Archive for category: Leverage Review

It doesn’t matter where you are on the Australian continent; there are people within an owner’s corporation or community association who have to behave in a bipolar manner. Those who sit on the strata committee, executive committee, or boards of body corporates throughout Australia, have two masters. As a strata committee member, they are answerable to the body corporate or owner’s corporation, and at the same time, they are lot owner’s who are lawfully allowed to care for themselves.

Members of strata committees are like board members of a company. They are vested with fiduciary duties and duties of care for every board member. They are required to act in the best interest of the owner’s corporation or body corporate.

In NSW, strata committee members are required under Section 37 of the Strata Schemes Management Act 2015 to act with due care and skill in dispensing their strata committee duties. This means that, when voting in a strata committee meeting, a strata committee member must vote in the best interest of the owner’s corporation, not in their own self-interest.

As a lot owner at general meetings, you are lawfully permitted to be completely selfish. They can vote in their own best interest, in complete disregard for the best interests of the owner’s corporation. This is a regular event in strata and community title. The person may be sitting on the strata committee and voting on something, which is in their self-interest. Remember that, when serving as a committee member, the laws of conflict of interest still prevail. First, you must disclose a conflict to the other members of the committee; and secondly, you should disqualify yourself from any vote, which provides you with a financial or other benefit.

I have seen some people, quite properly, vote in two different ways. At the strata committee they vote in a particular way, which is in the best interest of the owner’s corporation. But when it comes to a vote in an annual or extraordinary general meeting, they vote in a completely different way. We may think this conduct is bizarre, but in legal terms, it is completely correct. I suggest that any committee member who has a motion before a committee, which is in their best interest, they should advise of the conflict, abstain from the vote and leave the room whilst the debate occurs. This ensures that you, as a committee member, are never criticised or held liable by an angry owner’s corporation and body corporate.

It is strange that we set up a structure whereby people have to act in a bipolar manner. They must balance the interests of the owner’s corporation and their own self-interest. We often criticise these people, however they should be applauded for taking on such a difficult task.

 

We often hear of the superstitions of elite sportsman when preparing or competing in a contest. For example, Steve Waugh had a lucky red handkerchief, which he used throughout his career. After a 20-year career, it was tattered and weather beaten but he took it on the field every time he was up to bowl. It seems no different with Real Estate. If a sale is to be achieved, a bit of superstition doesn’t hurt. It is not just the agents however; vendors and purchasers embrace superstition if it yields their objectives. Money may be the root of all evil, but financial outcomes have no boundaries.

Lets look at two stories, which prove this assertion:

The first happened about 12 years ago. It was in the height of the hysteria around the murder house case. For those who don’t remember, or it happened before your time, the Gonzales family mother, father & sister were stabbed & battered viciously many times by the son, Seth. An agent sold the house to the marketplace as a deceased estate. After purchasing the property, the purchasers learnt of the crime that occurred in the house 3 years before. Known as the “murder house” they reported it to the press and Fair Trading. This resulted in the celebrated case of Hinton vs. Commissioner of Fair Trading, which established principles around material fact. These are easily found online.

At the height of the hysteria, the “murder house” was considered strictly unlivable by the Chinese. According to many, Chinese culture that dictated you should never live in a murder house. I wonder where people lived after the Long March. There would have been many houses which had murders take place within them. This story shows that superstitious behavior can overcome this concern.

An agent showed a property in Lewisham. It was a beautiful house, which has been sold by the parents because one of their male children killed their brother. After showing the house, and taking offers from the young Chinese couple, the agent felt that they needed to make an important disclosure. She advised the couple that, “in that bedroom over there, a boy cut his brothers head off.” Colourful to say the least, but it was an absolute disclosure of material fact on the agent’s behalf. Seeing the trepidation in the couple, the agent suggested that they bring in a Catholic priest to do an exorcism of bad spirits. The young couple were not Catholic or even Christian. Nevertheless, they agreed excitedly to the agent’s suggestion. A Catholic priest was engaged and an exorcism was carried out on the house. Yes, the young Chinese couple did buy the property. By the way, they bought it for higher than the expected price.

You can be superstitious and it can be sometimes exactly what you need to facilitate your objectives.

The second story is that of a vendor. They had heard that the previous owner’s husband had committed suicide on the premises. Research could not confirm it. Contact with the previous vendor’s solicitor had rendered a negative response. Further investigations with the agents who’d sold the house previously and the previous vendor provided no such background information. Moreover, good old google shows that no such catastrophe occurred in that house. Don’t underestimate google for highlighting problems in a house.

The vendor was what you’d call a “skeptic”. No one has ever experienced any superstitious behavior from this person. Nevertheless, they hired a medium to come in a remove all bad spirits from the house. Did it work? Absolutely! The property sold the next week at a price accepted by the vendor. Superstition again prevailed and reared a successful outcome.

Is the vendor still a skeptic? Absolutely. It was just a lucky outcome. When questioned if they were superstitious enough to hire a medium, they said “If it works, it is worth it.”

 

 

When I train strata managers, I ask one threshold question:

“What comes to mind when I say Strata?”

I usually hear the following:
• A building;
• Common property;
• Lot owners;
• Head aches;
• Stress; and
• Pain.

No wonder there is a dearth of people wanting to train to be strata managers. I have at least one phone call a week asking whether we can refer an organisation to a strata manager. Maybe, this attitude is causing those in the industry to turn away.

What we forget, is that a strata scheme is a place where people live. It is a home or it is a place of business. Some own their property. Some rent their property. Nonetheless, to all of them, it is their home.

There is often a divide that exists between lot owners who are residents and those who are investors. Those who live there, have a very different perspective on the strata scheme than those who invest in the strata scheme. It often causes factions to develop within large strata schemes, which often result in a dysfunctional complex.

Most often, we see a failure to consider the problems of a tenant. If a tenant suffers, the owner’s corporation says it is the responsibility of the landlord. Leverage is dealing with two situations at the present time where the owner’s corporation has had little respect for the rights of the tenant.

The first case is a situation where, every time it rains, mud flows from the common property into the courtyard of the tenant. The courtyard forms part of the common property but has become unusable by the tenant. On a pro rata basis, the tenant has lost 25% of the use of the property, NCAT has not only reduced the rent, but has directed that the tenant pay no rent for almost 12 months. This means that, the landlord is out of pocket.

In another building, a tenant moved into an apartment, which leaked. It was difficult to get the waterproofing done and it took 3 years to get the owner’s corporation to fix the waterproofing. This tenant is now claiming rental rebate in the amount of $96,000. Yes, it is over the top, but it will force the landlord to have to defend this in the local court.

What is the landlord left with? Yes, they will have to continue the case against the tenants to recover the rent. Their best approach is to allow themselves to be sued and to join the owner’s corporation in the action. For example, in the incident where the leak occurred, if the tenant sues the landlord, we will do two things:

• Put on a defense; and
• Cross claim against the owner’s corporation.

A change in the Strata Schemes Management Act 2015 makes this entirely possible and plausible. Section 106(5) of the Act allows a lot owner to take action against the owner’s corporation for any loss caused by the owner’s corporation’s failure to fix common property. Clearly, these are common property issues, which are clearly traceable back to the owner’s corporation.

Tenants may not be theoretically, the owner’s corporation’s responsibility. But practically, a failure of the owner’s corporation to consider the rights and obligations of tenants will leave the owner’s corporation vulnerable.

We’ve never really had a real estate empire within Australia. We’ve never had a situation where one or two companies control the industry like Woolworths and Coles have controlled the food retail business. I wonder if this is going to change. We have realestate.com and domain.com, who are the major online platform, which everyone now uses for the advertising of property. Two newspaper groups, News Corp and Fairfax Media respectively, control them. Although other organisations exist in this space, they have the oligopoly.

What would happen in the world of disruptive industries if either of these two mega corporations decided to become an agent? Some of my loyal readers will be saying to themselves, “Compton, you are still going on about this.” Well, yes I am and changes have occurred to reenergize my position.

Realestate.com has recently taken over Mortgage Choice. Mortgage Choice is one of the, if not the, biggest mortgage broking organisations within Australia. Out of this merger we will end up with realestate.com mortgages.

Mortgage Choice has been involved with the selling of property for a number of years. They have previously stated that they don’t need to be licensed to receive a commission for the sale of property. They have advice from a law firm, which indicates that they can refer buyers to real estate agents and not have to be licensed.

How do they get around the fact that:
a) Section 3(1) defines a real estate agent to include “a person who introduces a prospective person to an agent”; and
b) Section 33 prohibits the sharing of commission with anyone other than an employee or another license holder?

Notwithstanding this, mortgage brokers are out there selling real estate without having to be qualified. A real estate agent who Leverage has spoken to in recent times has indicated that 40 percent of his sales come from referrals from mortgage brokers. If you think that mortgage brokers can’t be disruptive in this industry, you’re kidding yourself. They are the only ones who have qualified purchasers and know the purchasing power of their buyers. Combine that with realestate.com having data on the buying and selling patterns of each individual, you have a pretty powerful force.

A broker has recently stated that Fair Trading can’t do anything about it. They’ve indicated that three mortgage brokers have been prosecuted unsuccessfully by Fair Trading. Interestingly enough, Leverage’s research has indicated that no such prosecution has occurred at all. We all need to be careful about what information is spread in the industry.

John Cunningham, the president of the Real Estate Institute of NSW has been beating the drum about high standards within the industry. Malcolm Gunney, his predecessor and the former Minister of Fair Trading, Victor Dominello, have consistently argued that we need higher educational standards within NSW.

Lads, where have you been? You have a large audience out there selling property without even holding a Certificate of Registration. Moreover, they don’t think they need to be licensed or qualified to be involved with the property industry. What is the purpose of standards if we allow people outside the industry to practice without any qualifications?

Moreover, the real estate regulators should be the custodians of this industry. To the contrary, they consistently advise the world of the deficiencies in real estate agents. The only organisation that speaks positively about real estate agents in the marketplace is this one.

Where is Fair Trading? Not only do mortgage brokers sell property in this industry but developers are using financial planning aggregators because of their huge database. All of these people are consistently thumbing their noses at the real estate industry, as the regulators are not holding them to the same standards.

Everyone says that licencing is important. It is important provided that it is cheap enough. On this account, history is the greatest teacher.

In the 1980’s and early 1990’s, a group of people decided to do conveyancing illegally. They were not solicitors, they had no qualifications or background in the industry, they just wanted to disrupt the industry. They were in breach of the then legal profession legislation, but what was done was done!

The Conveyancing Licencing Act 1992 passed through parliament but it wasn’t until two years later, that the Conveyancing Licencing Act 1995 provided proper educational standards for conveyancers.

Sound familiar to you? For years people were not allowed to ferry people in their car without having a taxi licence or without the taxi being properly registered and complying with certain standards. Then along comes Uber with none of these protections. Didn’t matter how much those in the industry had paid for their plates, Uber was allowed to stay because the consumer got a cheaper price. Everything has a price… except standards it would seem.

As an industry, we need to be vigilant and understand that we cannot allow the uberisation of our industry. We must set proper standards for our education. Property is complex, and failure to understand the rules can cause people enormous harm.

 

The new Strata Schemes Management Act 2015 breaks maintenance and repairs into three categories:The new Strata Schemes Management Act 2015 breaks maintenance and repairs into three categories:

• Cosmetic;
• Minor; and
• Major.

Cosmetic repairs can be undertaken without any approval at all, whilst major repairs must be approved by an extraordinary general meeting passing a special resolution. It is the minor repairs, which are causing some difficulty.

Section 110 states that minor repairs can only be carried out by a resolution of the owner’s corporation in a general meeting. It appears, on the surface that, even if you wish to undertake minor repairs, you will need to call a general meeting.

The act however provides a way around this. At an annual general meeting, an owner’s corporation can determine what minor repairs they wish the strata committee to take charge of. The owner’s corporation can, by special resolution, pass a by-law setting out what minor repairs the owner’s corporation wants the strata committee to approve.

This is a major time saver. The minor repairs include, things people would like to do within their apartment, in particular, the renovations, which a person would normally undertake in their apartment. It is both good for the lot owner and the owner’s corporation to determine the minor repairs they want to keep minor and have handled in an efficient manner.

It is a good clause which gives rise to sensible outcomes if it is handled well.