strata companies connected with developers
  • July 15, 2021
  • Effective Building
  • 0

Since November 30, 2016, the Strata Schemes Management 2015 was implemented in which a strata manager cannot be appointed as a strata managing scheme agent until after the end of the period of 10 years starting on the registration date of a strata plan, where the strata manager is connected with the developer.

The Objective of the Reform

The reform aims to prevent developers from influencing the Owners Corporation by controlling the scheme’s rates and management. This way, the developer cannot rectify defective building work before the expiration of the developer’s obligation under the Home Building Act to repair defects for up to 6 years.

Most strata managers assist developers in the strata scheme establishment and benefit from this role. This is because they are often in a prime position to continue as the strata managers for the strata scheme after its registration.

These initiated reforms have forced Meriton, one of NSW’s largest developers, to sell their strata management business due to the arising conflict. This is due to the inability of the strata management business to manage Meriton’s new developments.

How Can We Say That a Strata Manager is Connected to a Developer?

The typical question is, how can we say that a strata manager is connected to a developer? The Act and regulations define a person connected to a developer:

A person connected with a developer is:

  • Developer’s relative
  • Holder of an executive position
  • Employer or engaged by the developer
  • Holds an executive position in the development corporation
  • Holds any relevant financial interest in the developer
  • Entitled to any related power, whether in the person’s own right or on behalf of another person in the developer’s business.

However, dealing, contacting, or setting an arrangement with Owners Corporation or strata committee doesn’t mean that the person is connected to the developer.

Red-Flag to Strata Managers

The list above shows how a strata manager can be related to the developer (relative, business partner, office holder, an employee of the developer, or related entity).

The meaning of engaged by the developer (third bullet) means that the developer has engaged the strata managers in setting up a strata scheme.

If the developer still engages the strata manager, the strata manager will breach the legislation.

Therefore, strata managers should be aware of the need to clearly separate their business relationships with the developer at the time of their involvement by the owners’ corporation. Moreover, they should also disclose any previous relationship with the developer early in any negotiations with the owners’ corporation.

3 Reasons Why a Strata Manager Should Not Be Connected with the Developers

1. Conflict of Interest

Developers represent a pipeline to strata management companies. They planned out in advance, promised future appointments, and well-maintained buildings. This is one of the reasons why strata managers love work with them. 

So how do they build the right relationship? They simply make life easy for the developer. They don’t tell you about building defects.

On the other hand, hiring an independent strata manager without concerns about maintaining a relationship will advise you regarding building defects to deliver the best outcomes for the owners.

2. Work Free for the Developer

Most managers don’t charge developers for the set-up work they do. We talk about two years of free work, including budget planning, reviewing laws, advising on strata plan set-up, and attending settlement days. This is a lot o free work that needs to be made up somewhere.

3. The Law Thinks It’s a Bad Idea

According to Strata Schemes Management Act 2015, the developer shouldn’t be appointed as the strata managing agent.

Strata companies connected with developers are usually neglected and not maintained. It’s now time to get a building report to see what’s needed to get in front before major problems occur. Hence, it’s advisable to remove the strata company and appoint an independent company to manage the building.

We at Effective Building & Consultancy’s advice is always for the best outcome for the Owners Corporation, without a thought towards maintaining a relationship with a builder or developer.

For more information about our building inspection services, visit our Help Centre.

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About Elie Farah

Elie Farah is a Building Consultant with over 25 years of experience in the property industry. Elie has specialised knowledge in development acquisitions, blue-chip properties and inspections, as well as flood-affected and waterfront properties, heritage buildings, bushfire management and existing use rights.

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