The NSW government has pledged to “stamp out bad behaviour” and strengthen oversight of the state’s strata management industry in the wake of an ongoing ABC investigation that has revealed the systemic exploitation of unit owners and a widespread culture of kickbacks and secret commissions.
Minister for Fair Trading Anoulack Chanthivong announced the reforms, promising to consult with the industry ahead of the introduction of new legislation in August.
“These reforms are critical to supporting confidence in investing and living in strata schemes,” he said.
The changes proposed are to increase maximum penalties that can be imposed on strata agents, including for the failure to disclose “information about commissions”, and strength the requirements to disclose conflicts of interest.
The minister also said the reforms would include “banning agents from receiving a commission on insurance products when they don’t play a role in finding the best deal for residents”.
While a typical brokerage fee is about 20 per cent of an insurance policy’s base premium, Netstrata’s insurance arm was charging in excess of 60 per cent, without disclosing that fee to owners.
Since then, the ABC has seen evidence that Netstrata was, in some cases, charging even more — as much as 110 per cent of the cost of the premium.
The company’s managing director, Stephen Brell, was forced to stand aside from his position as the state president of the industry peak body, the Strata Community Association (SCA), after he admitted the conduct of his firm, identified by the ABC, “made me feel really awkward”.
The company and the SCA both pledged to undertake audits of the firm.
“I’m going to go back and look at our practices and make sure we tidy them up,” Mr Brell told the program at the time.
NSW Fair Trading subsequently launched an investigation into the firm. Without adequate resources to conduct the inquiry itself, it brought in accounting firm McGrathNicol to conduct the review and required Netstrata itself to pay for it.
That inquiry is ongoing, the ABC has confirmed, and is gathering further evidence.
On Tuesday, however, the government moved ahead of McGrathNicol releasing its findings, by providing a statement to the ABC that said “the behaviour of a small number of managing agents has put a dent in public confidence around apartment living”.
It said almost 1,000 complaints had been made to NSW Fair Trading in the five years to last year, but these represented only a fraction of the grievances apartment owners had expressed to the ABC about the industry.
Since publishing its first reports about Netstrata, the ABC’s investigative unit has received about 2,000 submissions from unit holders around the country. The vast majority of these complaints appear well-credentialed.
The extent of the community’s unhappiness with the strata industry casts a pall over the government’s plans to address the housing crisis by radically increasing the number of new apartments that it will approve.
“We want to change the perception that strata managing agents easily, and readily, take advantage of owners, by significantly increasing the consequences for those who do the wrong thing,” Mr Chanthivong said.
“The new laws are designed to take immediate action to help restore confidence in living and investing in strata schemes, ensuring more people consider apartment living as a housing option.”
Netstrata’s financial returns show that since 2015, Netstrata has banked more than $21 million in brokerage fees, helping to generate profits over that period totalling almost $50 million.
Netstrata has also been taking kickbacks from contractors and suppliers it hires using the strata funds of more than 1,000 buildings, and 35,000 apartments, across the state.
Mr Brell told the ABC that these “referral fees” can be “as high as 15 per cent”.
“Some go higher,” he said.
Despite written pledges to identify these kickbacks in reports to owners, the company had failed to do so.
The ABC checked several annual reports that dated as far back as 2015 and found not a single referral fee mentioned: this failure was among the matters that Brell pledged in his interview with 7.30 that he would “tidy up”.
The company has been paying its senior strata managers more than $400,000 a year and Mr Brell was on a salary of as much as $1.2 million. He told the ABC the high salaries were in recognition of the company’s “premium” service.
To the outrage of owners and advocates, the company’s conduct appeared to have been permissible under NSW law.
Following the ABC’s report, Netstrata released an official statement addressing “the allegations made by the ABC which are of concern to Netstrata”.
“We take our relationships with our customers very seriously and understand that transparency is very important for our business and the sector,” it said.
“We do apologise to our customers that may be affected by any lack of transparency to date.”
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