A Sobering Reality When it Comes to Owners Corporation Contracts
In April 2019, we received a phone call from a lady who lived in an apartment in Brunswick, in Melbourne’s inner-north.
She had bought off-the-plan and the building of 38 apartments was only about 10 months new.
However it had already become clear that the costs of running the building was well in excess of what they were told when they bought off-the-plan.
Why and What Happened to the Owners Corporation???
- Developer conceived an idea for a new development and buys a development site;
- Plans were lodged and approvals were granted;
- Nice renderings and glossy brochures were printed;
- Real estate sales agents were engaged;
- A draft owners corporation budget is prepared and used by the sales agent as the basis for estimating OC levies;
- Sales contracts are drafted and signed; 1-2 years later you’ve got a brand-new apartment building;
- The plan of subdivision is registered with Land Data Victoria and the owners corporation came into existence;
- Before settlement took place, the developer is the 100% owner of all 38 lots;
- The building needs a number of service providers for it to run – owners corporation management company, caretaker/cleaner/building manager, lift service contractor, car stacker service contractor, waste collection company, essential services, contractor, utilities providers, a telco company for the lift phone line, and so on.
- The inaugural annual general meeting ‘happens’ – in that, it’s typically a paper meeting between the developer and the owners corporation manager;
- Contracts for all these services providers are entered into;
- The litmus test is really when the owners move in and the budgeted costs vs actual costs come into play.
In What Universe Does it Cost $170k to Run a Building of 38 Apartments???
After less than a 1 year of living there, the owners were being forced to pay close to $4,500 in owners corporation levies per year (instead of the $2.4k that they had signed up for).
We met with the Committee and through the financials – it was clear that a lot of these services contracts were well above the market rates!
To compound things – the Committee informed us that essentially the service providers were not ideal…
And it was no wonder that the developer appointed owners corporation manager had the foresight to delegate themselves the power to raise special levies in the Inaugural General Meeting Minutes:
We really felt for these owners and the Committee – they were mostly young professionals buying their first home but finding themselves in this debacle.
After a small protracted battle, we managed to swap out the owners corporation management company.
The new strata manager is a gun, she’s sharp, diligent, and knows her owners corporation legislation.
The Committee picked her after a few interviews and while her fees were less than the developed appointed manager – the more critical thing is that she’s helping the owners work through (and hopefully unravel) all those other service contracts.
Is There An End in Sight?
We Live Here – an advocacy group established in December 2015 to give a voice to apartment owners (in an article April 2018) called for:
- Limiting developer-appointed contracts to 12 months to allow new owners to have a say and input into their strata management options;
- Requiring all management contracts to be disclosed in the section 32 to allow prospective buyers to be informed;
- Mandatory disclosures of all relationships between developers and service providers;
- Prohibiting any person with an interest, shareholding, directorship or association with a property management company from being elected to the Committee; and
- Compelling all contractors to disclose commissions paid to developers or building managers.
We couldn’t have put it better ourselves. Hopefully in two more years we’ll start to see some changes.
If you’ve bought an apartment in the last 5 years and want to have a conversation about how your building is being run and managed – speak to Strata Management Consultants™ on 1300 917 848 or via firstname.lastname@example.org