EXAMPLE 2: Abuse of common funds …

Hello esteemed members of the forum,

It took me a year to collect this evidence.

It is pending CTTT actions and I am in the process of providing final documentation and review the options how to recover the lost money and force the replacement of the EC and maybe the Strata Agency.

Scenario: the large strata complex with 192 owners in the buildings and 26 in townhouses. It was registered in mid 1996.

The Chairperson (that will be important for later) lives in
the townhouse and became a committee member in late 1999.

Competely accidentally, during some other document viewing in November 2011, I uncovered strange “rebates” for a group (not all!) townhouse owners.

At the time, all I had was access to expense transaction logs for 2007, 2008 and partial 2010.

What I found out was shocking:

1. The selected group of twonhouse owners received cheques for their water and gas usage but that was never listed in the financial statements.

2. Due to my suspicions when I discovered other wrongdoings of the EC and the Strata Manager, I officially asked the Chairperson about these rebates on 26 December 2011.

In my request I specifically and very clearly inquired about: when was such a scheme introduced, who reviewed it, who approved it, how was it calculated…
I never received any response!

At the next EC meeting in February 2012, the Secretary of the EC suddenly resigned but stayed on as a regular member.

In the minutes of that EC meeting, this was noted:

BEGIN QUOTE
A review would also be undertaken with reference to the gas and electricity refunds which may have been overpaid in respect to connection/service charges. The committee noted that only the comsuption of the water and gas is
rebated to bring the expenditure in line with that of the tower occupant. It was noted that the ability to claim the reimbursement is limited to utility accounts relating to the current year only and that late submissions of prior invoices would have to be more tightly controlled.
END QUOTE

This message gave impression that such rebates were very recent and did not give any detail if all twonhouse owners received them.

3. On 9 March 2012 I submitted an official request to Secretary of the EC (who also was the Strata Manager) to provide audit details for townhouse rebates for at least last five years. That request was never responded to.

4. The same request was forwarded to the STrata AGency Branch Manager on 14 May 2012. Never received a reply.

5. On 16 June 2012, another attempt to remind Secretary of the EC and the Branch Manager was completed via email. No responses received.

6. Because I already started a CTTT case in early 2012, I obtained copies of submissions of the EC and their Solicitor in June 2012. In the submission to CTTT by the Chairperson he stated:

BEGIN QUOTE
XYZ (myself) implies that townhouse owners receive a rebate for gas and water consumption that is unauthorised. This is not true. The issue was addressed by the EC in March 1998 (I was not member of the EC) and the minutes of the AGM 1999 record that all owners ratified the rebate process on 29 September 1999. The rebate addresses the inequity caused by individual metering of water and gas to townhouses but common collective metering to tower blocks…
END QUOTE

Note a very diufferent story that the CHairperson presented to CTTT and the owners at the EC meeting! Now it is revealed that such scheme goes back to 1999.

Again, the Chairperson failed to notify the CTTT that not townhouse owners received these rebates and that there was no resolution about it!

In fact, the Chairperson hindered the Adjudicator’s investigations.

7. What I found out about the rebates for the three years I had access to:

  * 16 out of 26 townhouse owners were included in the
     rebate scheme in period 1 September 2006 to 31
     August 2007 (twelve months). 16 owners received gas
     and water rebates in the amount of $6,973.47.
     The total expense for the whole strata complex
     for water and gas in year 2006/2007 was $36,571.00
     ($17,060.00 for water and $19,511.00 for gas).

     It means that 16 owners of townhouses spent
     individually and claimed more than 19% of what all other
     owners spent on these utility costs together (including
     shared common grounds, spa, sauna, swimming pool,
     large gardens, and so on).

   * 17 out of 26 townhouse owners were included in the
     rebate scheme in period 1 September 2007 to 31 August
     2008 (twelve months).
     17 owners received gas and water rebates in the amount
     of $7,510.97. The total expense for the whole strata
     complex for water and gas in year 2007/2008 was
     $72,078.00 ($49,164.00 for water and $22,914.00
     for gas).

     It means that 17 owners of townhouses spent individually
     and claimed more than 10% of what all other owners
     spent on these utility costs together (including shared
     common grounds, spa, sauna, swimming pool,
     large gardens, and so on).

   * 14 out of 26 townhouse owners were included in the
      rebate scheme in period 1 September 2010 to 30 June
     2011 (nine months).
     The rebates for nine months in 2010/2011 amounted to
     $5,148.69 – the whole year expense was hidden from
     everybody until I forced CTTT to help me get them in 
     early November 2012 (just last week).

   * In period September 2006 to August 2008, one single
     townhouse owner received rebate for water and gas
     usage of staggering $1,693.75.

   * And so on.

   * The Chairperson and another member of the EC, who
      also lived in townhouse, were recipients of these hidden
     benefits.

     The two of them seemingly breached:

     NSW strata Management Act 1996, Sect 25
     PART 3, Division 2

  * Even the Strata Agency claimed some gas rebates in
    the complex and to this day it is unknown why and how
    could they do so.

8. I tried to speak to owners in the complex but it fell on deaf ears.

9. At AGM, held on 17 October 2012, obviously under pressure, the EC pushed for a proper By-Law to formalize the rebates for townhouses.

Absolutely no information was given to owners about those selective rebates for the last 12 years, nor why it was not listed in financial statements over the same period.

To my surprise, this By-Law was passed without any discussion. The EC, and especially Chairperson, had no remorses about past actions.

At AGM, when I asked how much moeny was spent for these rebates in 2012, none of the members of the committee or the Strata Manager could “remember”.

I also asked who decided not to allow townhouse owners who did not even know about these rebates to claim them retrospectively. The Chairperson provided no answer.

Here is the text of the special resolution as it was approved
for townhouse owners:

BEGIN QUTE
That the owners Corporation, by SPECIAL RESOLUTION,
pursuant to Section 47 of the Strata Schemes Management Act 1996, make an additional By-Law in the following terms:

Special By-Law: Sharing of water and gas costs

In addition to the powers, authorities, duties and functions conferred upon the Owners Corporation by the Act and By Laws it shall have the following additional powers, authorities, duties and functions:

1. Determine a fair and equitable method of sharing gas and water charges amongst all lot owners;
2. Refund to lot owners the amounts paid by owners other than to the Owners Corporation for the consumption of water and gas but not for fixed or connection charges;
Provided that the Owners Corporation shall have no obligation to pay any amount to an owner unless:

I. The owner first pays the gas or water supply company;
II. Submits a copy of the bill(s) for consumption within 60 days of payment;
III. Claims for reimburesement are made using the form prescribed by the Owners Corporation;
IV. The claims are for periods that fall within the current financial year of the Owners Corporation or no later the last quarter of the immediate preceding financial year;
V. In the event of a dispute over reimburesemtn the Owners Corporation shall determine the amount to be paid in its absolute discretion acting reasonably.

In the event that individual gas and water meters are installed to each and every lot such that consumption of either service can be billed on a strictly metered basis to each and every lot owner, the above requirements with
respect to the relevant service shall cease to have effect from the date of commencement of direct billing of the relevant service.
END QUOTE

I tried to argue that the By-Law is illegal for many reasons:

Firstly, the “fair and equitable method” is not defined. Without it, nobody but the owners corporation at a general meeting can decide how to apply it.

The executive committee cannot and should not make such decision on their own, especially since there is direct conflict of interest for two members of the executive committee who live in townhouses: Chairperson and other member.

Secondly, the Motion excludes the rights of investors to claim such rebates. The investor never sees, and should not care about water and gas payments because they are handled by the tenants. In fact, tenants do not have any
legal requirement to give their utility bills to anybody in the complex. They do not do it in units in the buildings, so the same applies for townhouses.

Therefore, to “apply” for the rebates by submitting a copy of the bills within 60 days of the payment is irrelevant and unenforceable.

Thirdly, to be able to claim any rebate, they must be “fair and equitable”, so the total water and gas expenses for the whole complex have to be taken into account and used to decide what percentage is given back to townhouse
owners. It is irrelevant what townhouse owner spends because it could be based on irresponsible usage of water and gas. If a townhouse owner spends too much
for water, and that is directly measured through individual metering, then the owners corporation has no valid reason to reimburse the owner.

Fourthly, the full details of resolution to “introduce” water and gas rebates are unknown (the document MUST be provided to all of us), and it is not clear if it contained an approved statement that the rebates do not apply retroactively.

Finally, if the resolution from 1999 is not provided, or is incomplete, the executive committee has liability for discriminating against those townhouse owners who were never notified they had rights to claim the rebates over many years. Those resolutions MUST be rated SPECIAL or possibly UNANYMOUS. The committee and the managing agent still REFUSE to comment about it.

The executive committee certainly has no powers to prevent those townhouse owners to take action and claim what might be rightfully theirs.

10. At a document viewing on 12 Novemebr 12012, I finally confirmed that special resolution for these rebates never happened.

Even worse, the EC made a decision (without owners approval at a general meeting) at their own meeting on 17 March 1998 to:

BEGIN QUOTE
Refund townhous owners the cost of water supply effective from 01.09.1997.
END QUOTE

In other words, the EC introduced water rebates for townhouse owners without decision at the general meeting and applied it retrospectively.

Nobody in the complex paid attention to this horror decision.

11. No other information abiut such rebates was tabled until the EC meeting on 21 July 1999, when all of a sudden they were extended to gas:

BEGIN QUOTE
The current policy of iproviding a refund to townhouse owners of water/gas usage is to be considered formally as an agenda item at the forthcoming General Meeting.
END QUOTE

Gas usage was brought in by stealth!

12. Finally, the AGM 1999, which Chairperson used as justification for the water/gas rebates over many years.
This was not a resolution, or a By-Law.

BEGIN QUITE
Motion 12: To decide whether the Onwers Corporation continue to reimburse the owners of townhouses in connection with water  and gas usage costs payable by such owner.

Resolved that the current provision of reimburesment be ratified and continued.
END QUOTE

13. In 2012, I just found out that close to $11,000.00 was given in rebates to townhouse owners without special resolution or a By-Law.

Could we call this the longest running misappropriation of common funds?

And is there any organisation to make the culprits “face the music”?

Are these things legal, because the EC and the Chairperson
certainly think they have every right to do this?

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