How many times have you had the sneaking suspicion your strata scheme is not entirely above board? That the apartment renovations undertaken by your neighbour and strata committee member are slightly on the lavish side? That the sinking fund has sunk your hard-earned cash into the Rolls Royce of maintenance which delivers no obvious benefits over the garden-variety type?
Despite concerns and obfuscations, living in strata-title communities with shared resources, assets and facilities has never been so popular: it is the fastest-growing form of property ownership in Australia, drawing about three million people.
Beyond the freehold home with a large backyard lies the generally cheaper and purportedly more stress-free option.
But enter the often-polarising politics of strata and you’ll find high-density living can be pitted with deception-ridden, murky landscapes.
How to navigate the hotbed of issues within strata schemes — a minefield of laws, by-laws and conflicts of interest — is a frustratingly complex process.
In worst-case scenarios, victims of notorious NSW building failures over the past several years have been forced to evacuate their apartments while battling protracted years-long processes for remedial work while still paying mortgages and rentals to live elsewhere.
Reports of leaking homes or water penetration, harmful mould and cracking walls have become too commonplace as owners are left to pay special levies escalating into hundreds of thousands of dollars for defects after builders and developers have gone bankrupt.
In this insidious web, owners find they can’t sell and consequently suffer the devastating psychological impact of losing not just their homes but the largest asset of their life.
Or they can fight a largely intractable system and fork out big bucks, themselves, for structural repairs.
Such was the case of Aidan Ellis, whose unit in Charlestown’s Landmark Building — labelled one of NSW’s most high-profile building failures — was inundated with water running, as he puts it, through every orifice: walls, windows, ceiling. The 75-year-old has outlaid $60,000 for repairs to his unit since 2016.
The unit had no insulation, no structural bracing and the James Hardie cladding was incorrectly installed.
Landmark, which won a Master Builders Award for excellence in 2008, was the subject of a 2019 building regulation parliamentary inquiry during which it came to light the strata committee knew of the defects since 2009. Systemic problems, such as phoenixing and insolvencies, were highlighted after the Opal and Mascot tower failures in Sydney in 2018 and 2019 which saw hundreds evacuated, and some from Landmark, including Ellis.
He has been fighting state governments since 2013. “The law itself is corrupted. The strata committee” — which he has repeatedly tried and failed to join — “refused to even look at the problems.”
Its reliance on investor-owners for proxy votes gives it all power and the so-called democracy has failed, he says.
Ellis’s unit has been stabilised; work continues but not all units are under repair.
Though sweeping new powers were granted to the NSW Building Commissioner David Chandler in 2020 to take action against defective building work, it’s unclear what real impact has been achieved.
A convoluted system with a tangle of players — from developers, builders and strata managers to committee members — continue to paint a nebulous picture, underlying building and maintenance failures and strata levy blow-outs.
Like Ellis, owners navigating strata schemes often feel the ill wind of resistance and apathy at all levels, including from last-resort complaints bodies, like the NSW Civil and Administrative Tribunal (NCAT) or NSW Fair Trading.
At each juncture owners find doors close. Should they persist, there is the likelihood they will find themselves at the centre of a vicious campaign led by fellow strata owners.
As a 2019 UNSW City Futures Report explains: “Pursuing legal action can also further disadvantage owners as it may affect the reputation of the building and the value of owners’ apartments.”
Anna — a pseudonym due to ongoing legal proceedings — and her husband, who have been fighting to stop water penetration from the roof of their top-floor Sydney apartment for seven years, know the repercussions only too well.
The couple have spent a million dollars on legal fees and special levies raised to fix the leaking roof — a legacy from the previous owner who covered up defects.
“Neighbours abused us and we were alienated by the propaganda spread by a hostile committee which refused to comply with NCAT orders to repair the common property,” Anna said.
“My house is unsellable. I have water damage, leaking and mould everywhere. No one would buy it in a million years. It’s like Mascot Towers.”
Let the couple’s presale once-over from a builder friend be a lesson in obtaining certified inspections.
Water leakages remain a major problem in Australian buildings that have been poorly built for the past 15 to 20 years. Even if repairs have been done it’s no guarantee the building is sound and experts say sometimes the only solution is to dismantle the building.
Since London’s Grenfell Tower fire disaster in 2017, the Australian government has looked at fire safety. But there are systemic fire issues in Australian buildings and the government has reportedly limited its focus to certain complaints.
Too often the complexity of the strata system is a screen for a lack of transparency and accountability, conflicts of interest and lax reporting due to a paucity of data. Moreover, clunky legislative differences from state to state are major complicating factors.
Despite some progress on regulation over conflicts of interest in the past few years, the extent of dubious, deep-rooted practices and the involvement of various players receiving kickbacks and referrals are unclear simply because of an absence of data, Deakin University strata researcher, Nicole Johnston, says.
What is not disputed is that the strata world has a definite underbelly, with commissions and kickbacks rife.
How did apartment living — a booming sector predicted to comprise more than half of Australia’s new dwellings in metropolitan areas in the next decades — become so dysfunctional?
With so many players after a slice of the pie, it’s unsurprising corruption is at the heart. You need only look at the near trillion dollars in property value and billions of dollars in economic benefits to the national economy to grasp the motivation, says Karen Stiles of the Owners Corporation Network of Australia.
Clearly, poor practices can easily flourish without proper scrutiny and regulation. In light of this, an independent group has launched an Australian review into insurance disclosure and transparency of remuneration.
Steadfast Group is investigating disclosure of lucrative insurance practices by strata managers who commonly receive rebates of broker commissions while brokers simultaneously charge fees to owners’ corporations. In turn, unit owners share the costs of mandatory insurance policies.
Despite regulators’ focus on conflicts of interest, many strata owners are frustrated in their attempts to generate change. Most know, for instance, that service providers given referral work by strata managers add commissions and fees along the way, with owners copping trickle-down costs.
Nicole Johnston points to the problem of strata managers, initially engaged by developers, yet working on behalf of owners’ corporations: strata managers get future work from developers though their legal obligations are to owners’ corporations.
“It becomes an extremely conflicted interest environment. It’s a really problematic practice and continues to happen.”
But raising one’s head above the parapet can be daunting. Some unit owners who voice concerns about their managers or other involved service providers receive legal letters warning them to stop or be sued.
Common complaints are that there’s no support and education in strata frameworks, nor information collected, and that governments at all levels are strata blind, particularly on safety, while disaster funding to individuals and small business is foremost.
Which goes to the heart of chronic underfunding for capital works and neglect over basic maintenance, resulting in massive special levies. In addition to quarterly levies, a capital works fund report should be drawn up every 10 years, forecasting anticipated common area expenditure.
Where older buildings have fallen into disrepair because money hasn’t been incrementally allotted for a sinking fund, or capital works, over years, special levies will be repeatedly applied — despite a regulation for allocations for such things as a lift replacement.
Owners bear the brunt of forecasting deficiencies and ineptitude.
In new schemes created by developers, a tactic is to price-point the levies as low as possible at a range marketable to potential buyers, resulting in an untenable underestimation of the real budget, obviously impacting owners.
Of all the gripes expressed by frustrated strata owners, a standout is the power wielded by committee members, often criticised as incompetent, corrupt and impossible to unseat because of “proxy farming”, or stacking of votes. Though the practice has been limited by law in NSW, how that plays out on the ground can be entirely different.
Open to loopholes and manipulation, the state law allows strata owners to lodge proxies to support particular causes, whether it’s a vote in favour of a resolution or against. Of concern is that strata committees — comprising a NSW maximum of nine members — are stacked with inexperienced, self-interested and uneducated people with personal agendas; not for remedial work but for cosmetic work to add value to property, Nicole Johnston says.
In a common practice, a few working in unison can use proxy votes to achieve their objective, despite few people having actually voted. Apathy on the part of other owners also means decisions can be easily passed.
“A problem is that committee members have been entrenched for decades. Everyone is there for the long run — you have to wait for them to die out,” says Johnston.
Unknowledgeable committees are also easy prey for market suppliers on the make, quoting exorbitant fees for locked-in contracts. Compounding the problem, strata managers may lack expertise on infrastructure involving complex repairs: things may get done at top dollar or not at all.
Herein lie the obstacles for unempowered owners, outliers kept at the bottom of the food chain and viewed as cash cows to be milked by everyone in the stratasphere.
As long as players continue to skim the cream off the top of schemes that no one has the inclination to change, hydra-headed conflicts will probably mutate. And the dream of owning your own home may sour as suspicions become all too real.
Deborah Cassrels was The Australian’s first Bali-based correspondent and has written extensively on refugees, politics, terrorism, crime and social justice. She was nominated for a Walkley Award in 2016 for her work on terrorism in Indonesia. Her first book, a memoir about her journalism in Indonesia, titled “Gods and Demons”, was published in 2020.