This article originally appeared in LawNews and is here with permission. It is Part 2 of a series. You can read part 1 here
A lack of regulatory controls means parts of the strata management sector are a “wild west”, where anyone can set themselves up as a body corporate adviser and then potentially gain unsupervised access to accounts containing substantial amounts, industry insiders have warned.
Strata management is a growing sector in New Zealand as urban planners encourage medium-to high-density housing, with 15,678 buildings using the strata title ownership model according to 2024 figures.
The body corporate committees that set the rules for owners and tenants these properties are usually lay people. They therefore rely on a third-party strata management firm to advise them on issues such as setting owner levies and formulating long-term maintenance plans, which are designed to build up funds that will be used to cover big-ticket upkeep items, such as painting a complex’s exterior or renovating the roof.
However, there are currently no qualifications required to become a strata manager and no licencing, or complaints/ disciplinary procedures, other than a voluntary scheme administered by the Strata Community Association of New Zealand (SCANZ), an industry body which represents about half of New Zealand’s strata managers.
“At the moment anyone, literally anyone, can just start up trade as a body corporate [strata] manager.” SCANZ vice-president Doug Wilson said.
“There’s no licencing, no registration, no requirements at all, so anyone can just start up in that business. But bodies corporate must strictly comply with the Unit Titles Act and the Unit Titles Regulations, so those two things don’t sit together very well.
“There’s no mechanism to establish if a new body corporate manager or management company even knows anything about the Unit Titles Act and the Unit Titles Regulations. We have anecdotal reports from clients with some new managers that they have very, very poor knowledge of the legislation.”
‘Sloppy administration’
Property lawyer Joanna Pidgeon, the incoming convenor of The Law Association’s (TLANZ’s) Property Law Committee, agreed there was room for improvement in oversight of strata managers.
“There are operators out there who don’t operate is as well as one would hope and may operate in a non-compliant manner,” she said. “It’s very difficult for individual owners to bring a claim, because only the body corporate can bring a complaint against them. But what they can do is lodge a complaint with MBIE, and if they get enough complaints about an operator, maybe they might step up.”
Pidgeon was part of a TLANZ working group which examined the Unit Titles Act in 2016 and raised several concerns, including “often sloppy administration and accounting by external [strata] managers”.
The report noted nearly all bodies corporate relied on third-party managers, but the managers did not face the same regulatory oversight as professionals in real estate or the financial markets.
“There is no regulation or supervision of these managers,” it said. “There are usually significant sums of money involved (annual expenditure for larger body corporates will run into excess of $1,000,000, plus significant long-term investments) and records are often poorly kept. In the past there have been defalcations and also extreme difficulties in getting access to records on a change in body corporate managers.
“This regime appears to be out of step with the greatly increased supervision applied to persons in an equivalent role in the real estate sales industry and in the financial markets.”
Improvements to record-keeping and access to records, as well as codes of conduct for both body corporate committees and strata managers, were included in an overhaul of the Unit Titles Act that came into effect in 2022, but Pidgeon said the TLANZ working group found there was no political appetite to formally regulate strata managers.
‘Nightmare scenario’
Wilson said it was a missed opportunity to add “an extra level of professionalism” to the sector, particularly for smaller operators.
“Right now, there’s a disparity in the industry, where large companies are going to have robust rigour around their banking arrangements because they are very likely to have a multi-level authority system in place, where multiple staff have to authorise payments from the body’s corporate. And if it’s a trust account operation, there will be a periodic auditing review of the trust account,” he said.
“So, client funds that are held in that setup with the bigger companies are going to be very, very safe. But then, when you look at your smaller one-man bands and new companies, it really is a wild west situation, where they can just set up shop, open up any old bank account with any bank, and away they go. You know, clients’ money gets transferred, and then this company, well this person really, has full access to it.”
Wilson said small strata management companies were operating at a level of risk which needed to be addressed.
“If you look at the nightmare scenario… say a one-man band starts operating as a body corporate manager, it can be quite an informal arrangement. Maybe they’re friends with someone in a body corporate, or they just decide, ‘oh, you know, I’m good at secretarial services. I have some accounting background, so I’ll do the job’. Suddenly, they will have sole access to all of it,” he said.
“Quite likely, the body corporate has to approve all this, but [the manager] could find themselves in the position of having sole access to all the money of those body corporate owners. If it’s a large body corporate, or if it’s a body corporate undertaking a remedial project, that can be millions of dollars.”
He said SCANZ would like to see a licensing system for strata management companies, similar to one set up in the Australian state of New South Wales.
“But there definitely needs to be a balance, so it’s not just introducing cumbersome regulation,” he said. “We’re not wanting to bog the industry down, but we want to ensure professional standards. So what we see as the right fit is not every single person employed and working as a body corporate manager needing to have a licence. Instead, it could be something similar to real estate offices, where each company would need to hold a licence, so someone in the company would have to be licenced, not necessarily every single person working as a manager in the company.”
In the meantime, Pidgeon said body corporate committees needed to complete due diligence before appointing a strata manager.
“Are they a member of a professional organisation? What are their skills and training? Ask for a reference check. Find out from their other customers whether they’re happy with them or not. You’re putting a lot of trust in a manager, so it’s important for people to do their homework, ask around, and get recommendations.”
*Neil Sands is Deputy Editor at LawNews. This article originally appeared in LawNews and is here with permission.
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