In nearly all strata schemes, there are different groups of stakeholders all with competing interests.
Each of these groups has their own agenda of what they want from the strata scheme, and what they are willing to do or sacrifice to make that happen. At a glance, many of these groups may appear to have similar interests but, as with many relationships, similar interests often part ways at the gate to personal interest.
In an average strata scheme, you will generally find the following parties with a vested interest in the operation of the scheme:
- The developer;
- The owners corporation;
- The executive committee;
- The resident building manager;
- The strata manager;
- Owner occupiers;
- Investor owners;
- Selling agents;
- Prospective buyers;
- Prospective tenants; and
The list reads like an extremely cluttered board game (with interesting and memorable game locations such as stairwell, car park and lift foyer). A discussion paper issued some time ago by the NSW government highlighted this raft of competing interests. In this article, I want to highlight some of the issues at play with just a few of these parties.
It was noted by the NSW government that the most often cited example of competing interests is between developers and owners. The law has been changed a number of times over the years to reduce the control of developers and to require more information be handed over once a scheme is up and running. However, many owners still believe that developers exercise too much control over the building, either directly or indirectly, to the owner’s disadvantage.
Owner groups have argued that developers take only a short-term interest in the buildings they develop and move on as soon as all units are sold. The down-side is that the developer’s knowledge of the building construction and structure is then lost.
In my view, developers need to ensure that three things happen when they complete a building:
- the building is properly constructed so that later owners are not besieged by building defects;
- that an appropriate long-term management structure is put into place for the benefit of owners; and
- they make a profit from the exercise!
If developers can achieve points one and two, then owners should not begrudge a developer achieving point three. Understandably, when points one and two are not achieved, owners may be justified in holding a different view towards point three.
Owner occupiers versus investor owners
Each state’s strata legislation sets out the rules on how buildings are to be managed and administered over the duration of their life. They also set out some basic principles as to how owners are to deal with each other on a day-to-day basis. These rules are then, in turn, augmented by the by-laws registered for that building. The problem is that even with all these rules in place they simply cannot address all of the competing interests within the scheme that in some instances affect occupants on a daily basis. Most notably, the conflicts between owner occupiers and investor owners (and their tenants), which can have a very different view on what is best for the building.
The prevailing view by owner occupiers is that investors are only interested in the short-term and in maximising their rental return. Investors are viewed as disinterested in the day-to-day matters of the scheme and less inclined to spend money on maintenance as they do not live in the building and are more concerned with keeping levies low. Except of course when they are planning to sell and that foyer refurbishment and external painting will do wonders to the sale price.
The NSW government at one stage actually considered an option to give resident owners two votes at an AGM in recognition of their higher stake!
A building that only allows short-term occupancy is quarantined from the competing interests held by owner occupiers and investors as there will only be investor owners. As this limits the developer’s ability to sell units in the building (and may not fit within zoning requirements), it is less common for a developer to develop a building that only allows for investor owners. And for this reason, among others, it means most buildings will harbour one or more owner occupiers who harbour the views above (whether rightfully or not).
Managing the conflict
In my view, if we are going to have buildings that continue to have a mix of owner occupiers and investor owners, it is in the interest of the building to have someone who can exert some control and influence over the conduct of the parties for the better of the building. This is where a resident building manager can step up and be a great asset to the building as they can unify the investors towards common goals that benefit the building and may also align with the goals of the owner occupiers (of which the resident building manager happens to be one). A resident building manager is uniquely placed, as their own personal interests overlap with the personal interests of both owner occupiers and investors.
No matter how jaded the owner occupier, or Scrooge-like the investor, neither can deny that the resident building manager is personally interested in maintaining the building to a high standard to increase the chance of higher rental returns, which is a win-win for all concerned. The same cannot be said for off-site letting agents. Owner occupiers and investors alike do themselves a disservice if they overlook the benefit of making the most of the personal interests they share with the resident building manager and instead foster an environment that is hostile to the resident building manager.