Competing interests -v- conflicts of interest

In many strata schemes, there can often be competing interest between different groups of stakeholders.

For example, developers, caretakers, investor owner, owner occupier, mortgagee, tenant, selling agent, letting agent, executive committee, strata manager and prospective buyers/tenants.

The recently published Strata & Community Title Law Reform Discussion Paper [tabled by NSW fair trading minister, Anthony Roberts] notes that the most often cited example of competing interest is that between developers and owners. Despite numerous law changes over the years to reduce the control of developers and to require more information to be handed over once a scheme is up and running, some owners still believe that developers exercise too much control, directly and indirectly, to owners’ disadvantage.

Another area where competing interests often arise is where a scheme contains a mixture of investors and resident owners. It would be fair to say that most investors are interested in maximising their rental return. They can be less inclined to spend money on maintenance as they do not live there and may prefer the levies to be kept low. One option that has been put forward as part of the discussion paper is that resident owners be granted two votes at an AGM – in recognition of their higher stake! I doubt that this proposal will obtain government or wider community support.

The discussion paper also highlights the issues raised about actual or perceived conflicts of interest within strata schemes. The current strata laws in NSW contain only a few provisions dealing with conflicts of interest. For example, a strata managing agent or caretaker cannot use a proxy vote on a motion from which they may gain a material benefit.

The paper points out that other jurisdictions have much broader provisions. For example, in Singapore, no executive committee member or strata agent may use their position to gain, directly or indirectly, an advantage for themselves or for any other person or to cause detriment to a scheme.

In NSW, anybody can be a committee member as long as they are an owner or nominated by an owner. This can result in people who are not owners being on committees or co-owners and family members from the one unit controlling a committee. In Queensland, managing agents, letting agents, service contractors and their associates are all specifically prevented from being elected. However, caretakers are automatically non voting members of the committee.

Also, in NSW, the law allows committees to have anywhere between one and nine members. Most other places in Australia require a minimum of three committee members – to avoid a one-member dictatorship from occurring.

Another issue highlighted in the paper is that NSW currently allows the position of chairman, secretary and treasurer to be decided only by the committee members at their first meeting. The more transparent Queensland approach may be adopted where office bearers are elected by owners at the AGM, before the election of committee members is held.

We have all seen examples where power cliques have been formed in committees which often become entrenched. There have been calls for a cap to be placed on the consecutive holding of office for committee members (such as three or five years). In Singapore, for example, no person can be a treasurer for more than two consecutive years. Similarly, in retirement villages in NSW, no person can hold the same office on a residents’ committee for more than three years, to stop cliques and ensure there is a rotation of experience.

Another issue raised in the paper deals with motions. In NSW, all motions submitted for consideration at a meeting are simply listed on the agenda in numerical order. There is usually no indication as to who the motion came from or a reason why it was put forward. While this may be explained at the meeting itself, it does not help those who do not attend but want to submit a proxy vote. It has been suggested that NSW adopt the more transparent Queensland approach where all motions have to identify the person who submitted it and include an explanatory note of no more than 300 words.

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