Question: Is it fair for owners to bear the cost of a strata manager’s lost commission income if insurance commissions are banned?
Leading up to the renewal of our strata manager’s contract, we received the following notice:
“As you may be aware, there has been increased scrutiny on the strata industry over the past 18 months, particularly in relation to insurance commissions and disclosure obligations. It now appears inevitable that the Government will move to ban insurance commissions for strata managers… When commissions are prohibited, this will have a significant financial impact on our business as it will remove a key source of our income. To ensure the continued sustainability of our business, we will have no choice but to adjust our management fees accordingly… our management fees will increase to offset the anticipated loss of commission income, and we will no longer receive any insurance commissions when arranging the renewal of your insurance.”
We are a three-lot scheme. Is our strata manager entitled to increase their fees to cover the income they will lose when insurance commissions are banned, and is it fair for owners to bear that cost? Are other strata management companies in NSW having similar conversations with their clients? What other options do we have?
Answer: “Fairness” is complex, but the shift away from insurance commissions should ultimately lead to more transparent pricing for everyone.
“Fairness” is difficult to define; however, ultimately, a strata agency is a business, and it has operational costs that must be covered to perform its duties and/or services effectively.
Notwithstanding this, the movement away from insurance commissions in the industry centres the operational costs into the management fees. It provides for more transparent pricing between strata agencies and the owners corporations (OC) in their carriage, which will subsequently lead to “fairer” contracts and pricing overall.
In addition to monitoring commissions and strata management fees, the OC should also take initiative and assess whether or not an adequate reduction to their annual premium comes into effect, following the removal of any commissions, as historically these two fees would likely have been combined into one payment.
To provide further clarification, when implemented ethically, insurance commissions for strata management agencies have traditionally been a commercial arrangement between their agency and the relevant broker, effectively to offset operating costs for the OC. They are often a representation of the economy of scale relevant to the total percentage of the strata management agency’s portfolio being placed with said broker.
Unfortunately, the unethical activities and manipulation of the allowances in the overarching legislation by a handful of strata management agencies in the industry have resulted in unjustifiably high commissions and/or undisclosed dual ownership of brokerage firms, which would have likely inflated the premiums for the OCs in their portfolios regardless.
While the current spotlight and pending action with respect to this arrangement will mitigate the opportunity for unethical and manipulative practices of the agencies who were operating in this manner, it will also remove necessary income for the strata agencies who weren’t doing so.
This post appears in the August 2026 edition of The NSW Strata Magazine.
Megan Parkins
Tender Advisory
E: megan@tenderadvisory.com.au
P: 0435 893 670
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