A Sydney woman has uncovered the “dire straights” her apartment building is in, after uncovering a huge financial problem.
Welcome to Sisters In Law, news.com.au’s weekly column solving all of your legal problems. This week, our resident lawyers and real-life sisters Alison and Jillian Barrett from Maurice Blackburn advise on what to do about potential mismanagement of strata money.
Question:
I have recently bought an apartment in Sydney and I’m having a lot of problems with the strata company managing the building. All 16 apartments pay quite high quarterly fees for the building and there is also a ‘special levy’ of $200 in place for a $300,000 loan taken out to do emergency repairs last year.
However, we have recently discovered that there is no money left in the capital works fund (there was $100,000 three years ago) and the $200 special levy isn’t close to covering the loan repayments. Basically, we’re in dire straits.
The strata managers are blaming the owners corporation for not being on top of finances but aren’t they the ones in charge of this?
All of the other owners seem to be shocked that they burned through $400,000 in three years but the strata managers say they approved all the works. As a new homeowner, I’m horrified by it all! What can I do? – Shelley, NSW
Answer:
You have done the right thing by raising your concerns. It sounds like everything needs to be looked at more closely before the problem escalates into what could be a very expensive exercise for all apartment owners, including yourself.
There seems to be some blame-shifting going on between the strata managers and the owners corporation.
To be clear, the owners corporation is the legal entity that owns the building, land and common areas of the property and has overall responsibility for their upkeep.
For larger buildings, like in your case, the owners corporation will typically appoint a strata manager.
The management agreement will outline the responsibilities of the strata manager.
Usually this would include financial matters like collecting and monitoring levies, arranging quotes for all services and maintenance works, maintaining the accounting records, and preparing and presenting all financial budgets and statements to the owners corporation.
If these things were being done adequately, communication was regular and clear, and sensible decisions made, the financial position of the owners corporation should not be where it is now.
You should get your hands on a copy of the management agreement as this will outline who was responsible for the approval of expenses and the expectations of the strata manager around communication of the finances.
Importantly, this document will outline whether the strata manager had authority to approve all invoices or whether there was a dollar limit on that authority.
Further, the owners corporation must give you, as an owner, a copy of the most recent financial statements prepared for the administrative and capital works funds.
Your concerns should firstly be raised in writing with both the owners corporation and the strata manager. You could also ask them to convene a general meeting of the owners corporation to discuss the issues.
The strata manager has a duty of care to the owners corporation, which includes ensuring they spend money on appropriate work and they act reasonably when making decisions about spending money.
Anything that falls short of this could be a breach of their agreement, which could allow commencement of a process to have them removed.
If there has been a misappropriation of funds, it would be grounds to terminate the management agreement.
Complaints about strata managers can be made with NSW Fair Trading and also with the Strata Community Association (NSW).
If your investigations discover that the owners corporation has not been making sensible financial decisions, you should follow the owners corporation’s internal dispute resolution process.
If you aren’t happy with the outcome of this, you can consider seeking an order through the NSW Civil and Administrative Tribunal, which could include the strata manager acting in place of the owners corporation.
This legal information is general in nature and should not be regarded as specific legal advice or relied upon. Persons requiring particular legal advice should consult a solicitor.
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