Many strata managers who handle apartments are conflicted: here’s how

Ten of Australia’s leading consumer groups have now written to the federal treasurer calling for an urgent inquiry into Australia’s strata management industry.

The open letter from Choice, the Owners Corporation Network, the Australian Consumers Insurance Lobby and seven other groups follows this week’s ABC Four Corners investigation, showing many apartment owners were being ripped off by their strata management firms.

When the ABC asked property owners about suspicious activities in the industry earlier this year, they were flooded with more than 1,000 separate reports in a fortnight.

The allegations include hidden kickbacks from builders and insurance companies, their hidden ownership of companies with which they deal, and indifference to the needs of the property owners who employ them.

Even for us, some of the allegations were shocking. But many were not – because we had just concluded our own separate investigation into strata management. We found an extraordinary array of ethical tensions in the industry.

So what did we find? And what does our research show us needs to happen next?

How many people are potentially affected?

An estimated 16% of Australians – four million people – live in strata and community title properties. They own their own residences but share common ownership of shared spaces, including the buildings and grounds.

All strata owners automatically become members of an owners’ corporation, which is responsible for maintaining and managing the common spaces and usually contracts a strata manager to help with the work.

In practice, individual strata managers are often asked to provide guidance and advice, and can influence how a property is managed.

The developer often chooses a strata manager to work for the owners corporation, so that when individual units are sold or transferred to buyers there is a manager in place.

Although employed as an agent of the owners’ corporation, the strata manager has an opportunity to benefit by securing kickbacks for referrals to service providers and charging brokerage fees for insurance and other contracts.

We found conflicts of interest abound

We’ve spent the past three years investigating how we can rebuild trust in residential building construction in Australia.

Funded by the Australian Research Council, Australia’s professional standards councils, legal firm Corrs Chambers Westgarth, and the Queensland and West Australian governments, our Constructing Building Integrity report, was published just last month.

Our research found uneven – and in places nonexistent – regulation of the strata management industry. This leaves some people living in apartments or other strata title properties ripe for exploitation by unscrupulous operators.

To be clear, not all strata managers are unscrupulous. Many do a good job in difficult circumstances. And some states require strata managers to be licensed or registered and have minimum qualifications – but others do not.

The industry’s national peak body has a code of conduct and complaints process. However, the most serious penalty is a loss of membership and referral to a licensing authority (if one exists).

Strata managers have many bosses

As well as the conflicts raised by their own self-interest, individual strata managers have many “bosses”, including the owners corporation, the strata committee and its individual office holders, the developer who might have hired them in the first place, and regulators.

Each of these “bosses”, who expect the strata manager to respond to its concerns, can exert pressure. But responding to one boss can mean frustrating another. It might even result in avoiding crucial ethical obligations.

An example is the tension between obligations to the owners’ corporation and the interests of the developer who hired the strata manager.