Strata Owners

Management rights (AU) and Leasehold systems (UK): The (un)ethics of developer income streams

February 23, 2023

Leaseholders of flats in England and unit owners in Queensland share a strange, debilitating condition: ‘Never-Ending-Developer-Income-Streams’. In both places, owners are frustrated while governments struggle to find a way to cure the condition without alienating anyone. This is something that will prove unattainable.  

In Queensland, NEDIS take the form of 25-year management agreements imposed by developers on future owners. These management rights are either held by the developer or sold to operators - in some cases for many millions, with developers pocketing the money. The result is that unit owners get services that they may not want at prices that are not tested in the market at regular intervals. It is a peculiar arrangement that is legal in Queensland but banned in New South Wales, for example, and was conceived to promote holiday accommodation in the last century.  

And the last century is where these unjust ‘management rights’ should have been left.

However, if unit owners in Queensland think they have it bad, they should spare a thought for their counterparts in England and Wales.  

The UK leasehold system of flat ownership is like Queensland management rights on steroids. Under the England/ Wales system, investors buy a lease for up to 990 years that entitles them to occupy their flat, but the developer retains the freehold and charges the leaseholder a ground rent annually. It’s like a bottomless cup of coffee. And there’s more. The leases provide for the freeholder to pay for repairs and maintenance but the leaseholder pays the costs. Leaseholders have no say in who does what for them but they pay the bill very often with a mark-up for the freeholder.

Leaseholders also must pay service charges for anything they ask the freeholders to do, and the freeholder has the right to deny improvements even if the leaseholder agrees to pay for these and their upkeep.  Like strata owners in Australia there are big insurance commissions paid to freeholders and their managers for arranging insurance. The supposed upside for leaseholders under this system is that the freeholders pay for capital works, but that’s contested particularly when it comes to expensive remediation of combustible cladding and passive fire defects. 

As well as irritating owners and impacting returns and values, both systems lack moral integrity. There is simply no need for them.

Apartments and condominiums are managed all around the world without these constraints on the freedom of owners to make collective decisions about their own property… for better or worse. Strata and condominium management systems based on self-determination are not perfect. Mistakes are made. Mascot Towers in Sydney and Champlain Towers South in Florida serve as examples. However, that’s not a reason to deny property owners their rights to deal with their property as they see fit.

Michael Teys

Strata expert

Michael is a strata expert with over 30 years experience in strata law and management. He is a strata researcher with City Futures Research Centre UNSW, a consultant to strata industry suppliers, and conducts executive education for strata managers and property processionals.