SCA (QLD) Advocacy

It’s one of the oldest – and truest – sayings in the property industry that “confidence is king”.  In the strata community, “confidence” often means taking a leap into the unknown in order to pursue a dream of home or lifestyle.

A lack of consumer confidence is felt acutely throughout the sector, from real estate agents, developers and builders, through to strata managers and service providers.

One of the factors that can impact very heavily on consumer confidence is the contractual fine print and legal obligations that are attached to buying a lot under a strata or community title.

Yet for such an important part of the purchase process, it’s something that has never attracted significant scrutiny in Queensland – until now.

The Queensland Government is currently considering a range of reforms, including the legal obligations that are imposed on buyers who are pursuing their dreams through community title schemes.

Currently property owners in new developments can be saddled with contracts of 25 years for site management services that have been put in place – usually for significant profit – by the developers prior to handing over the body corporate to the first owners.

In some cases, these contracts have required property owners to pay the management rights holder for services that aren’t even needed – such as lift maintenance in a building with no lifts. It’s an increasingly popular way for developers to inflate their bottom line, but it is also increasingly creating reluctance among potential buyers, which in turn impacts on prices for sellers.

SCA(Qld) recognises the legitimacy of some of these contracts, particularly in accommodation areas where there is a high turnover of tenants for short-term stays.

However, in recent years management rights contracts have steadily crept into residential complexes well away from tourist areas, where there is simply no need for them, and certainly no need for the financial handcuffs they place on lot owners.

The issue is almost exclusively a Queensland one. Due to reforms in New South Wales around 20 years ago, there has not been the explosion in the number of Management Rights contracts in that state that we have seen north of the Tweed.

Of the 250,000 lots under Management Rights Australia-wide, approximately 225,000 of them – 90 per cent – are in Queensland.

After consultation with our members, SCA(Qld) has developed a simple plan that more fairly balances the interests of all parties, while ensuring that the engagement of Management Rights occurs only in appropriate complexes, such as holiday apartments.
The key points of our position are:

1. The total term of new service contracts, including for management rights, should be limited to either
   • Three years, in line with the term limit for the engagement of a body corporate manager; or
   • 10 years, in line with the approach in other jurisdictions, such as NSW.
2. Original owners (usually developers) should not be permitted to enter into contracts of more than three years than would bind the future body corporate. We believe the body corporate should be free to decide for itself the best way to contract maintenance facilities
3. Other consumer protections are also needed including:
   • Clarification of section 3 of the Body Corporate and Community Management (Accommodation Module) Regulation 2020 to define better what is meant by the term “predominantly accommodation lots” when describing a scheme. SCA(Qld) believes “predominantly” should mean 75 per cent.
   • Amending the definition of “accommodation lot” in section 3(3) of the Accommodation Module so it no longer includes long-term residential use;
   • Improving the review provisions open to a Body Corporate in relation to a contract inherited from the developer.
   • And that a special resolution should be required for a Body Corporate to enter into or extend a service contract for more than three years.

Of course we would be amenable to “grandfathering” provisions for existing MR contracts, to protect their value.  After all, people who have purchased management rights in good faith are also entitled to share in the confidence we want to achieve for lot owners.

Modelling the Queensland reforms on the New South Wales laws and timeframes will also provide confidence for other aspects of the strata industry supply chain.

For example, the building industry has continued to prosper in New South Wales 20 years after similar consumer protections were introduced there.

Similarly, lenders have continued to finance developments even without the proceeds of lengthy management rights contracts, and there is no reason to believe that would not be the case in Queensland.

What has changed in New South Wales over two decades is that lot owners no longer need to accept lengthy and expensive contracts as part of pursuing their dream home or holiday apartment.

Moving to safeguard the rights of residents, while still respecting the needs of other players in the industry, has helped create the confidence among purchasers that has allowed the industry to thrive. It’s well past time for Queensland to follow.