Body Corporate Services and the strata scheme from hell (Part 1)

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(Image via ‏@collawaust )

Dr Evan Jones examines an instance of "buyer beware" strata title ownership which highlights the shortcomings of legal rights for owners.

SOME ARENAS of corruption and rorts receive tolerable coverage in the media. By contrast, the strata management sector has kept well under the radar.

A great and unheralded advantage of house ownership is that it’s not strata ownership, which is a pain at best, a disaster at worst. Nightmares in the making.

There are the obligatory levies — typically sizeable. Who can afford them and does one get services appropriate to the sums involved? There are the over-the-top special levies (who would have counted on the builder being a complete shonk or the lift breaking down?). There are the perennial owners corporation conflicts.

Selling up is the only way out of a dysfunctional strata plan. Apart from sizeable selling and buying costs, if one can’t afford a stand-alone house, the only alternative is another strata plan. Is it preferable to tolerate the devil you know?

Strata scheme regulation

In New South Wales, strata schemes operate under the Strata Schemes Management Act 1996. The Strata Act has long been administered by the Department of Fair Trading, formally a haven of support for the vulnerable. Fair Trading has recently been downgraded to an agency and installed in the junior Ministry of Innovation and Better Regulation (sic), in turn within the hydra-hatted Department of Finance, Services and Innovation (sic) under a crackpot Minister.

Fair Trading does have a mechanism for complaints regarding strata schemes. It is a three-stage mechanism: mediation, adjudication and deliberations by the Civil and Administrative Tribunal (NCAT). But the processes are highly bureaucratised and drawn out — onerous if the problem is urgent.

The mediation stage presumes rationality and goodwill on the part of the opposing parties — but it must be gone through, even if those required conditions are absent.

The adjudication and tribunal stages under NCAT are legalistic. This legalism has the potential advantage of Tribunal personnel dictating to aberrant parties the necessity to conform to strata law and to fair play. Albeit there is a potential disadvantage (as with the broader court system) in so far as resources count. Generally, the victims are those with the least resources.

The Strata Act is in the process of being amended by the Baird Government, with new laws in place by the end of 2016. 

There has been a great deal of hoopla about these changes. However, they are mostly oriented to developer interests (who would have guessed?) with the aim of giving developers more ready access to "tired" apartment complexes. Previously, unanimous consent of owners was required. Recalcitrant strata owners will no longer be able to hold against a large majority wanting to sell up.

Other than easier procedures for an owners corporation getting rid of a dysfunctional strata management, there appears to be little in the amendments that deals with innate problems in strata schemes, flaws in the current legislation and in the laborious processes overseen by Fair Trading.

The strata scheme from hell

This arena has come to light recently when I sought to help a person, “Alex”, trapped in a dysfunctional strata scheme. "Dysfunctional" is to put it mildly.

Alex bought into a strata scheme in the Wollongong area in August 2015. Behind this unfortunate purchase lies another complex story that would have provided a significant backdrop to what follows but that cannot be pursued here.

The scheme comprises a mere three units. An unprepossessing house had as its major asset a large backyard. Some opportunist seized the day and had two (newly unprepossessing) units built in the backyard in 2003 and strata-ed the outcome. Voilà. The stand-alone house becomes Lot 1 in the new scheme.

It turns out that the house needed urgent repairs, in particular to a leaking roof and leaking and non-working shower, which rendered the house uninhabitable. Alex was not privy to a builder’s inspection report (which she paid for) before she signed the contract which pointed out these faults.

Having aborted an attempt to move in, Alex sent a detailed letter dated 7 October to Body Corporate Services (BCS) Wollongong, seeking action, citing excerpts from the builder’s report and elaborating on legal and safety repair imperatives. The letter also cites previous expenditure on Lot 1’s roof and the lack of attention to the seeming failure of this expenditure to achieve results.

There was no response.

Only several weeks before Alex’s settlement date, the annual general meeting had taken place, under a novice strata manager, “Kate”. The other two “owners” (one is a proxy) were present and constituted themselves as the Executive Committee. No acknowledgment was made in the AGM minutes of changing ownership of Lot 1.

The only acknowledgement of Alex’s status was a pro forma letter from BCS head office, welcoming her to “strata living”, and promising her a bounteous array of helpful services. The only name on this letter was that of the previous manager of this particular scheme, already resigned. There was no communication from current BCS staff or from the Executive Committee. 

Alex attempted from the start to engage with responsible personnel at BCS Wollongong on her concerns — at that stage not knowing any names. To no avail. She was met perennially with a stone wall at reception. When Alex noted initially to reception that she wanted to raise repair issues with BCS personnel she was told that this was a "maintenance" issue and was put through to one of the low status time-share maintenance staff, with whom she subsequently had some friendly telephone calls. At some stage, Alex was prevented by reception from further contacting this person and was directed to the other maintenance person who then proceeded to give Alex short shrift.

In short, Alex was early ignored and then shut out from interaction with and assistance from responsible personnel at BCS Wollongong, being effectively made a non-person and denied her legal rights as a member of the owners corporation.

There were heavy rains over summer. Alex installed buckets to capture the leaking water and plastic sheeting to protect the floor and floor covering. Still no concern from strata management.

In March, proxy/owner 2/3 pursued approval for repairs to their own units – repairs essentially deferrable, by contrast with Lot 1’s problems. Such repairs were first raised in the Executive Committee (the same two people) meeting that followed the AGM in September 2015, a three-minute meeting devoted purely to that issue.

The replacement strata manager Kate notified Alex out of courtesy of this meeting (though “nothing to do with her”). Alex used this opportunity to email to a named contact 9 March and ask:

As owner of Unit 1 since last September 2015, I as yet, had not received any information from you regarding any information on BCS Strata Management until your recent letter re this Friday's meeting. …

I haven't heard back from BCS Strata regarding my Unit, Unit 1, regarding issues identified and outlined by Unit 1 Building Inspection Report of August 2015 requiring urgent structural work needing attention. I have not received a reply from BCS strata managers regarding assistance as to what to do and how problems of my Unit 1 would be addressed and rectified. I would appreciate the procedure for this urgent required work outlined and explained.

 Kate emailed back:

'There is presently $XXX.00 in the sinking fund which is the funds used for the type of repairs you are requesting. This money has to cover all 3 units.'

Kate also indicated that she would be handing the issue over to the Executive Committee. Kate replied on 18 March with the Executive Committee’s decision after a rigorous circumnavigation of Lot 1:

We inspected the ventilation grates on Unit 1 and found due to the lack of maintenance of the gardens/lawns they were covered by overgrown bushes, also on the Southern side were stacks of roof tiles which could contribute to the dampness. The unit has not been occupied for several months with windows closed and blinds drawn which could also lead to the dampness of the premises. We would like to see this rectified before making a decision.

Aha, a supposedly unkempt front lawn and tile stacks (a fib: vents were not covered by any tiles) were apparently presumed to be the source of Lot 1’s sub-floor damp problems. Thus the sub-floor damp/drainage problem is to be swept away by a magic wand — and it’s all Alex’s fault for not keeping the grass trimmed! Such expertise. The implication, it appears, is that Lot 1’s damp/drainage/leaking problems should not impinge on the strata scheme’s hallowed Sinking Fund (of which more below).

A handful of tradesmen were belatedly called in for quotations for the roof and shower area, mostly in March and April. Some tradesmen declined to do proper inspections. Some quotations were useless, some adequate, some partial — a key one in aggregate form failed to differentiate estimates for urgent and deferrable repairs and for the attribution of costs (owners corporation, owner, insurance). Strata management has been seemingly indifferent to ensuring adequate quotations for rational decision-making, with the shower area quotes to this date incomplete. Is there a systemic problem with Wollongong tradesmen or is this an atypical sample?

Finally, an Extraordinary General Meeting was foreshadowed for 13 May, with roof and shower repairs for Lot 1 the dominant items on the agenda, implying a seeming intent of BCS Wollongong to belatedly get off its bum. The agenda also included a motion for a special levy to augment the Sinking Fund.

On 11 May at 4pm, Kate advised Alex that:

It has been requested that the Extraordinary General Meeting scheduled this Friday, 13th May 2016 at 4pm be postponed pending further information being sought regarding the repairs in particular the Owners have requested proof that the addition of the back sunroom (sic) was DA approved by Shellharbour Council and evidence provided that it is a legal structure before they will make any decisions on repairs. …

They have advised me that they are not willing to attend the meeting until this information is obtained and as they are 2 out of the 3 owners the meeting will be postponed.

The motivation of proxy/owner 2/3 is again transparent. The object is to excise Lot 1 repairs from owner corporation responsibilities and retain the Sinking Fund intact (presumably ready for repairs to units 2 and 3).

Kate emailed again to Alex, soon after:

'You may need to consider your options if the other Owners do not approve the repairs ie Fair Trading or legal advice.'

In reply to Alex’s request for information on this Council inquiry regarding her own property, Kate replied on 17 May:

… thanks for your email, it has been forwarded to the [Executive] Committee for their instructions. The Committee have advised that if you wish to obtain a copy of the documentation they obtained from Shellharbour Council you are more than welcome to email them directly on: …

Alex remains in the dark about the character and outcome of this pursuit.

On 16 May, Alex requested emergency action in the form of placement of a tarp over the leaking skillion area. Kate replied on 17 May:

'Please be advised that the Executive Committee have considered your request regarding the tarp and based on the advice from [XYZ] below have advised they do not wish to proceed. Kind regards.'

Kate’s immediate boss is “Anne”, senior manager of BCS Wollongong. Anne has a roving brief, which is an advantage if one wants to be somewhere other than where responsibilities lie. In emails to Kate, Alex has copied in Anne, to no effect.

In an extended email to Alex on Monday 23 May, Anne, belatedly bringing herself up to speed, attempted to summarise the evolution of the situation from year dot. The email was clearly not written for Alex’s benefit, as Alex has directly experienced an alternative scenario. Anne claims:

'I note from our records that a copy of the Building Report was forwarded to Kate on 7/3/2016.'

The implication is that this is the first that BCS Wollongong has heard of Lot 1’s problems. Curiously, the building report, which is Alex’s property, was not forwarded by Alex herself.

But BCS Wollongong received first notification of Alex’s key alert regarding necessary repairs contained in the builder’s inspection report of August 2015 in the 7 October 2015 letter. What does this mean for the quality of BCS Wollongong’s records?

Anne’s email also claims that '[Kate] has worked tirelessly to have these matters addressed as soon as possible.' The evidence refutes that claim. There was a flicker of commitment from Kate in the establishment of the 13 May EGM, but proxy/owner 2/3 nipped that dangerous development in the bud. BCS Wollongong has since disappeared behind the Executive Committee’s self-centred and unlawful dictates. Self-delusion is a dangerous affliction.

Anne’s email concludes with the proposition:

If a suitable outcome is not achieved you are able to apply for mediation and an order via the NSW Civil and Administrative Tribunal. Unfortunately this will still involve the approval of a quotation and raising of a special levy to have the works completed.

What does strata management get paid for?

A replacement EGM meeting for the cancelled May meeting was foreshadowed for 10 June. The agenda reproduces the lot 1 roof and shower quotations but the special levy motion is missing. Who made that decision?

The replacement EGM was duly held on 10 June. In the chair was “Harry”, previously unknown to Alex. Where Harry came from is unclear. Anne was missing in action.

I was there as proxy for Alex. Harry ran the meeting on a voting procedure. Rational discussion, of which I was the only proponent, was here an alien concept. Proxy/owner 2/3 voted down all motions presenting alternative quotations for the repair of the leaking roof and the non-functioning shower area. Quotations for repair of interior damage due to the leaking roof were passed over because roof repair was voted down.

Alex’s house remains unlivable, over nine months after purchase. Proxy/owner 2/3 supported the continuation of this status. The prospect is that this intolerable situation will continue indefinitely.

Harry, an avuncular fellow, characterised the clean sweep of proxy/owner 2/3 as “democracy at work”, with the presumed impartation of a modicum of legitimacy. On the contrary, J. S. Mill’s 19th Century famous warning against “the tyranny of the majority”, referred to the potential of the looming adult franchise to usher the cherished British polity into the hands of a presumed ill-tutored mob, to the detriment of the “public interest”.

Without catering to Mill’s elitism, at the 10 June EGM, the tyranny of the majority was here manifest at its most elemental level with an ill-tutored mob of two oppressing the lawful rights of a third.

The meeting’s unsavoury trajectory did, however, bring light relief in the guise of the remarks of proxy/owner 2/3 on their way to voting down all the repair quotations (excluding one at the tail end of the meeting relating to their own units, which remains pending).

Some instances (paraphrasing):

  • (Re the leaking and inoperative shower) “There were repairs to this area some years ago, and these repairs do not appear to have been registered with the Strata Plan.” Ergo, it is to Lot 1 owner’s account that these repairs must be financed. (The speaker was reminded by the Chair that the Lot 1 bathroom was indeed common property. To no evident effect.)
  • “The roofing leak is probably only minor. A figure of $6,700 is far too much for a tiny leak.”
  • “Does this roofing leak really exist? Where are the photographs?”
  • (In reply to my categorical statement that the house is uninhabitable), "Where is the document that states that the house in uninhabitable?"
  • “The [August 2015 pre purchase] builder’s report notes that the roof was not leaking.” The report of course immediately notes that it was not raining at the time! The report also noted in several places that there was evidence of roofing leaks that needed urgent attention (the bucket in the roof cavity was a giveaway); ditto the shower area.
  • “[Replacement of the external doors in units 2 and 3] constitute a safety issue.” And Alex’s leaking roof and non-functioning shower, repairs to which were denied by the two speakers, do not?

And so on. For those familiar with Kafka, one suspects that he had maliciously left the printed page and was appearing in cameo in downtown Wollongong. 

The minutes of the 10 June EGM appeared only after a three week delay. Apart from their minimalist character, they are inaccurate on significant matters, with serious implications regarding appropriate next steps for Lot 1’s non-repairs.

Fair Trading and the BCS Wollongong imbroglio

As it happens, Alex and I had been in contact with Fair Trading. Serendipitously, there appears a well-briefed officer (FTO) with some advice and initiative.

Said FTO, this scheme to which Alex belongs is operating outside the defining Act. In a letter to Alex on 9 June, FTO notes:

Whilst it is the role of the strata manager to provide assistance in regards to information around strata matters[, i]t is the owner’s corporation’s responsibility to make decisions in regards to repairs. This is covered in section 62 of the Strata Schemes Management Act 1996 that states:

(1) An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.

FTO had been in contact with Anne to remind her of the above. In his letter to Alex he also notes Anne’s response to him:

[Anne] advised NSW Fair Trading that:

— she was currently of the opinion that the proposed repairs to the shower and roof as per the notice of the Extraordinary General Meeting (EGM) were to items of common property

— the owner’s corporation has enough funds to cover the shower and roof repairs as proposed in the EGM scheduled for tomorrow and a such a motion regarding a special levy was not required for such works

Anne had expressed comparable views regarding necessary repairs and their financing to Alex in a phone call in late March. Nothing happened then. At the 10 June meeting, Anne was missing in action. Harry had apparently not been informed of the state of play (or was he there precisely to head off the Fair Trading intervention?). Significantly, apparently neither had proxy/owner 2/3 been informed.

FTO might also have noted in his letter to Alex that procedures (or lack of them) in her strata scheme were in default of s21 of the Act:

(1) A decision of an executive committee is taken to be the decision of the owners corporation, subject to subsection (4). …

(4) Despite any other provision of this Act, in the event of a disagreement between the owners corporation and the executive committee, the decision of the owners corporation prevails.

In this case, the owners corporation comprises three owners and the executive committee two owners. The executive committee has made itself synonymous with the owners corporation, with Alex disenfranchised.

Wollongong strata management has acted as the willing intermediary of the executive committee, regularly informing Alex effectively that she should stop being unreasonable, should know her place and stop bothering everybody.

And there the matter lies for the moment.

There are 200,000 stories in the naked city that is Wollongong. This has been one of them.

Dr Evan Jones is a retired political economist. This is the first of a two part investigation — part two tomorrow.

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