Hey everyone, it’s Allison Benson here from Thoughts of a Strata Lawyer. Today talking to you about The Report.
By that I mean the New South Wales Productivity and Equality Commission’s report into strata commissions, reviewing those. Specifically, what it looked at was the market impact of the government prohibiting the receipt of conflicted payments, or in more normal speak, strata managers and those in the strata management industry accepting commissions.
The report was much, much broader than I expected, it’s a great report. It builds upon the work or acknowledges issues that have been raised by Dr. Nicole Johnston in her report about conflicts of interest that are endemic in the strata industry. I’ll link her report in (see link at end of blog) Previously she said that there are just pervasive conflicts of interest in the strata industry and that’s exactly what the New South Wales Productivity and Equality Commission report said.
The Commission have found that there was a “fragmented and opaque remuneration model” and a “fragmented and less engaged consumer base”. Effectively they’re saying that it’s a difficult-to-understand fee pay structure with our strata management contracts and unfortunately we’ve got lot owners; it’s just not an engaged base of consumers basically. One of the reasons for that could be that lot owners don’t know that this is necessarily an issue so they might not understand it’s an issue. Also when you’re talking about a payment that is spread across many owners, it’s a little bit different to a payment that you are solely responsible for.
What the finding has been is that disclosure, the disclosure requirements that we’ve been seeing introduced by the New South Wales government that came into effect in the last couple of years in our Strata Schemes Management Act 2015, will have strengthened disclosure requirements. However, they’re not likely to address lot owners’ understandings of the commissions and/or not address it adequately anyway: so disclosure is good but it’s not enough.
At its bottom line the report has found that prohibiting strata managers from receiving commission payments from service providers such as insurers is going to benefit strata owners but it’s also going to benefit New South Wales generally because it will create a more transparent and resilient strata sector. That’s all good stuff.
It found that prohibiting commissions would:
- improve trust or increase trust
- improve competition within the industry because you can now compare apples with apples
- level the playing field
- simplify payment structures so that lot owners are better able to understand how they are remunerating, how they’re paying their strata managers
- improve service quality because you get what you pay for and now you know what you’re actually paying for
- decrease strata costs
I’m not 100% sure or 100% behind that )decreasing strata costs) because I think some of the costs will be passed on. I think that’s inevitable because strata management fees will have to rise because they have been subsidized by the insurance commissions. It might be a drop. I’d suggest it’s probably only going to be a smallish drop. The report goes into that in some depth.
The report also says that, by prohibiting this, the acceptance of commissions, not just by strata managers but within the strata sector, so the whole service chain, will actually help address some of the vertical integration that we’ve been seeing.
Some of the strata management firms have, for instance, had relationships or joint ventures with insurance brokers and either have relationships, by which I mean they may share directors or they may have equity in management firms, so building management firms or facilities management firms, potentially even a debt recovery firm.
That’s the vertical integration I’m talking about. It’s not just your strata manager but your strata manager may also be related to the entity providing building management services, the entity that’s providing your insurance brokerage, and potentially sometimes debt recovery services as well.
Prohibiting commissions in that entire structure will help lot owners, is what they’re the report says and the report recommends that commissions be phased out over a three-year period to support the industry. It recommends rolling out training and it really does take into consideration the needs of strata managers as well because we don’t want our strata management industry to collapse but we do need it to transform.
It’s recommending that these reforms, so the prohibition be brought in and phased out the accepting of insurance commissions over the next three years, and that there’s going to be monitoring of these conflicted relationships. Any chance where a service provider may be providing commissions is recommended to be monitored into the future. It really does have the New South Wales government’s support for both the strata industry sector, which is really, really important to help them make the transition, and lot owners in actually understanding the changes over the next couple of years.
Really exciting times ahead. Let’s see what government does with this. As always thanks for listening and let’s see where we go with this. Thanks.
Dr Johnson’s report is here: https://strataknowledge.com/at-the-crossroads-addressing-pervasive-conflicts-of-interest-in-strata-management/
My previous blog on Dr Johnson’s report is here: https://allisonbensonau.com/2025/10/15/reforming-australias-strata-industry-key-insights/
Allison Benson Kerin Benson Lawyers E: allison@kerinbensonlawyers.com.au P: 02 4032 7990
This post appears in Strata News #785.
This article has been republished with permission from the author and first appeared on the Kerin Benson Lawyers website.
Are you not sure about some of the strata terms used in this article? Take a look at our NSW Strata Glossary to help with your understanding.