Jimmy 00:00
Hi, Sue Williams. You are not here in Sydney; I can tell, because you're not sitting in front of me. Where are you?
Sue Williams 00:05
I'm in Lithgow, just over the Blue Mountains.
Jimmy 00:07
How nice, lovely Lithgow. How is the weather there, because it's rotten here? It's raining and miserable and grey.
Sue Williams 00:15
Yep, it's pretty much the same here, but much, much colder. When I came up today, it was pretty brisk in Sydney, but by the time I got to Lithgow, it was icy.
Jimmy 00:28
Sounds awful, but it's supposed to be spring. I think we're getting the winter that we missed out on, a couple of months ago. We'd better crack on, before the telephone lines fall over, or whatever. The topics for today... We've been talking for a while about embedded networks and now we've discovered that we're right in the middle of one. We've got all the new strata law changes that we mentioned last week, but now we've got much more detail about them and I've been accused of creating an 'us and them' environment, between myself and strata managers.
Sue Williams 01:06
Wow! Accusations against you, Jimmy; that's a first!
Jimmy 01:12
If only it were true. There's a lot to get through. I'm Jimmy Thomson. I write the Flat Chat column for the Australian Financial Review.
Sue Williams 01:20
And I'm Sue Williams and I write about property for Domain.
Jimmy 01:22
And this, coming to you live from Lithgow, is the Flat Chat Wrap.
[MUSIC]
Jimmy
Embedded networks... We've been talking about them for a while. Are you fully across what they are, Sue?
Sue Williams 01:48
Yes, absolutely. It's where stingy developers save money, by getting other people to supply essential services and then charging the new residents; the new owners of apartments, huge amounts of money, to service those contracts.
Jimmy 02:05
Yes. Well, as many of our listeners and readers will know by now, we just bought an apartment on the south coast and we're coming up to our first AGM, and the agenda arrived. And lo and behold, there is an embedded network, stuck in the middle of it and it's an absolute shocker.
Sue Williams 02:29
Because you did some number-crunching about it, didn't you?
Jimmy 02:31
Yes. I mean, look, if you don't know what you're looking for, you'd probably go "ooh, that's a bit expensive." So here's what they're saying... Basically, the contract is for (I can't believe this), 180 months, which is 15 years. It is for 770, or thereabout, dollars a month and they multiply that up and they say...
Sue Williams 02:59
Jimmy, what is it for?
Jimmy 03:01
Oh, sorry, it's for storm drain filtering. Every big building, because you put a lot of contract on grass and stuff, that would normally absorb water, you have to have a kind of retention tank somewhere, where all the storm water can flow into it, when it's actually raining and then gradually flow out, into the storm water drains, at a reasonable level. But of course, that water carries a lot of crap into the retention tank. So you have to put filters in, to take out all the stuff that you don't want going into the ocean.
Sue Williams 03:37
So they're a necessary part of any building.
Jimmy 03:40
Absolutely; totally essential. And once upon a time, builders just put them in there and that was it. So as you said, what has happened is, that some developers will now do a deal with the stormwater drain people, who say "we'll put the stormwater drain in for free, but you've got to get the owners to pay extortionate payments, for maintaining them."
Sue Williams 04:05
It's just another way of developers gouging hapless owners for more money, is it?
Jimmy 04:10
Absolutely; there's no other reason for it. So I was looking at this one and the agenda for our place and as I was saying, they're charging $770 a month, for 15 years, which all adds up to about, just under $140,000, over the course of the 15 years. Actually, I've worked it out; it works out roughly the same as a subscription to a streaming channel for every owner in the building, except...
Sue Williams 04:43
It's not insubstantial, really.
Jimmy 04:45
Well, you'd think twice about taking on another streaming service and if somebody offered you one for free, you'd jump at it. So that's one aspect of this, but I had a look at the small print and it says that the stormwater drain filtering people can add either the CPI (the Consumer Price Index), or 10%, to the charges every year, whichever is greater.
Sue Williams 05:15
That's incredible! I mean, we've got inflation at the moment around 7% and we were saying that's obviously too high and the treasurer is saying we need to get it down to 4%-to-5%. Hopefully, we can do that if not next year, the year after.
Jimmy 05:31
And you do the sums on that and it turns out that that $130,000, over 15 years, becomes just under $300,000. It's a lot of money. And you think, well, maybe this is unavoidable. It very much isn't, because I've been told a story now... This storm water drain thing was actually the first example that was given to me by a friend of ours, who's a strata manager, who said "look, there's this rip-off going on around these stormwater drains, and you know, everybody knows it's going on, and nobody's doing anything about it." So when I saw this thing in our agenda, I thought wow, this is one of these things. I contacted our friends at OCN and they've had somebody come to them and say they were at their first AGM, and exactly the same proposal, from exactly the same company, was put up to them, at their first AGM. This is when you agree on all the contracts that have been offered to you and all the bylaws and things, or you're supposed to. And this guy stood up at the AGM and said "no, we're not signing that." And they said "no, you've got to," This is the developer and the strata manager, who said "no, you've got to," and the guy said "no, we're here to decide whether or not we're going to agree to these things and we're not going to agree to it; we think it's a ripoff." And the strata manager said "no, you've got to; it's the law." And again, he said "no, we're not going to," and the strata manager said "you won't get another company in Australia, who will provide this service, so you're going to have to have the service, because the law says you've got to have it and if you don't sign this, then all your warranties on the installation will be void."
Sue Williams 07:15
And is that true?
Jimmy 07:16
No. And again, the young bloke says "we're not doing it,. We'll check it out and if it does turn out to be the only company in Australia, then we'll come back and we'll sign the agreement, but we're not going to do this without comparing deals." So he goes out, looks around, finds another firm (I think it's called Bell Environmental). I think the charge for this building that we're talking about, was going to be something like $6,000 a year... They said, we'll charge you $3,000. And basically, they just said "look, just half all the prices, and there's none of this 10% nonsense. We will go up by CPI and all the rest of it." And it turns out that basically, this company, aided-and-abetted by the strata manager (one would think), were just going to rip them off completely, because most of the people at the meeting did not know what was going on and what was right and what was wrong.
Sue Williams 08:18
Absolutely. I mean, it's not just stormwater drains, is it? Most embedded networks, they can do it for lots and lots of different services.
Jimmy 08:24
Yes, things like electricity, and including electric vehicle charging, gas, water, hot water... Cold water; I didn't know that you could get chilled water in some buildings, but they do provide a service. And this is one of the things that the government is looking at; they're saying these things are just ripe to being exploited and they are being exploited and people are getting ripped off and their choices are being limited. You find out that your building has signed up to one energy supplier and you might say "oh, I don't want to go with that energy supplier, I want to go with one of these green suppliers, or whatever." And they go "no, you can't, because the whole building has been signed up for this."
Sue Williams 09:06
It's the same with Wi Fi supply sometimes as well, isn't it?
Jimmy 09:09
Yes, internet and all that. You know, you find that your building has signed up an exclusive deal with an internet supplier and it's very, very hard, to get your preferred internet supplier in, even though the infrastructure is there... It could easily be done, literally, at the flick of a switch.
Sue Williams 09:27
I mean, that's fine, if all the owners get together and decide to go with one provider because it's much cheaper, or it's much better than another. If the owners decide that, great, but not if somebody else comes in and imposes that decision on them.
Jimmy 09:40
Absolutely. And because the developer has been approached by one of these companies, who have said to them "hey, look, if you let us put our equipment and our cabling or whatever into your building, we'll do it for free, provided you can get the owners to sign up for these contracts, which are going to cost them more than they would normally." Because then they're saying, well, that pays for our installation.
Sue Williams 10:06
Yes, quite. So our first AGM is going to be quite interesting, isn't it then, if you're going to be standing up and making note of that And also, this Flat Chat episode; maybe the new building that we bought into of-the-plan, they actually have an owner's forum I think. We could put this episode of Flat Chat onto it.
Jimmy 10:29
Oh, wow! I think we might get burned at the stake, when we head down there! It's ridiculous, absolutely ridiculous, that they're doing this so blatantly. And I wonder... I mean, I know we're going to talk later about me being accused of doing this 'us and them' thing with strata managers... I talked to somebody from Strata Community Australia the other day, and he said we're very much against embedded networks. We don't think it's a good idea and we don't want to encourage it. Well, mate, stop your members from doing it, would be a good way to do it. It's all very well to sit around, wringing your hands and going "oh, it's terrible; It's awful." Do something about it!
Sue Williams 11:13
Good point.
Jimmy 11:14
Right. When we come back (and I've calmed down a little bit), we're going to talk about some of the new laws in detail, that are coming up in New South Wales strata.
[MUSIC]
Sue Williams 11:31
We've talked about some of the law changes before, haven't we, about pets and things, but what are some of the new law changes that are coming in?
Jimmy 11:38
Some of them are kind of interesting little tweaks of the law and you realise there's been a little kind of loophole, or error in the law, that has caused some concern. And some of them are quite significant. You know how there's a law, that if the original owner of an apartment block hasn't sold 50% of the property, then their vote is reduced to a third? Okay. And that's fine, except when there's only two properties in the scheme. So to fix that, they're now saying that instead of the developers having to provide all the documents 48-hours before the first AGM, they now have to provide all the documents (contracts, et cetera), 14 days before the AGM.
Sue Williams 12:29
Oh, fantastic!
Jimmy 12:30
Boy, are developers gonna regret that, when it comes around! Sacking committee members; it used to be that if you wanted to get somebody off the committee who'd been elected, you have to get a special resolution at a general meeting and that requires a vote of 75%. It's easier then for the disgruntled committee member to gather 25% of votes, to stop it happening. So it's now going to be a simple majority. And they've also specified (which wasn't in the law before), that they cannot be reappointed to the committee for a year. So, you know, they can't just turn around and say "well, we're gonna hold another meeting, and I'm going to get re-elected." And you can now have strata committees elected at any general meeting. It doesn't have to be at the AGM. So for instance, if you've had a lot of people retiring or selling out, you can have another election and get more people in.
Sue Williams 13:24
Good idea.
Jimmy 13:25
Strata managers have to give written notice that their contract is coming to the end, at least three months before the end of the contract, to give owners a chance to think about whether they want to get somebody else.
Sue Williams 13:40
Or take tenders for alternatives, I suppose.
Jimmy 13:44
Something that's come up on the website a lot has been; you know how you can move money between your sinking fund and your admin fund? The law used to say that the owners corporation, or the committee had to decide within three months to pay it back and there's been some debate about whether that meant they just had to decide what they're going to do, or they actually had to pay it. And they clarified that and they've said you've got to have a general meeting, to decide what you're going to do, but you could decide not to repair.
Sue Williams 14:16
Oh, okay.
Jimmy 14:18
But you've still got the money.
Sue Williams 14:21
They sound like good changes really; ironing out some of the kinks in the system.
Jimmy 14:25
Absolutely. We talked about the pets. We talked about the fact that all schemes have got to get quotes; at least two quotes for work costing over $30,000. If you get an emergency repair levy, you only have 14-days to pay it, rather than 30-days, because it's an emergency. Oh, this is quite interesting... Rental agents will have to give tenants a copy of the strata schemes' bylaws when the lease starts, but also whenever those documents are updated.
Sue Williams 14:58
You kind of assume they do, but if they don't, it's really good now that they have to, because otherwise, the building itself, every time there's new tenants (and they often might not even know that there are new tenants there), has to try and pass on the bylaws and it's really difficult.
Jimmy 15:13
And that comes to the next thing they've done, which is rental agents must give the owners corporation notice, that a lot has been leased, or sub-leased, if the notice hasn't been provided by the owner, or the head tenant, and if neither the rental agents, nor the owners, nor the head tenants have notified the owners corporation, then the tenants are allowed to do it, which is another change. Now, this was something that I wasn't sure about; the thing about appointing a managing agent. I wasn't sure whether it was a compulsory manager, or just an ordinary strata manager. It turns out, it's both. So the Commissioner for Fair Trading can go to the tribunal and say "look, this building is really dysfunctional. Could you please appoint a compulsory manager to take over the whole running of the building?" But, they can also go to them and say "can you order a strata scheme that doesn't have a strata manager, to get one?" Which is different, because the strata scheme is still making the decisions, but they've got a strata manager, managing stuff.
Sue Williams 16:21
Okay, well that seems to make a lot of sense, too.
Jimmy 16:25
One of the other things is... Remember when they brought in the proxy-farming laws, and limited the number of proxies, any one owner could have, depending on the number of units in the block? Some people got power of attorney; they appointed, so they could get multiple supporters to share power of attorney, so that one person could go and vote for all these people. Maybe, you didn't know that. Now they're changed it, so that those power of attorney are exactly the same as proxies. So there's a limit on the numbers.
Sue Williams 17:01
Oh, good. So you can't get around that, by just using a different forum?
Jimmy 17:07
Exactly. What they would do is, they'd get their lawyer and they'd say "my lawyer is Power of Attorney for seven different units here, so we've got seven votes." Whereas, nobody else had more than one proxy vote, for instance. Well, now they've stopped that, which is good. And finally (and I've often wondered about this); it's always been the case that if somebody was discussing something in a committee, and they had a conflict of interest, for instance, they were going to make money off something, if it happened, or whatever. All they had to do was declare the conflict of interest, but the committee could decide to let them stay in the meeting, and even vote on the matter in hand. And of course, if somebody was a dominant character in a committee, they would just say "hey, look, I've got a conflict of interest, but I'm staying here while you discuss it, and I will be voting." Well, now, they can't do that; they've got to leave. They've got to leave the committee.
Sue Williams 18:06
Good. Okay, that sounds like a really good grab-bag of stuff.
Jimmy 18:09
It is. It's all on the Flat Chat website. But it's interesting; they're actually getting stuff done.
Sue Williams 18:15
Yes, thank goodness! It's taken long enough. I mean, that review of the strats scheme's...
Jimmy 18:22
Two years ago.
Sue Williams 18:23
A long time.
Jimmy 18:25
But what they're not doing anything about apparently, is embedded networks. Well, they're talking about it, but they really need to get their fingers out and do something about it. It's pretty obviously bad and there are some simple solutions, that they could come up with, but you know, this bureaucracy... It's the civil service. When we come back, we're going to talk briefly about why strata managers are angry with me. That's after this
[MUSIC]
Sue Williams 18:59
So Jimmy, why are you annoying strata managers? What have you done now? Oh, so very mild, then?
Jimmy 19:04
I wrote a piece for the Fin Review the other week, in which I referred to the new Strata Commissioner, John Minns and said he would have his hands full, dealing with dodgy real estate agents and I think I used the phrase 'dangerously incompetent strata managers.' If I didn't use it in the column, I used it in the podcast. So a senior strata manager has taken great offence at this and has written to me. I'm not gonna name him (yet), but this guy; obviously he failed charm school. His diplomatic skills, leave a little to be desired.
Sue Williams 19:56
It takes one to know one, Jimmy!
Jimmy 19:58
I mean, some of the words he used... I'm trying to think what they were. He talks about my stuff 'reeking of lack of respect for strata managers,' and he called me 'a mouthpiece for the Owners Corporation Network.'
Sue Williams 20:15
That's funny, because you've never done that.
Jimmy 20:19
He said that 'people could be forgiven for thinking I was a mouthpiece,' and I thought well there's other words he could have used, like spokesperson; you know, it would have been the polite thing. And the weird thing is, that this guy has reached out, to try and sort of develop a friendly relationship with me, and he just keeps insulting me!
Sue Williams 20:40
Well, I guess you did start off by insulting him.
Jimmy 20:43
I insulted some of his members...
Sue Williams 20:46
Or maybe, they weren't his members; they could be not members of the SCA.
Jimmy 20:49
But you see, that's the thing... I just said they were strata managers. And I mean, if we're going to go down the road of saying you can't criticise strata managers, in case some of them might be offended, then you know, that's a very quiet room that you've just walked into, because if you can't say that there are some strata managers who just aren't up to the job. I don't think anybody should be sacrosanct from criticism, including journalists.
Sue Williams 21:12
No, including you, absolutely. People should be a bit more resilient and robust really, and develop a bit of a thicker skin.
Jimmy 21:31
I think we've been through this with these guys before. Back in the day, you couldn't say anything about strata managers, and then you'd find out that half of them weren't properly trained, they were giving bad advice. I mean, the classic one that I constantly remember is, somebody had trouble in a building because of the developer, who was just ignoring strata law. We had arranged for a strata manager to go down and hold the first AGM, which the guy should have held six months before and she started doing the meeting, using the old laws, and somebody said "these are the old strata laws you're using." And this is like, you know, in 2018, and you should be using the 2015 laws. And she said "well, nobody told me they'd changed." I think I'm justified in being a wee bit critical of some strata managers and having said that, there are two points I really should make... There are many strata managers in New South Wales, who are doing a terrific job. They're bringing communities together, and they're helping them with their problems and they're dealing with dodgy developers and bloody embedded networks, and they're doing a terrific job. I also should say that Strata Community Australia has come on in leaps and bounds from what it used to be like, when it was the ISTMS and it was basically, just a protection racket for strata managers. They have become really professional, in the way they go about things. And I'm saying that absolutely, honestly, and genuinely, because I believe it to be the case, but they're not perfect.
Sue Williams 23:12
Well, I look forward to... I think you're probably meeting this person for a coffee sometime soon?
Jimmy 23:17
No, that's gone. When he called me 'a mouthpiece,' I said "hey, I tell you what; how about, we wait until you get to the point where you don't feel the need to insult and belittle me and then we can have that cup of coffee?" But, you know, he's now dealing with the fact that it's one of his strata managers, who's got this embedded network in our building. So this could run and run.
Sue Williams 23:43
Okay, well, I look forward to hearing the next episode.
Jimmy 23:46
We'll turn it into a musical. Thanks, Sue. Thanks for calling in from Lithgow. And thank you all for listening.
[MUSIC]
Jimmy
Thanks for listening to the Flat Chat Wrap podcast. You'll find links to the stories and other references on our website, flatchat.com.au. And if you haven't already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, or your favourite podcatcher. Just search for Flat Chat Wrap with a W, click on subscribe, and you'll get this podcast every week, without even trying. Thanks again. Talk to you again next week.