Back to the Future of Strata Management

Following the most tumultuous week for strata management since the Alliance Strata crisis of the 1990’s, this special single article edition of The Strata Professional, focuses on what the future holds for strata management.  In August 1992, the Sydney Morning Herald broke a story about undisclosed insurance commissions and mysterious corporate structures within one of the giants of the sector at that time, John Scott’s Alliance Strata, and all hell broke loose. Reputations were ruined, trust was lost, balance sheets destroyed, and business relationships between families and friends were trashed. And we said it must never happen again. But here we are. 

So, some thirty years on what’s different? The headline issue is the same - sharing lucrative insurance commissions. The players are the same - the spoils are still being divided among the introducers, arrangers, and gatekeepers of the strata purse strings. The law remains the same – commissions shouldn’t be paid to fiduciary agents but has been made possible by special strata laws declaring disclosure trumps duty. The motive remains the same – keep base fees for management services low while taking fees for no, or little service, from elsewhere. The client’s reaction remains the same – confusion, bewilderment, indignation, helplessness, but in the end, acceptance because (erroneously) they think commissions keep levies low. On many levels, nothing much has changed at all. But on another level, a higher level, everything has changed.

What has changed, is that for the first time in strata management history, strata management is a federal issue. Traditionally relegated to the lowest spot on the ministerial totem pole of government, strata management has been lumped with all manner of omnibus consumer issues where alternatively we have been served too briefly by the rising ministerial star of state governments, or for too long by the waning ministerial star of political hacks on the way out. There have never been enough votes in strata to count. No one really cared what happens in strata. But not now, not since last Monday night when a stern looking woman who happens to be the chairperson of the Australia Consumer and Competition watchdog, the ACCC, seemed interested. This is what is different for the future of strata management. 

In the way of people with the best legal minds, Gina Cass-Gottlieb, chair of the ACCC, who probably didn’t know or care about strata management a week ago, got to the heart of the issue quickly, and put it succinctly. This is not about disclosure; this is about financial incentive. And financial incentives, moreover bad financial incentives, are her patch. The corporate machinations and Machiavellian ways of the big names in strata, Steadfast Insurance, Johns Lyng Group, PICA, Bright and Duggan et al will now be examined by the feds. Serious people with serious resources and not prone to being beaten into submission by table banging self-interested lobbyists. There is a world of corporate pain ahead for these players, and a dozen or so more vertically integrated strata management firms yet to be named. 

There is one other thing too that is different today than in August 1992, when we were last here. Australia is amid two crises, a cost-of-living crisis, and a housing crisis. Both also federal issues. In this context, being seen to take strong action will be appealing to policy makers looking for something to do and say that is easier than managing monetary policy, unravelling negative gearing, or addressing hard housing supply and equity issues. 

What is different this time is that strata owners have been seen and heard. Strata in Australia is not trivial. It is a one trillion-dollar asset class that goes to the very heart of society. It’s about our homes and our right to peaceful enjoyment of property. It’s not to be messed with. It’s been messed with too much.