Bipolar Voting

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.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Don’t Ignore Airbnb

We’ve written in the past regarding difficulties with Airbnb. We’ve indicated that, in many cases, Airbnb is illegal in a residential premise. We have also raised the issue that, Airbnb is not licensed and takes money on trust on behalf of landlords. This leaves the consumer open to detriment on a high scale. In other words, if another organisation created an Airbnb type of model, and they had taken considerable amounts of money over Christmas time, they could easily take the money overseas and never be found again. Unlike Real Estate, there is no property services compensation fund to protect the consumer.

Notwithstanding this, property management and real estate agents turn their back on short-term accommodation at their peril. The returns people are obtaining from short term accommodation are incredible and ignoring them as a real estate agent may result in you not properly facilitating the investment objectives of your client.

We had a client run a trial on Airbnb for their unit in a suburb of Western Australia. It was not centrally located, nor was it in a sought-after suburb. It was a mere suburban townhouse, which had four bedrooms. By the way, all properties in Western Australia have at least four bedrooms.

In the first 12 months of her operations, our client had a return of $102,000 on the investment. The return on the investment was almost 20%. Our client has now recognized that, even if she takes large management fees, any landlord would be likely to return at least 15%.

Another business in New South Wales called Weekend Real Estate has been highly successful only working in the short-term accommodation marketplace. He has been netting 15% returns for all his clients and, running a highly successful business whilst doing it.

Short term accommodation is not new. We used to call it corporate accommodation. People used to specialise in renting out furnished apartments to corporates. Furthermore, there were people who specialised in Theatre or the Arts and provided accommodation for itinerant workers. For some years now, people have been vacating their homes on the coast and hiring them out to people whilst they have gone away.

This fledgling industry is now blossoming into an absolute business. Landlords are out there using Airbnb themselves to get the returns discussed above. There are people who are essentially retired using Airbnb as a means of maintaining a healthy income.

To the investor, it is something worth considering in your property portfolio. It isn’t for everyone and it isn’t for every property, but it is something, which should be considered whether partially or full time.

You agents, I know I’ve heard some of you say it is a pain in the ass but ignoring it is at your peril. This is an investment option which landlords can have and is best facilitated through experts. The property market is exciting because what is old is new, and it is always changing. Don’t get entrenched in old opinions. Have a real go at the opportunities that are out there.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Stories of Superstition

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.”

 

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

WE WON! Leverage Solicitor’s Joel Marshall won the case against developer Parkview Estate

We are extremely proud of our solicitor Joel Marshall who has achieved the desired outcome for our 12 plaintiffs against developer Parkview Estate Pty Ltd. It has been a 2 year long journey. Congratulations Joel!

Follow this link to read the judgement from Judge Darke:

https://www.caselaw.nsw.gov.au/decision/59bf577fe4b074a7c6e18b50

To get in touch with us, please email info@leveragegroup.com.au or call 1300 438 538

Beware of the Tenant

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.

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Investors should be Gods in the Real Estate Industry

A real estate agency usually has two streams of income:

1. Sales; and
2. Property Management

Property Management is the management of properties on behalf of landlords who are leasing property to tenants.

Property Management does not exist without people who wish to invest in the property market. Without investors, we don’t have a professional Property Management industry. Many people within the industry criticise their landlords. Without them, however, there is no business. Maybe every agency should have a day to worship their investors.

Investors are also important for the housing shortages within the country. Without people investing in property and renting them out to tenants, those who can’t afford houses have nowhere to live. Property Management is therefore a fundamental part of the housing industry equation.

Government has not supported investors in the property market. It was two years ago that the government decided through the Australian Prudential regulator, to prohibit any more than 10% growth in the investment property market, in the banking industry. Banks then had to limit who they lent money to for investment in property. This has caused a credit squeeze for investors. Banks have become so tight that it is incredibly difficult to get an investment loan.

Even though, as far as being a marketplace which has grown off the back of property investors since its inception, various governments of Australia have forgotten this truth. In the last year, we have decided to ward off international investment as a means of thwarting the Chinese property invasion. Many might agree with this approach, however it is short sighted. For those who wish to invest in Australia, they need to pay $5000 for an investment review approval, higher stamp duty, higher land tax and have 10% taken out of the proceeds of any sale. Why would you want to invest in Australia when just across the ditch, New Zealand has no capital gains, no stamp duty, no land tax and no GST on property?

If investors are squeezed out of the marketplace, this will leave the reduction in the number of properties available for rent. Rent will increase, and the cost of living will spiral out of control. Lets hope the government wake up before it’s too late.

For those landlords who are already in the market, this may serve as a short term thought for your investments. In the long term, it will have an impact across the whole property market.

If you are a foreign investor, why would you keep your property? Why stay? It may be better to go invest your money in somewhere like America, Canada or New Zealand.

Investors are important to housing, they are the reason we have Property Management. God Save the Investor!

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

The Real Estate Empire

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.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Who Has Really Lost?

In the Sydney Morning Herald on the 26th of February 2006, the headline was, “Supreme Court Judge rips up million dollar contract”. The contract was almost 320 pages, and it would have been interesting to watch Justice White rip it up. It was the case of Zhang v VP302 SPV & Ors [2009] NSWSC 73, where the court terminated the contract for misleading and deceptive conduct.

Among other things, the case surrounded documents that were provided to the purchaser by the agent. One in particular was a Sydney Morning Herald article translated into Mandarin that indicated properties in the Zetland area would rise 5.9% per annum for the next five years. The purchaser relied on this representation and proceeded to purchase a property in Zetland for $1,070,000. There was a rebate of $20,000 making the purchase price really $1,050,000.

This property was off the plan and took some time to settle. Upon registration, the property was valued by the bank’s valuer. They valued the property at $842,000. This was $208,000 short of the purchase price. The agent tried to talk the purchaser into buying this property. The purchasers did not agree to such a purchase, even though the purchaser’s arranged for finance from the vendor. They were advised that, if they held onto the property long enough, the property would make value.

The principle of misleading and deceptive conduct was settled in York vs Lucas (1985). In this case, the court said, even if the agent is telling the truth, if they are wrong, they have misled and deceived. On this basis, Justice White said that the agent was wrong in terms of the predictions of 5.9% per annum and voided the contract.

The purchaser appeared to have won the case. Ten years on, we revisited Zhang’s case, to see who really did win. The property is now worth 2.3 million dollars. This means that, over a period of 10 years, the purchaser lost $1,150,000. You can work out the return, but it is in excess of 10% per annum.

To quote an old real estate agent friend of mine, “property always forgives”. What he means is that, even if you buy poorly, time will heal and forgive your mistake.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Minor Repairs

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.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Terminating a Tenant

This is something we’ve all wanted to do! Many of us have been so frustrated with our tenants that we’ve wanted to terminate them permanently! Unfortunately, this methodology of getting rid of tenants is a little illegal.

The Residential Tenancies Act 2010 provides a very clear pathway to terminating tenants.

  • If you wish to terminate a tenant at the expiry of a lease, thirty days notice must be given;
  • If the lease has expired, and the landlord has sold the property, it is also thirty days notice;
  • If the lease has expired, and you want to get rid of your tenant for no particular reason, 90 days notice must be given; and
  • For breaches of the lease including being 15 days in arrears, 14 days notice must be given.

There are some important rules that must be applied. If these rules are not followed, the termination notice is invalid:

  • If the notice is served in person, the time commences from the next business day. Service in person includes posting the termination notice in a letterbox.
  • If the next day is a public holiday, the time does not start until the next business day. For example, if you decide to terminate your tenant on the Thursday before Easter, your timed period does not start until Tuesday of the following week.
  • If you are posting the notice by mail, you must add six business days before you start the time period. For example, if you serve it on a Wednesday, you cannot start the days until Friday of the next week.

This is a warning to all property managers. NCAT stringently enforces these rules. They will refuse a termination and ask you to reissue the termination notice, starting the clock all over again.

A client of Leverage is currently being sued by a landlord where the tribunal rejected the termination notice. The landlords wanted to reside in a tenanted property when they returned from an overseas posting. The extra time that the agent took to remove the tenant because of the void termination notice is claimable. In other words, putting the landlords up in accommodation whilst they await the tenant’s departure is claimable. In this case, the landlord is claiming approximately $6,500 in accommodation and miscellaneous fees.

Both landlords and property managers should be diligent regarding the issue of notices. When setting plans, the landlord needs to be mindful of the above timelines. Alternatively, the property manager is vulnerable if they fail to follow the rules because it is expected by the law that they are the professionals.

Further to our article from 31st August 2017 “Oh Shit; a clever property manager”, I can advise that the reflux has not been completely fixed. The OC did replace the carpet, replace the tiles and repair the property in an efficient manner after being caught on camera. Unfortunately, as this article is being written, the brown bombers are here again.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538