice of committee. And then, when they complain at NCAT, NCAT appoints a strata management company owned by his wife,  To be compulsory, which gives him total power. Gives him even more power than he had before. Then this is so frustrating. These members at NCAT, what are they making their, what are they basing their decisions on? I don’t know. I mean, it’s like they really, really, really don’t care. In fact, I think it’s worse than they don’t care. They think “You chose to live in strata, it serves you, right.”

Sue  24:10

Yes, amazing And that is the huge, overwhelming problem, isn’t it? That strata is regarded as second rate by so many people,

Jimmy  24:40

Yeah,

Sue  24:41

That we’re secondary to houses. We talk about the housing crisis. We talk about how strata is the answer to the housing crisis, but unless they elevate strata properly and legislate properly around it, and have decent regulations and impose them, it’s going to get worse and worse and worse as more and more people move into apartments, or as they’re too scared to move into apartments. So therefore, you know, what do all those homeless people do?

Jimmy  25:08

If this kind of strata system is the answer, you have to ask yourself, “What the hell is the question?”

Sue  25:15

And look, you know, some of the strata companies, you kind of have to feel for them. I mean, Linton was talking there about the strata manager who looks after 100 buildings,

Jimmy  25:26

Yeah.

Sue  25:27

And as he says, you know, how can they possibly do that? 100 AGMs,

Jimmy  25:32

100 AGMs a year. That’s,

Sue  25:33

Yeah that’s two a week,

Jimmy  25:35

Two a week, and all the preparation,

Sue  25:37

Yep. And you’re still getting phone calls from, you know, unit owners,  With problems and needing your advice and stuff. I mean, there’s no you’d give them scant regard, wouldn’t you?

Jimmy  25:45

Yeah,  Yeah, as he said, strata owners are incoherent with rage. That was a great phrase.

Sue  25:56

Well, we’ve been incoherent many times.

Jimmy  25:58

Yeah, okay, well, while we’re still coherent, we’ll wrap this one up. Terrific to have Linton on. I mean, I’m not a great believer in journalists interviewing journalists, although we sit here and interview each other every week. But that’s him. He’s done with strata now he’s, I believe, moving on to another beat, simply because he’s like, you know, the undercover cop, you know, once he’s come out of the shadows,

Sue  26:23

Yeah

Jimmy  26:24

Who in strata is going to do an interview with him now?

Sue  26:28

Yeah, but somebody else has taken his place, haven’t they?

Jimmy  26:30

Yes I’m not going to name them

Sue  26:32

So they can,

Jimmy  26:33

They can do the same,  Yeah. And as for our fellow journalists, I got to say, you know, I remember an exchange with somebody just earlier this year where SCA the Strata Community Association had once again claimed that they represented owners. I mean, what a hoot when you see this now. And this journalist, I said, “Why are you repeating this nonsense?” And they said, “Oh, well, it’s just a matter of how you define representation.” And I said, “Well, I use the Macquarie Dictionary and definition,” and, you know, it was kind of this blithe, yeah, you don’t really understand. I know these strata managers, you know, they’re all really No, obviously, this person had been duchessed to some degree, by the strata management industry into thinking that They were the good guys, We We are the bad guys, and everybody needs to calm down and leave them alone. Well, that’s changed, hasn’t it?

Sue  26:41

Carry the flame,  Yeah, absolutely.

Jimmy  27:32

Next week we’re going to have Matthew Press, the deputy or assistant Building Commissioner, on to talk about what’s happening with defects now that David Chandler has gone and Project Intervene has changed the way it works.

Sue  27:47

Fantastic, I look forward to hearing from him

Jimmy  27:49

That’ll be good. All right, thanks. Sue

Sue  27:51

Pleasure, Jimmy, thank you.

Jimmy  27:53

And thank you, Linton, if you’re listening. And thank you all for listening too. Bye,

Sue  27:57

Bye,

Jimmy  27:59

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.