A NSW Lot Owner is concerned about their Strata Manager misappropriating funds. Leanne Habib, Premium Strata provides the following response.
Question: We’re concerned our Strata Management Company is experiencing operating problems. Are there safeguards in place to ensure the Strata Manager is not using our fees to prop up a failing business?
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We’re concerned our Strata Management Company is experiencing operating problems. In the last 12 months we have had 6 different Strata Managers who all disappear and we are told they are either on sick leave or personal leave and then they mysteriously vanish and then a new person makes contact each time. Some are only there for 2 months.
Now the Principal is answering our emails after telling us that the most recent Manager was on 2 weeks sick leave. Today they are now confirming he has left also. If a Strata Management Company becomes insolvent are the Owners Corporation’s funds safe? Are there safeguards in place to ensure the Strata Manager is not misappropriating funds and our fees are not used to prop up a failing business?
We are out of trust when it comes to our Strata Management Company.
Answer: The strata manager has a fiduciary duty NOT to misappropriate the funds which belong to the owners corporation ie it is a relationship of trust.
The strata manager has a fiduciary duty NOT to misappropriate the funds which belong to the owners corporation ie it is a relationship of trust.
The owners corporation’s funds should be in a trust account and those funds should only be accessed for bona fide owners corporation’s purposes. If there has been a misappropriation of funds or if the manager becomes insolvent, this would be grounds for termination of your strata management agency agreement and should be reported to the Office of Fair Trading.
Related article: NSW: Q&A Strata Manager Complaints
This post appears in Strata News #276.
Read next:
- NSW: Switching from Being a Self-Managed Strata Scheme: First-Hand Experience
- NSW: Q&A Changing Strata Managers Can Be Difficult
- NSW: Q&A Strata Manager Won’t Admit to Insurance Commissions
Leanne Habib
Premium Strata
P: 02 9281 6440
E: [email protected]
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These articles are not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
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Yes, the reliance on what Strata Mgrs ‘should’ do in terms of their ‘fiduciary’ duty, or that the strata funds ‘should’ be in a Trust account, or that those funds held in trust ‘should’ only be accessed for bona fide purposes is all very well. But none of these three ‘shoulds’, provide any system, process or barrier to actually stop an unethical, fraudulent or desperate strata manager from doing whatever they choose. Once the owner’s funds are gone, they are gone! Our strata manager stole all the funds from the 32 owner’s corporations he was managing – including ours – and fled the country. His BCM firm went into bankruptcy and an administrator sold our 32 ‘accounts’ to another BCM without our consent or involvement. It was a complete debacle and there was no regulator or effective third party oversight, other than the Police Fraud Squad. The matter has been going through the courts for 2-3 years without definitive prosecution outcomes. We did get most of our funds back through our strata insurance, but committees & owners need to remember that every insurance claim comes at a cost – the cost of the excess, the cost of your strata’s profile with their insurer, and the cost of the following year’s premium increase that will invariably be jacked up way beyond CPI as a consequence of the claim! BUT there are two things committees and owners can do.
(1) set an annual budget & cash flow that tightly predicts and aligns levy income and strata outgoings to a near balanced budget. This means there will never be huge surplus balances in the Admin Fund (the $$ that are in the manager’s trust account) and that if the funds are stolen or used fraudulently, it will become evident sooner, as the manager won’t be able to pay your scheme’s bills.
(2) shift all (or most) of the Sinking Fund into an independent and stand alone capital guaranteed term deposit, where the committee members are joint signatories or at least have view access of the fund balance, totally independent of the strata manager. Up to $250K invested with any of the main banking institutions, will benefit from this Govt capital guarantee and committee members can log on and view balances and transactions 24/7 from the comfort of their own laptop!
Remember, if you do outsource stewardship of all your scheme’s funds to your strata manager, even sighting the BCM’s statements of your scheme’s funds can be meaningless. Our fraudster was producing doctored trust account statements showing our scheme’s apparent Admin and Sinking Fund balances, long after he had commenced siphoning our funds away from illicit purposes!!
Is it worth to pursue a previous Strata Manager for wrongdoing to make Fair Trading aware?
SM did not put two motions from me in the AGM August 2018, one to terminate and one to appoint and vote on another Strata Manager. I sent electronic voting papers but also requested in writing to participate via phone at the AGM. I have not been called.
The minutes only say that I was not voting to continue with SM. We are only three parties in the Strata Plan. One party was not financial, hence the vote void, but accepted by SM.
I queried the accounts, which SM recorded in the minutes as accepted. They never responded to explain $200 coming out of our Trust A/C until December 2018 when I firmly asked the accounts person to clarify what happened. A company was paid for yard maintenance on four occasions, which never set foot on our premises. We have been reimbursed, however, the next financial year $50 was paid again to the same maintenance company from our funds. It has been reimbursed upon my query.
SM never arranged for yard maintenance as agreed in the contract.
SM changed Licensees and tried to bully us signing a new contract, which was an opportunity for us to change Managers altogether.
Unit 2 has a tenant who does not comply with most of Strata Laws. SM suggested that I could make an application to the Tribunal as an individual owner, but he never provided me with proof of contacting the tenant to comply. I have now sufficient proof to make a valid process against the tenant, which is pending for hearing.
I know from other Owners Corporation that SM bullied them in signing a takeover contract.
I am wondering if it is worth the trouble making a complaint to Fair Trading despite the fact that SM is no longer active as our Strata Manager.
Petra Schwarz
ADMIN – the strata manager’s name has been redacted from this comment and replaced with SM
I suspect the lot owner already knows their strata manager is not legally allowed to run off with their money. It might give them comfort to also know that under the NSW Property Stock and Business Agents Act, all agencies are required to have their trust accounts audited on an annual basis and to report any irregularities to the Office of Fair Trading. They can ask for their own audit at any time too, which sounds like a sensible thing to do right now. And finally, if it turns out their strata managing agency has in fact dipped into the trust kitty to top up their Christmas fund, as long as they are properly insured they will have recourse to the Fidelity Guarantee policy for reimbursement up to the limit of that policy, typically $100k.