Strata management: The elephant in the room!

By Roland Franz, Body Corporate Headquarters, Strata Consulting Services (Qld).

Strata management is an essential service for many property owners, ensuring that buildings and communities are well-maintained and compliant with regulations. However, one aspect that often causes friction between strata managers and property owners is the issue of additional service charges and commissions.

Additional services and applicable charges, which are above and beyond the core services included in the strata management agreement as included services, can be a source of frustration and confusion. This article explores the necessity of these additional charges, the challenges they present, and potential strategies to reduce, limit, or remove them altogether.

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The necessity of additional service charges

Strata management agreements typically cover a range of core services, such as administrative tasks, financial management, and maintenance coordination. However, every strata community is different, with its own set of circumstances and needs that may require services beyond the standard agreement. These additional services can include emergency repairs, legal consultations, contractor engagement, quote requests, work orders, attending to compliance obligations, by-law reviews and enforcement, major works, special projects and; the list goes on.

It is unreasonable to expect that these additional services would not incur extra fees. Just as in other service industries, unforeseen or requested additional work comes at an additional cost. For example, if you hire a contractor or service professional to undertake a certain task or scope of work and then change or increase the scope of work requested, you expect to pay more. Similarly, if a strata community requires extra services, it is fair that these are provided at an additional cost applicable to the work performed.

The blindside effect

Despite the logical basis for additional service charges, many committees and owners feel blindsided by these costs. This often stems from a lack of transparency and communication from strata management firms. These firms may appear to be reluctant to discuss additional services and their associated costs upfront, as these are typically stated in their agreements, and it may not occur to them that there is a need to justify the cost for additional work requested or performed. However, this lack of communication can lead to misunderstandings and frustration when unexpected bills arrive. Apart from a lack of service delivery due to fluctuating workloads at a specific time requiring prioritisation over other tasks, additional service costs is a significant factor that can erode an otherwise harmonious relationship with your strata manager.

The role of commissions and the risk with discretionary fees

It is common practice for strata managers to be compensated for additional work performed based on a percentage of the revenue received by the company. This commission-based structure helps keep base salaries lower, whilst remunerating the person directly undertaking the additional work. This remuneration structure permits the strata management firm to lower the fixed fees and be more competitive in the market.

There is a risk with discretionary charging for additional services. While many strata managers don’t charge for many additional services that could be charged under their agreements, others are less accommodating as a result of financial pressure born by lower administration fees.

A cynic would also suggest that there is an opportunity for incentivised payments for work performed to be abused. However, it is my experience that most strata managers are more likely to suggest ways of reducing costs and the potential for additional charges being incurred.

Comparisons with other service industries

To understand the dynamics of additional service charges in strata management, it is helpful to look at other service industries. In healthcare, for example, patients often pay a base fee for a consultation, but additional tests, treatments, or specialist consultations incur extra costs. Similarly, in the insurance industry, different levels of cover come with corresponding premiums, and additional services or claims can lead to higher charges.

These industries illustrate that it is standard practice to charge for additional services. The key difference is that these charges are often more transparent and better communicated to the customer, reducing the likelihood of surprise bills.

Strategies to reduce, limit, or remove additional charges

Given the challenges associated with additional service charges, what can strata communities and management firms do to address the issue?

1. Transparency and communication: Strata management firms should prioritise clear communication about potential additional services and their costs. This includes providing detailed estimates and obtaining approval from the committee before proceeding with any extra work.
2. All-inclusive packages: Some progressive companies are now offering all-inclusive packages or bespoke strata services. These packages come with a higher base fee but cover a broader range of services, reducing the likelihood of additional charges. This approach is similar to comprehensive insurance policies that cover a wide array of potential needs.
3. Regular reviews: Committees should regularly review their strata management agreements, and the services provided. Regularly reviewing the scheme’s financials can help identify any unnecessary or unauthorised additional charges and ensure that the community is only paying for what it truly needs, and additional services that have been approved either within the strata managers agreement or by instruction from the committee.
4. Competitive tendering: When selecting a strata management firm, committees should consider multiple proposals and compare the scope of services and fee structures. This competitive process can help identify firms that offer better value for money and more transparent pricing.
5. Education and training: Providing education and training for committee members can empower them to better understand the strata management process and the necessity of certain additional services. This knowledge can lead to more informed decision-making and better oversight of the scheme’s finances.

What might the future look like for strata remuneration

The strata management industry is evolving, and the issue of additional service charges and commissions is driving some of this change. As owners and committees become more frustrated with unexpected costs, there is a growing demand for more transparent and predictable fee structures.

The move towards all-inclusive packages or bespoke services is one potential solution. By offering a higher base fee that covers a wider range of services, strata management firms can provide more certainty and reduce the likelihood of additional charges. This approach mirrors trends in other industries, such as healthcare and insurance, where comprehensive coverage is offered at a higher premium.

Another potential future direction is the increased use of technology to streamline strata management processes and reduce costs. Automated systems for maintenance requests, financial management, and communication can help lower the overall cost of management, potentially reducing the need for additional service charges.

Conclusion

The issue of additional service charges and commissions in strata management is a complex and often contentious one. While these charges are necessary to cover the unique needs of each strata community, the lack of transparency and communication can lead to frustration and mistrust. By adopting strategies such as all-inclusive packages, regular reviews, and better communication, strata management firms can address these concerns and provide more predictable and fair pricing for their services.

As the industry continues to evolve, it is likely that we will see more innovative approaches to strata management remuneration, with a focus on transparency, predictability, and value for money. Whether through comprehensive service packages or the use of technology, the goal should be to create a more equitable and sustainable model for both strata managers and the communities they serve.

The experience (outcome) directly reflects the quality of the decision

Whether your strata community seeks a lower cost agreement with a higher probability of additional service costs, a bespoke service that limits, controls or removes the likelihood of additional service costs or a fixed (all inclusive) agreement with your strata management company, it is fundamental that the fixed cost for the included services will directly reflect the service delivery and contracted inclusions.

“Don’t be penny wise and pound foolish” when selecting your strata management firm.

Making informed decisions by understanding strata management agreements and the potential for additional services and applicable cost, will ensure that your strata community can avoid nasty surprises or hidden costs that could eventually tarnish the ongoing relationship with your strata manager and continuity of management for the scheme.

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