NSW government considering banning strata manager commissions to cut apartment costs
Consensus Summary
The NSW government is evaluating a proposal to ban commissions paid to strata managers, a move that could save apartment owners hundreds of millions over 15 years by reducing inflated costs and conflicts of interest. The Productivity and Equality Commission report found commissionsâoften 15 to 25% of a managerâs revenueâcreate perverse incentives, with managers prioritizing their earnings over securing better deals for owners. Over 550 submissions backed reform, citing opaque pricing, rising costs, and cases where commissions reached 20% of insurance premiums, such as a $10,000 payout on a $50,000 policy. With over a million NSW residents living in strata properties and half of Sydneyâs homes expected to be strata-titled by 2041, the issue is critical for affordability. While industry groups like the Strata Community Association are phasing out commissions voluntarily, some managers resist change, arguing it threatens their business models. The government is weighing four reform pathways, from voluntary phasing out to a full legislative ban, with Fair Trading Minister Anoulack Chanthivong emphasizing careful consideration of impacts on owners, managers, and the broader industry. Experts highlight that commissions distort decision-making, with anecdotal evidence showing premiums rising disproportionately to work demands, and vertical integrationâwhere managers profit from linked service providersâfurther eroding trust.
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Key details reported by multiple sources:
- NSW Productivity and Equality Commission report recommends banning commissions to strata managers, citing conflicts of interest and inflated costs
- Commissions for strata managers in NSW can reach 20% of insurance premiums, with a $50,000 policy generating up to $10,000 in commissions (split between brokers and managers)
- Over 550 submissions were received during consultation on the report, with strong support from apartment owners for reform
- More than 1 million people live in strata properties across NSW, and nearly half of all homes in Greater Sydney are expected to be strata-titled by 2041
- The commission estimates scrapping commissions could create $333 million in benefits to apartment owners over 15 years through lower premiums and competitive pricing
- Strata managers can receive commissions of 15 to 25% of their total revenue in some cases, representing their entire profit margin
- The NSW government will carefully consider the commissionâs recommendations, including a potential legislative ban on commissions
- The Strata Community Association NSW has announced members will phase out insurance commissions as a step toward greater transparency
- Peter Achterstraat, NSW Productivity Commissioner, warned that apartment living is the only affordable housing option for many first-time buyers
Points of Difference
Details reported by only one source:
- Strata manager commissions can create a âperverse incentiveâ where managers avoid pursuing better-value deals if it reduces their income
- A Sydney apartment owner (Lui Timbano) is pursuing legal action in the NSW Civil and Administrative Tribunal, alleging his strata manager exceeded agreed commission limits, with insurance costs dropping from $28,000 to $21,000 annually after switching brokers
- Vertical integrationâwhere strata management companies are owned by or linked to service providersâis a growing concern, with existing disclosure rules found insufficient to mitigate conflicts of interest
- Developers often select strata managers before apartments are sold, locking in arrangements for incoming owners and creating conflicts of interest if issues like building defects arise
- Strata lawyer Allison Benson noted some strata managers took âhigh offenceâ at the suggestion of banning commissions, insisting it would ruin their business model
- A case study in inner Sydney showed a strata managerâs insurance commissions grew from $8,000 to $27,000 annually over four years despite no material change in work required
- A resident submission described a repair quote from a maintenance company linked to the strata managerâs conglomerate, highlighting vertical integration concerns
- The Guardian quoted Peter Achterstraat saying, âThe only place people can afford to buy these days is in an apartment,â emphasizing urgency for reform
- The opposition spokesperson for fair trading (Tim James) said any ban on commissions should have a âcompelling and comprehensive basisâ
- David Glover from the Owners Corporation Network Australia called commissions âhidden paymentsâ that create incentives for strata managers to sign up to more expensive contracts
- The ABC noted that nearly a quarter of all NSW residents live in residential strata schemes, including apartments, townhouses, villas, and duplexes
- The ABC emphasized that commissions make it difficult for owners to compare strata managers due to unclear fee structures, stating âthey donât know what theyâre paying their strata managersâ
Contradictions
Conflicting information between sources:
- The Guardian reports Peter Achterstraat saying commissions should be banned âsooner rather than later,â while the SMH notes the government is only âcarefully consideringâ the recommendations
- The Guardian highlights a 30% reduction in insurance premiums after a strata committee engaged an independent broker, but the SMH does not provide this specific percentage figure
- The ABC states commissions make it âvery difficultâ for owners to compare strata managers, while the SMH focuses more on the legal and structural conflicts rather than the comparative difficulty
- The Guardian includes a residentâs anecdote about a repair quote from a linked maintenance company, but the SMH does not reference this specific example of vertical integration
- The SMH mentions a three-year transition period for reform, while the Guardian does not explicitly state the duration of the proposed transition
Source Articles
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