Strata Reforms Three Years On and What Have We Got to Show For It?
Take yourself back to 2016. One of the most significant property policy changes was reform to strata laws. Sydney had the world’s oldest strata regulations and the new reforms promised a regulatory renovation. Changes were made to regulations governing the collective sale of strata schemes that promised to make the city more efficient and unlock old schemes and poorly maintained residential buildings. These were the focus of attention of much of the media and public interest. But at the same time, new rules were introduced for the length of time a strata manager could be appointed by a developer and the building defect bond. There was concern raised about the building defect bond and it can be recalled that the development industry proposed that rather than have a bond it was more effective to have regular inspections through construction milestones and that was the practice in many overseas jurisdictions. (Ironically, such an approach may very well have averted the Opal Tower problems).
Three years on what has been achieved. There have been successful collective sale negotiations with schemes. However, collective sale was so successful in areas such as Macquarie Park that the State Government has but a moratorium on planning proposals.
The strata management twelve-month appointment term has been nothing short of a disaster. Strata managers typically work with developers throughout the construction phase and provide advice, the twelve-month appointment cannot cover the sunk costs associated with the advice. There are other issues as well. One might say that the manager will provide great service over the one-year appointment to get reappointed. However, the fact that they are associated with the developer is not always seen in a favourable light by the owners’ corporation. Other strata companies will focus their attention on schemes coming up for the twelve-month appointment in a bid to convince the owners corporation to change managers. Further, strata managers are also starting to get involved in the facilities management business (where there are no similar one-year appointment regulations) to bolster their positions as strata managers at appointment. The only problem is that when strata managers are also providing facilities management services they are effectively selling services to themselves. The reforms were supposed to improve consumer welfare but instead it looks like they have given rise to many unintended consequences.
The defects regime is another matter again. The first schemes will be coming to market any day now. There are few if any inspectors willing to carry out inspections because of potential liability claims against them. This is not to mention the fact that a substantial amount of cashflow has been taken out of industry through the bonding scheme.
While the reforms promised so much they have delivered very little except adding cost and uncertainty to businesses that already run on wafer thin margins. The consumer has benefitted very little.
As with all policies it is time to review the strata reforms. The Government should consider aligning the term of the strata manager and facilities manager at 3 years. They should also prohibit strata managers from providing facilities management services. Given the defects regime they should also consider prohibiting developers from providing on-going facilities management. That said, Owners Corporations should have a right of appeal of the appointment of strata managers and a good idea from the ALP was a Strata Commissioner as this may provide a channel of appeal in the event of non-performance of a strata manger during the 3-year appointment term.
The defects bond is probably the most difficult to solve. Either the Government reconsiders introducing new home owners warranty schemes for apartments, limits liability of inspectors or goes back to the drawing board and implements the original suggestions that were designed to tackle major defects and have been used successfully around the world.
Had the policies that were originally contemplated been implemented the sector would not be in this situation. Take what’s going on at the moment within a falling market and there could be a major shakedown. All policies need to be evaluated and three years down the track it is critical that the strata reforms go under the microscope.
*Urbanised has clients in the strata and facilities management sector and Stephen Albin is a Councillor of UDIA NSW. The views expressed here do not necessarily represent the views of Urbanised’s clients or UDIA NSW.