VIC: Bought an Apartment, Stitched Up by Owners Corporation Contracts

David Lin, Strata Management Consultants

4 years ago

This article about buying an apartment and being tricked by the Owners Corporation has been provided by David Lin, Strata Management Consultants.

A Sobering Reality When it Comes to Owners Corporation

Around a year ago we received a phone call from a lady who had recently bought a new apartment in Brunswick, in Melbourne’s inner-north.

She had bought off-the-plan and the building of 38 apartments was just coming onto 10 months since completion.

The ghastly reality was that their owners corporation levies to run the building were grossly in excess of what they were told when they bought off-the-plan.

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Why and What Happened to the Owners Corporation???

Developer conceived an idea for a new development and bought a development site;

Plans were lodged and approvals were granted;

Nice renderings and glossy brochures were printed;

Real estate sales agent/s / or channels was/were engaged.

Typically, an owners corporation manager prepared a draft owners corporation budget – that estimated the running costs of the building.

Now remember it’s just a budget – there’s no real scrutiny of that budget (or rather there should be by the prospective buyers!).

Sales contracts were signed, cranes were lifted onto the site, and 1-2 years later you’ve got a brand-new apartment building.

Before settlement took place, the developer was the 100% owner of all 38 lots, the plan of subdivision was registered, and the owners corporation came into existence.

The building needed a number of service providers for it to run – owners corporation management company, caretaker/cleaner/building manager, lift service contractor, car stacker service contractor, waste collection company, essential services, contractor, utilities providers, a telco company for the lift phone line, and so on.

The first annual general meeting ‘occurred’ – in that, it’s typically a paper meeting between the developer and the owners corporation manager;

Contracts for all these services providers were entered into (ideally these contracts with good providers at a market price…).

All the owners moved in and 6-12 months later came the litmus test as to whether the budget vs the reality match up.

In What Universe Does it Cost $170k to Run a Building of 38 Apartments???

After less than a 1 year of living there, the owners were being forced to pay close to $4,500 in owners corporation levies per year (instead of the $2.4k that they had signed up for).

We met with the Committee and looked through the financials. It was clear that a lot of these services contracts were above the market rates.

To compound things, the Committee informed us that essentially the service providers were not ideal…

We really felt for these owners and the Committee. They were mostly young professionals buying their first home but finding themselves in this debacle.

After a small protracted battle, we managed to swap out the owners corporation management company. The new manager is a gun who’s sharped, diligent, and knows her owners corporation legislation. The Committee picked her after a few interviews and her fees were less than the developed appointed manager but more importantly, she’s helping them work through all those other service contracts.

Where Will It End???

We Live Here, an advocacy group established in December 2015 to give a voice to apartment owners (in an article from April 2018: Embedded kickbacks) called for:

Limit developer-appointed contracts to 12 months to allow new owners coming in to have some say in how the contracts are awarded;

Require that all these management contracts should be disclosed in the section 32 to allow investors to be aware of the costs;

Make it mandatory for all relationships between the developer and contractors to be disclosed;

Proscribe any person with an interest, shareholding, directorship or association with a property management company from sitting on an owners corporation committee; and

Compel all contractors to disclose commissions paid to developers or building managers.

We couldn’t have put it better ourselves. Hopefully, in two more years, we’ll start to see some changes.

David Lin Strata Management Consultants E: david@strataconsultants.com.au P: 1300 917 848

This post appears in Strata News #400

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