Key Takeaways:
- Buying off-the-plan can hide costly surprises. A Brunswick apartment owner saw levies jump from $2,400 to $4,500 in a year due to overpriced service contracts.
- Developer-appointed contracts can trap owners in bad deals. Long-term agreements are often signed before owners have any say, locking them into inflated costs.
- Advocacy groups are pushing for reforms to protect owners. Proposals include 12-month contract limits, mandatory disclosures, and bans on conflicted committee members.
What happened to the owners corporation levies after this Brunswick apartment owner moved in?
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.
How do developers set up owners corporation contracts before buyers have any say?
- 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.
How did overpriced service contracts push this building’s running costs to $170,000 a year?
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.
How did changing the owners corporation manager help this Brunswick Committee?
The Brunswick Committee discovered that expensive contracts and rising levies were only part of the problem. Once they changed managers, they were able to take a closer look at the building’s arrangements and start working towards better outcomes for owners.
If your Committee is questioning whether your current manager is the right fit, our Consultants can help you understand the process of changing owners corporation managers and compare your options.
Contact our team to discuss your situation.
