The hidden strata fees costing Australians | Four Corners

Australia’s housing crisis we're told the solution to the housing crisis is high density Millions more apartments are coming it's really hard as a teacher and a single mom to be able to afford a property so kind of having an apartment or a unit was a way for us to get into the housing market the companies hired to manage these buildings are cashing in to the tune of $7 billion a year but this strata industry is trapping apartment owners in a nightmare it's the hidden cost it's the the random mismanagement costs that you know nothing about across the country governments have failed to keep up there is no question we need to do a better job of regulating strata and they're not protecting owners the government's got to invest in this it's all going to hell in the hand basket earlier this year we asked you to tell us your stories about living in strata thousands of you responded this is a spreadsheet that we produced which documented every invoice that had been paid without our authorization with horror stories of graft and greed you're a scumbag that's what you are hey guys we just got shafted just like a Pandora's Box opened up and it was like one thing after the other payment made for services not provided and then in this Four Corners we reveal apartment living is putting us at the mercy of a rapacious and unethical industry the rot runs deep from hidden fees to secret Insurance Kickbacks to deals with developers our findings will shock you it's almost as if the whole business model has been designed to frankly screw Australian apartment owners I say this industry needs a Four Corners [Music] The Strata Trap man I wish I'd known that working with the strata manager was going to be so difficult and complex and timec consuming we start this story with the most common way that strata firms exploit apartment owners many of you told us strata managers charge you outrageous fees which are completely Phantom Fees [Music] unnecessary Allison Park's strata manager really should have thought twice before trying to pull the w wool over her eyes it is a pretty special building yeah it's amazing isn't it wow so my background is in accounting my whole career has been built around that so when I came to live in this building I wasn't really interested in doing my work in my home but the longer I lived to the more I realized that it looked like there were problems with the management of the finances so that was why I got involved then and joined the committee yes yes when you buy an apartment you become a member of the building's owners Owners corporation Corporation it elects a committee to run the building's Affairs Allison Parks was the chair of her committee and began scrutinizing the building's strata manager a notorious company called strata plan she soon found evidence of suspect practices one was the way it build owners for chasing overdue levies people were being charged in ridiculous Fashions there was two apartments at one stage that owed 60 cents each and ster plan charges $11.48 each to try and follow up on that 60 cents which makes no economic sense at all Allison parks and her fellow owners tried to Reign the company in we with drew the delegated authority for Str plan to sign off on payments I wrote to them several times and said this invoice is wrong you have charged us too much you need to refund the money and they just ignored me I've never seen it in over 40 years in accounting worse strata plan was Non-existent debts charging owners to chase Phantom non-existent Debs if there were 10 people who were actually in hadn't paid their levies on time they was billing us for 34 notices being sent out and what I discovered was a a systemic problem I'm repeatedly writing to them saying we're being overcharged and they're still just helping themselves hand in pocket stri plan writing an invoice paying themselves overcharging us and we can't stop it it's like nightmare when the owners decided to terminate strata plans contract the company threatened litigation demanding more than $50,000 compensation there was a section here personal liability of committee members it says each Committee Member may be held personally liable for damages and costs certainly committee members did feel intimidated and you would the owners pushed back and strata plan accepted a break fee of less than half that [Music] amount St plan will try basically use their contracts to fight back and to fight those termination letters so this was uh an interesting one Jordan Reed's company has helped a number of owners escape from Strata plan's clutches including in one case where upon termination the company had demanded 9 years of fees plan came back and basically said that's going to be at a sum of 1.4 88 million um and we need that within 14 days otherwise we'll seek legal action and and what's your view of that uh it's just bully bully bull the Victorian administrative tribunal has repeatedly made findings against strata plan for taking owners funds without authorization two years ago it was thrown out of the industry Peak body the strata Community Association or SCA for unprofessional and unethical conduct Str plan being kicked out of SCA they're still in business they're still managing companies that has Zero Effect and they're still going about those same misprescribing [Music] he loves Italian sports cars [Music] oh good day Mr Sharma it's Linton besser calling from Four Corners um hello I'm I'm in the lobby of your building he didn't want to answer four Corner's questions what you're saying to me is really important you should come and say it you should come and say it in an interview oh he's hung up but Simon Sharma said in fact the industry Peak body the strata Community Association is the one with real questions to answer and he declined to do an Australians speak out interview with house prices now Out Of Reach for so many our capital cities have nowhere to go but up problem is you've told us you can't trust the people hired to look after your most important asset being part of a strat makes you feel like you're not in control of your finances and that's something that I don't like I wish I had known that uh of some of their performances in the past because we found them to be deceptive we've never had a ster meeting until January this year and as far as I know the units have been here more than 5 years the most frustrating thing was being ignored when I requested for information around their their procurement of contractors and it's turned into a massive headache I suppose is that you feel helpless there's nothing you can do other than sell it I have the authority and I have the power to you don't like it you don't like it you either you leave my Rogue operators meeting those member are the new [Music] committee this is Michael Lee a strata manager what was the vote what was the vote here he's chairing a 2023 meeting of owners of his own Sydney apartment building they're in dis belief at what's going on so the me is now officially closed what was the V for more than six years Michael Lee was the building's chairman at times also its secretary and Treasurer David pit Owen fought for years to get him off the committee my motivation was to see the building in good shape um there were obvious problems and we rar had uh a St meeting there's no committe for three consecutive years there was no annual general meeting of owners and the building's finances were in serious trouble worse still was the state of the Broken down buildings property [Music] itself I've seen walls collapse I've seen water running down the sides of walls in bedrooms I've seen water bubbling up through pipes onto the balconies and flooding [Music] bedrooms some of these people are living in shocking conditions just shocking conditions in 2021 Michael Lee surprised owners with a proposal to release the Builder from a lawsuit over the building's defects a lot of the owners in the top two floors had rotting staircases rotting walls rotting carpet uh water was coming in through ceilings uh through light fittings how could you say that the defects had all been fixed how could you possibly release the [Music] Builder David pit Owen spent the next 2 years leading a rebellion of own owners against Michael Lee by the time he arrived at the 2023 AGM he believed he had enough votes to dislodge Michael Lee from the committee but it wasn't to be I walked into the vesu to be greeted by would have been at least seven security men and I I turned to one and I said why are you here and he said Michael Le's employed us we were sort of hurted like cattle by these security guards I've run the meeting I'm the chairperson please be respectful okay Michael Le's bouncers paid for out of the owner's funds blocks the doors I have the authority and I have the power to the meeting you don't like it you don't like it you either you leave my meeting or go level 14 afterwards they barred some owners from entering the room that me you can have [Applause] you felt as though you were walking into a police state it was it was just a horrible feeling you will be removed all right and that that is a guarantee okay so Lee railroaded the meeting your proy are not valid if you like me go upstairs okay I don't care go to the Supreme Court can I ask go the federal court at the end of the meeting Michael Lee announced voting for the new committee would be held by secret ballot and he would be counting the votes anybody not happy with the result you have all the right to go upstairs level 14 our you can doesn't really matter your property it's also my property as well okay the results he claimed those member are the new committee put him back in power what was the vote we were never showing the votes he just came back up onto the stage and said these people have been voted in so the me is now officially closed what was the vote it was at that stage that all the security guards surrounded him you're a scumbag that's what you are man hey guys we just got shaed ID [Music] weeks later at the New South Wales civil and administrative tribunal Michael Lee consented to the appointment of a compulsory strata manager the $50,000 a year contract was given to his wife's company it was [Music] disgraceful when a group of owners challenged the appointment the tribunal in this building ruled Michael Lee's Behavior was Dreadful the AGM should be struck from the record and run again I find that the conduct of the meeting was egregious the tribunal condemned his use of bodyguards to block owners and reject their proxies I hope Mr Lee is still listening that is not permissible under the act it also found that Mr Lee consenting to the appointment of his wife's company was so improper it had absolutely no justification Mr Lee declined to be interviewed and sent us legal threats in an email he said he acted properly at all times we finally caught up with him at this building in Sydney's Northwest you guys coming where he's about to run another strata meeting M ABC four corn we just why it was okay for your wife company to get that contract we've got some questions we' we'd really like you to answer don't shoot don't shoot don't Sho don't ex don't camera excuse me don't touch the camera I told you we're just trying to understand why it is that your wife's company got that contract why that was okay for you to consent to that I don't want to talk to you okay please the New South Wales government has confirmed it has placed Michael Lee under [Music] investigation when a new building is Conflicts of interest completed often the developer still owns enough units in the building to control the owner's Corporation and has the power to award a lucrative contract to a strata firm the problem comes later when when the units are sold and building defects emerge the new owners expect the developer to fix them and for the strata firm to act on their behalf but here's the rub the strata manager also wants to stay sweet with the developer who has more buildings and more contracts in the pipeline and this is how some strata firms become trapped in a fundamental conflict of interest it's fantastic location where we're close to train station public transport is excellent and the city's right there the city is right there when Gavin Cooper moved into his new apartment in Melbourne's trendy pan he had no idea of The Strife to come with Tideways his strata manager a company called tideways would have been within months of the building first settling that we really started to question the relationship between tideways and the Builder and uh and whether they were acting in our best interests from the outset the building had issues there were probably about $5,000 worth of invoices that accumulated over the first few months of things that needed to be fixed front doors breaking handles falling off things that needed to to be fixed straight away so that residents could continue living here so this is the email when tideways asked the Builder to reimburse these costs and fix other defects the building company said all of the appears should have been approved by it first the developer platinum or our subbies will not be paying for your subcontractors laress I made this clear to you when we gifted these buildings to your company and what did you take that to mean it led us to believe that tideways were looking after the Builder's best interest because they had given them the contract to to manage this building that's absolute nonsense the issue came to a head at a meeting of the owners in late 2020 is this what this be people which the Builder attended we disgusting lot I've never done 100 buildings I've never come across this in my life I'm sorry did you just call us a disgusting lot the Builder insisted there was no conflict of interest in his dealings with Tide wise we gifted as I said we gifted on one on one provisor they look after the building but the owners weren't convinced they had discovered the Builder had benefited from a deal that gave away parking in the building for 99 years for just $1 and that tideways had cheered the meeting where the deal was formalized that was completely inappropriate it was thousands of dollars per car space on a property on the outskirts of Melbourne former tideways employee Stuart Martin reveals that first meeting and the parking deal had all been pre-arranged I remember that now it was literally here's the minutes it's just say that we're yeah tick and flick I wouldn't have even read them the minutes are written before you get in the door Stuart Martin is blowing the whistle on an industry riddled with conflicts of interest there's no doubt that tiwi and and most other companies want a long-term relationship with big Builders and developers to guarantee income further down the track and that's the industrywide issue that's where the clashes start to occur after Stuart Martin pressed the pan Builder to address the building's defects he says the strata manager tideways took him off the job he left the company shortly afterwards they wanted to M maintain that relationship with a developer and I was treading on too many TI by doing my job after terminating tideways contract Gavin Cooper says the owners successfully forced the Builder to fix the building's major defects in a statement tideways said it rejected the allegation of a conflict of interest and was disappointed by the Builder's gratuitous comment about how we were awarded the contract tideways says it secures work through its record of high performance and that Stuart Martin was replaced after complaints from the pan owners committee the company's lawyers said tideways had no responsibility over the leases as its role was limited to conducting the meeting and recording the [Music] minutes tideways takes a 20% Commission on its client insurance policies but to secure these policies it uses a broker in which it holds an Undeclared interest called Resolute property protect in its contracts tideways is required to disclose its beneficial relationships but here in its agreement with the pan building it reported no such relationships at all have a look there's the section it's completely blank tideways wasn't telling the truth in fact in addition to its 20% insurance commission the company was also receiving an undisclosed share of the broker's Revenue we've gone to the head of that broker's parent company to get some answers Robert Kelly is the chief executive of steadfast group Resolute property protect is an Steadfast example of a company is it not designed to channel funds back to strata managers AB absolutely absolutely tideways does not declare its shareholding in Resolute property protect what's your reaction I I I think that that's wrong and I think that that probably occurs uh and the specifics I don't know of that but I I would not be surprised if in some cases they don't do that I agree but Mr Keller you're discussing this as if you're a disinterested third party in fact you're the managing director of one of the biggest Insurance players in the strata space if not the biggest in joint venture Arrangements with companies like tideways and you're saying it's not your responsibility well it it is to make sure that the people that give us the instruction we we tell them about the transparency of the transaction well you're not telling them loud enough are you well well I think that's the Gap and you're and you're on the right track tideways told Four Corners this lack of disclosure was an honest mistake which has since been rectified [Music] The corporate buy up the strata industry is embarking on a major transformation corporate Raiders now sail these Seas emboldened by a barrage of takeovers they're squeezing consumer choice in the chase forever greater profits even wealthy retirees like Rob vmir and strata schemes like his on the Mornington Peninsula a mere cannon fodder it seems at every turn uh we're dealing with the same group of companies how do we know that we're getting a good offer about 9:30 at night time just um excessive speed and it fil to take the corner and we heard a a loud uh crashing noise Rob vmir first glimpsed the industry's corporate metamorphosis after a car accident 4 years ago there was a car dangling vertically in the marina it it had gone crashing through a railing over the boardwalk down onto a gangway this is common property and the uh owner Corporation manager um lodged a Insurance claim with a broker after the owners lodged the claim they were left waiting yeah the contractor um uh we found out later on was John's Ling group um which is quite strange because they're an international company involved in what was a relatively small repair um but it still took 12 months at about the same time time Rob vmir discovered his strata manager had Overpriced quotes also asked John Ling to quote for the repair of a set of stairs its premium option was 11 stair for $95,000 well the quote from John's Ling was a extraordinary amount um we weren't Keen to S of spend that sort of money when he found a cheaper alternative John Ling slashed its quote by 20% why would somebody just based on a phone call cut the price it just defied logic John Ling says it changes its prices according to customer feedback this was when Rob vmir pieced together the puzzle his Weekender at Martha Cove had become caught in a Vortex of interrelated corporations Martha Cove Str manager is a company called Cambridge Management Services Cambridge in turn is owned by a larger company bright and Dugen bright and Dugen meanwhile is owned by none other than John's Ling the maintenance contractor which quoted an exorbitant price to replace the stairs it gets worse a major shareholder in John's Ling is steadfast group limited the multi-billion dollar insurance company which also happens to own Martha cove's insurance broker and under confused spare a thought for the owners trapped in this web like these people here at Martha Cove the bottom line is this all of these companies have their hands in the owner's Pockets they're very murky Waters I think um I'd hate to have to unpick that and work out who's getting value is it good value David Hampton was the chief executive of Chu Insurance when steadfast announced it would buy the company I feel sorry for those lot owners why oh because the propensity to you know collude and and do back backhanded deals in the space is very high because people don't know when John Ling bought Brighton Dugen it told shareholders the deal was a game changer because it could cross- sell maintenance work to Brighton Dugan's buildings but in a statement to Four Corners brigh and Dugen in insists it has no reason to believe John's Ling engages in profiteering Brighton Dugen points out that insurance commissions continue to be rebated to owners and says it's factually incorrect to infer any collusion between it and its Associated companies the corporate buy up doesn't stop there this multi-billion dollar insurance giant has found another way to extract money from apartment owners when the funds of this Strat development ran dry their steadfast broker found them alone from a company called I cumulate what the broker hadn't told them was that I cumulate was another steadfast [Music] company I feel cheated because of the lack of transparency the fact that it's kept from us uh it it just doesn't it doesn't smell right why were the owners not told that the premium fund to which they were urged to go was assist a company well there there there's no necessity I suppose to do that what the owners were troubled by is they felt they were channeled to a steadfast Company by pushing it into a policy which cost it more than what was available elsewhere I I accumulate is the second largest premium funder in Australia you you think it's got to be the second largest premium funder in Australia by being twice the price of everybody else the answer to that question is they could not possibly be like that okay so you're what you're putting to me is not correct for Corners has confirmed with the heads of mathematics at the University of New South Wales that the annual cost rate offered by I cumulate was more than twice that of the alternative loan found by Rob vmir [Music] independent strata Manager David Wilman is breaking ranks and sounding the alarm on dwindling [Music] competition he says steadfast has offered his company big money to join one of its schemes the offer that was made to me was to provide exclusivity over my insurance portfolio um whereby we would receive in return a large cash injection into our business and what kind of money are we talking about between I think 5 to $800,000 because it's David Wilman says part of the sales pitch was the ability to hide the income the way it was sold was in effect to allow you to bypass your disclosure obligations allow you to go to the market or the client say on the one hand that I'm a really good guy I'm not taking Insurance commissions but in actual fact you are it's hidden in secrecy that wouldn't have been from us it was from a steadfast broken network not from us whoever told you that's lying Robert Kelly does not deny however that owners know little about steadfast deals with their strata managers to negotiate for their buildings Insurance Insurance policies apartment owners yep who hire these strata firms many of them are none the wiser about this Arrangement are they have have no idea okay the action goes between the St broker and the strata manager but it so steadfast washes its hands of any kind of obligation to make sure owners know about this does well under at law you're only obliged to to to give the information to the person that gives you the authority to place the business and the strata manager is the one who who who in fact um gives the Authority or authorizes the insurance and and sends the check so because the law isn't making you disclose it Mr Kelly then you're safe not disclosing it well no we do disclose it we disclose it to the strata manager but then you don't disclose it to the owner do you well we have nothing to do with the owner and in those cases owners are none the wiser are they they they wouldn't they probably wouldn't no definitely what do you think owners would say if they knew that their strata manager was out there negotiating with steadfast to sell their future insurance policies without their knowledge there'd be absolute outrage the head of the Australian competition Watchdog Gina casotti says Insurance commissions should be banned then receip of uh hidden payments and commissions of whatever nature is uh misleading consumers good morning to everyone steadfast hold on the market has caught the Australian competition and consumer commission by surprise could be made the growth of steadfast has occurred below the radar it has amassed a very significant Market position with almost no notification to the A C this group had steadfast been forced to notify the A C of its many takeovers its rise could have been prevented says Gina cascot Le informed and confident consumers benefit and are benefited by increased Choice quality and lower prices from effective competition the federal government is currently considering this reform we are not able to prevent those transactions which are anti-competitive because we don't see them steadfast is a good example of this significant problem the A C boss says commissions are helping drive up the cost of insurance David Hampton agrees there's too much of insurance cost that's allocated to reward the people who sell and service the product so it could be up to 40% one expert we interviewed told us that steadfast growth and its web of interrelated commissions and payments between its companies is one of the reasons why Insurance costs have been climbing for strata buildings no that's complete that's the most ridiculous statement I have ever heard anybody say in my life and I've been in this industry 54 years so please don't take Financial advice off that person or give them any Credence if anything you want to know financially because they do not know what they're talking about he said it was quote the most ridiculous statement he had ever heard in his [Music] life the competition reforms could come too late for people in apartments the owners of these apartments on Sydney Northshore may have already been hit by steadfast market Competition reform dominance earlier this year mark Swain was struck by a steadfast broker report which recommended they use Chu insurance which steadfast also owns we only were provided with one quotation and that recommendation was that we go with chu insurance which turned out that they were actually assist a company with the same owner this year's quote went up from say 9,400 to $1,700 approximately it was a big jump a big big jump the steadfast broker report said arrival insurer SCI had withdrawn its offer to insure the building but Mark Swain had approached SCI directly and he got a quote so I actually reached out and we received a direct quotation which was more cost effective than what we' been provided by the broker it was significantly more competitive SCI told Four Corners it did not ever withdraw its offer of a policy which was $33,000 cheaper in other words the steadfast document was false I expect the broker to go around the market and furnish us with different options and and this document that came back from the broker said we cannot provide you those other options which was factually incorrect In the End the implication was stead fast had deceived the owners to channel work to its own insurance company Mr Kelly for Corners has confirmed that is a false statement that's not true and SCI did not ever withdraw its offer to ensure that that's not true seci telling a great lie about that seci has confirmed it did not ever withdraw that offer of insurance they're telling you lies it wouldn't be the first time and you're saying to me you've got a document which will show SCI withdrawing its offer there'll be there'll be at BCP yes absolutely that okay perhaps you could take that on notice I'm I'm I'm happy to do it and by the way I'm happy to come back to you and say if I can't find one Robert Kelly never produced that document but later claimed the quote was either withdrawn by seci verbally or steadfast withdrew it on sci's behalf SCI says it never withdrew its offer of insurance and never authorized steadfast to do so New South Wales has the most advanced regulation of the strata industry in Australia but the New South Wales strata and Property Services commissioner John mins admits even New South Wales has failed consumers let me acknowledge this up front that yeah regulation of strata has been a difficult area and I think many of us would argue it's been underregulation for a very long time Mr mins concedes the industry has serious conflict of interest problems but Mr mins has one too your formal disclosures to the New South Wales government contain a commitment that you sold your interest in independent Property Group in mid 2021 that is correct is it not that is correct okay yes and what I'm going to put to you Mr M is that was not true the was it yeah that was was true I I'm sure I can understand why you why you're asking the question and I am Limited by you know by legal agreements around all of [Music] this when he was first appointed 3 years ago John mins told the public he had sold his interest in independent Property Group in mid 2021 but this wasn't true in fact he has continued to own a significant interest in the company Mr mins your family company your Family Trust continues to own more than 500,000 shares does it not in independent Property Group Holdings is that correct that is correct when you said it was important to disclose it where's the disclosure that you've made publicly I had no obligation to make it publicly and I have no intention of going further than the conversation that we've had here today John mins insists his disclosure to the New South Wales government was adequate for the past three years while you've been a commissioner over the property industry you've been a shareholder in a major property and strata services company that is an impossible conflict is it not if the government had viewed it as a impossible conflict I wouldn't have taken the rooll on after this interview John mins was stood aside from his position pending an investigation [Music] The spoils in July I board a super yacht on Sydney's glittering Harbor the strata industry held its night of nights they're celebrating their spoils some $7 billion a year in fees these privateers have been largely Billions in profits ignored by governments allowed to run [Music] wild the people that are making money this way that way all over the place it's just it's just ludicrous the New South Wales government claims new la laws requiring Fuller disclosure of conflicts of interest will mop up the damage the A C disagrees enhanced disclosure obligations don't get to the root of the problem which is the financial incentive but in most States there's almost no regulation at all it has to change I mean Australia's had a housing crisis for years high density living is being advocated as the solution to that but people hate it a lot of people just hate living in strata I mean don't mention you're a strata manager at a party no one will talk to you The Regulators have got to get serious about this thing because it's all going to hell in the hand basket there needs to be some significant regulatory overhaul in the way that stratas operate leaving it up to individual Str managers to determine their moral code just doesn't work for the foreseeable future millions of apartment owners have no choice but to watch their own backs St management [Music] [Applause] 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