Why Owners’ Corporations are Unfairly Unprepared

14 August 2023
By Chris Jakovljevic

In recent years, the number of strata schemes in New South Wales (NSW) has grown exponentially, with an estimated 50% of Greater Sydney expected to live in strata schemes by 2040. Without putting too fine a point on it, this change in living will force a change in dynamics and increases the need for Owners’ Corporations and apartment residents to work together to ensure buildings are well maintained and costs are managed responsibly. Because the ugly truth is this: Many building residents either lack the time or the skills to responsibly manage their strata building in a way that benefits all. The result of poorly managed strata buildings is a rise in costs, increased frustration for owners and occupants and a rise in complaints to legislative bodies, where having your case heard can take upwards of three months.

Our 50 years’ of experience has shown us the trials and tribulations of running a Body Corporate and what needs to go into it – at least from our perspective in supplying in services. But what we have seen, is a rise in complexity, a reduction in the available hours people have to dedicate to their Strata scheme, and an increase in the prevalence of building defects.

The issue with Strata Schemes

Evidence of the complexity of managing a strata scheme can be seen in a recent Sydney Morning Herald article “How strata schemes are letting down Sydney’s apartment owners” by Amber Schultz. Without going into too much detail, the article highlights a Liverpool apartment complex, and the struggles of a volunteer Treasurer who has to manage a budget of $900,000 and deal with unexpected costs, high debt, heavy workloads, and resistance from other residents. Nothing she has experience with, a lot of time to deal with, nor the responsibility to put up with the attitudes brought at her by others in the building.

What makes her – and countless others like her – jobs even harder is the fact that too often, volunteer committees (and Strata managers) are forced into situations where quick decisions are of paramount importance. With a rise in structural defects caused through the building process leading to an unprecedented level of waterproofing failures (as just one example), committees are often faced with a familiar conundrum:

  • Take the time to try and understand the issue, refer and discuss it with the greater strata members, get external advice on repairing structural issues and then fix it;
  • or move towards fixing the issue as quickly as possible, thereby increasing the chance of anger by other owners that their money is being spent without consultation and without a view to a long-term fix.

The backstory

Without wanting to rubbish the entire industry, it has been reported that a mix of racing to finish jobs more profitably and developers setting the strata budget too low to entice buyers, leads to underquoted fees and increased costs for owners. As a case in point, a 2021 report titled “2021 Strata Defects Survey” found that 39% of all residential apartment buildings completed between 2014 and 2020 had serious structural or building defects. That is way too high. And as a purchaser, how would you ever know?

According to Samantha Reece, director of Australian Apartment Advocacy, “..there needs to be much more focus on educating people about what it means to own an apartment. The legislation currently, is not fit for purpose for these bigger apartment buildings.

Over the years we have dealt with literally hundreds if not thousands of Body Corporates and strata committees. With no disrespect to any of the Body Corporates we have worked with, we see firsthand just how hard it is for the members on these committees to manage their building successfully. In most cases, members of the committee work full time, manage families and want to live their life. They cannot be expected to then know the intricacies of managing an apartment or strata scheme and to then understand what issues may present and how to best deal with them.

Our thoughts are somewhat echoed – that the strata management industry needs reform – by Karen Stiles, head of the peak body for residential strata owners, the Owners Corporation Network. She believes that there should be tiered licensing based on prior experience and training to ensure that the complex task of financing and managing a large building is not left to volunteers.

Anoulack Chanthivong, the NSW Minister for Fair Trading and Better Regulation, has warned that there are “no quick fixes” for strata schemes, but is working with the sector to examine the system to ensure owners remain in control of decisions about their shared property.

It is clear that for strata schemes to run successfully, owners corporations and apartment residents must work together. This includes ensuring owners are adequately informed of their rights and responsibilities, that strata budgets are set realistically and that strata managers are appropriately trained and licensed. Only by doing so can the needs of both owners and residents be met. Because, the truth is, issues are multi-faceted and getting worse.

Poor Building and Business Practices

To add to the issues faced by volunteers and committee members, there has been a recent spate of examples where either a relatively new building has several structural defects or where strata fees are grossly underquoted on off-the-plan purchases and new residents are forced to find thousands of extra dollars to cover their obligations suddenly.

By way of example, The Sydney Morning Herald recently covered the plight of Eloise O’Connell, who joined the strata committee for her apartment in Liverpool to help prevent insolvency. When she made the purchase in 2018, her levies were moderate, however, she quickly found out the strata was $112,000 in debt, due to a lack of proper budgeting for costs such as insurance, defect reports, emergency lighting replacements, and preventative maintenance, which all add up to a hefty sum.

It meant her fees and those of all in the building had to rise drastically to meet their financial obligations – in the short term, not to say anything about the future. This was a huge learning curve for her and other inexperienced committee members and one that they were not necessarily cut out for.

But beyond issues for Owners’ Corporations and committee members, there are implications for would-be purchasers too. If we look at stories such as Toplace Pty Limited which was recently in the news for numerous and ongoing issues in their developments that go back as far as 2017, purchasers of new apartments are not only faced with questions about whether they like the place they are looking at, or if they can afford it, but with new dilemmas such as is the apartment structurally sound, are the levies accurate and what are my ongoing obligations going to be moving forward and who is skilled enough to help manage this apartment complex?

There is no simple answer, but there is clear-cut evidence that the system in place is not working and needs some attention.