First Reading
Bill introduced on motion by Mr Anoulack Chanthivong, read a first time and printed.
Second Reading Speech
Mr ANOULACK CHANTHIVONG (Macquarie Fields—Minister for Better Regulation and Fair Trading, Minister for Industry and Trade, Minister for Innovation, Science and Technology, Minister for Building, and Minister for Corrections) (12:46): I move:
That this bill be now read a second time.
I am pleased to introduce the Strata Managing Agents Legislation Amendment Bill 2024. The bill amends the Strata Schemes Management Act 2015 and the Property and Stock Agents Act 2002 to strengthen the disclosure obligations of strata managing agents, increase transparency for strata owners, and bolster NSW Fair Trading's compliance and enforcement powers. Complementary changes are also proposed to ensure that the Community Land Management Act 2021 remains consistent with the Strata Schemes Management Act.
The Government is acutely aware of the importance of strata living for the people of New South Wales. There are more than 85,000 strata schemes in our State. More than 1.2 million people already live in strata communities in New South Wales. That number is set to grow under the Government's comprehensive plan to build more quality and affordable homes across New South Wales. If the State is to realise the Government's ambitious housing supply targets, the public must have confidence in strata living. Owners' corporations make key decisions on how to upkeep and manage their strata scheme's buildings and common property, often appointing a strata manager to help them run the scheme. Critical to the success of this relationship is owners' corporations having confidence that they can trust their agent is acting in their best interest.
In recent times, troubling instances of strata managing agents taking advantage of strata owners have been highlighted. These include owners' corporations being charged excessive fees when securing strata insurance for their buildings; agents being swayed to buy products from certain companies over others because they get a benefit, such as a commission; and agents using the services of related entities to obtain financial benefits without the knowledge of the owners' corporation. The Government has wasted no time in tightening controls to respond to owners' and the community's concerns. It is taking immediate action to stamp out bad behaviour in the strata sector. The reforms in the bill are the next step in the Government's work to modernise strata and community land laws, address gaps in accountability across the sector, and strengthen enforcement against those who breach their obligations.
Why is this so important? The housing shortage in New South Wales has reached critical levels. To solve it, we need people to have confidence to invest and live in higher density housing that relies on strata schemes. The bill will benefit residents living in strata and community land schemes by imposing stronger and more frequent disclosure requirements on agents; banning agents from receiving a commission for insurance products that an owners corporation secures independently; increasing the maximum penalties and penalty infringement notice amounts for agents' disclosure obligations; and strengthening NSW Fair Trading's compliance and enforcement powers, including introducing a broader enforceable undertaking power.
I now turn to the specific provisions of the bill. There are already some disclosure requirements in the Strata Schemes Management Act and limits on the types of benefits an agent can receive, but the disclosure obligations are piecemeal and very limited. The bill increases transparency for owners' corporations so they have all of the relevant information they need in real time to make informed decisions about the management of their schemes. The bill amends section 57 of the Strata Schemes Management Act to make it clear that the owners' corporation's approval of a commission or training service is to be by a resolution at a general meeting. That is required if the commission or training service is not in line with the agency agreement. I emphasise that that is already the law, but the bill now makes it crystal clear.
Further, the bill will require an agent to provide important information to the owners' corporation at the relevant meeting to ensure that it can make an informed decision. That information includes details about the commission or training service; details about the specific nature of the relationship between the agent and the person providing the commission or training service, such as if they are related companies; details about why the contract is in the best interest of the owners' corporation; and a statement about why the agent believes that they are not violating their obligations under section 11 of schedule 1 to the Property and Stock Agents Regulation 2022. That obligation is that agents are not to accept an appointment to act, or continue to act, for a client if the agent's interests conflict with their client's interests. The new requirement will make agents actively consider their obligations and if they are acting properly. It will also give owners' corporations valuable information that they need to decide if they agree with the agent, or if a different course of action would be better for them.
The bill will amend section 60 of the Strata Schemes Management Act to require agents to disclose more relevant information to the owners' corporation more frequently. In certain circumstances, the strata managing agent will have to give written notice to the owners' corporation about what may be perceived as a conflict of interest before entering into a contract for the purchase of goods or services. Those circumstances are if an allowable commission or training service is provided under the contract, or if the contract is with a person connected to the agent. Section 7 of the Strata Schemes Management Act sets out when people are "connected" with each other for the purposes of the Act. That includes parent companies and their related entities.
The bill also amends the Strata Schemes Management Regulation 2022 to expand who are connected persons. For example, an agent who is a trustee will be considered connected to the trust's beneficiaries. That will ensure that all relationships that could preference the agent towards another party, such as a certain supplier, must be disclosed. The written notice will have to contain the details I have already described in relation to the amendments to section 57. The reforms mean that owners' corporations will have more up‑to‑date disclosures about an agent, including where the agent is proposing to use a subsidiary company to maintain the strata scheme's common property. The bill will also require agents to give written notices to the owners' corporation as soon as possible after they find out that they are connected to a supplier of goods or services for the strata scheme, or the original owner of the strata scheme; or have acquired a direct or indirect pecuniary interest in the strata scheme, such as if they have bought a lot or lots in the scheme.
Additionally, agents will have to consolidate and report all of that information at the annual general meeting. The proposed new sections 60 (1) (c) and (d) of the Strata Schemes Management Act would require agents to report at the meeting details about their connections with suppliers and the original owner. That includes identifying connections that were formed during the past 12 months. The bill is about empowering owners and increasing openness and transparency in the industry. It is how we will clear the mistrust that can hinder constructive relationships between consumers and their agents.
The provisions I have just outlined relate to how an existing strata manager must engage with the owners' corporation. The bill also amends section 71 of the Strata Schemes Management Act, which applies before the appointment of the strata manager. The bill will require agents to provide more relevant information before they are appointed as the agent of a strata scheme. That includes the suppliers connected with the agent that the agent routinely uses for other strata schemes they manage—for example, a cleaning business that is owned by the agent's relative, or an insurance company that is a subsidiary of the strata managing agency, as well as if the agent has given advice about strata plans or community plans to the original owner, which is the developer, in the past two years. Those changes will mean that owners' corporations are better informed when selecting the agent to manage their strata schemes—a decision that holds significant implications for owners' corporations and the financial health of residents.
The bill also implements more comprehensive disclosure requirements for insurance quotes that agents source for owners' corporations. Section 166 of the Strata Schemes Management Act requires strata managing agents to give the owners' corporation a minimum of three insurance quotes. Otherwise, the agent must give written reasons as to why that has not been done. The bill requires those quotes to include more specific information, including a breakdown of charges such as the base premium amount, which is not to include any commission amount; the commission amount; and any broker fee amount. Quotes will also need to show who the commission and broker fee is ultimately being paid to, as well as a statement on whether the agent is connected to the person providing the quote.
Requiring that information to be disclosed will allow owners' corporations to easily identify commissions that an agent may earn. It will support owners' corporations to properly consider if they should purchase an insurance policy the agent recommends and if the agent is performing their job for the owners' corporation's benefit. The bill also clarifies that insurance broker fees are considered commissions for the purposes of the Act. That will ensure that those fees are disclosed under the new disclosure obligations. I note that those important changes to the Strata Schemes Management Act in the bill will be applied to the Community Land Management Act to ensure that the two similar regulatory regimes remain consistent. Residents of community land schemes will also greatly benefit from more transparency and agent accountability.
Another important reform of the bill is to restrict when agents are allowed to get commissions. The Government knows that many consumers are frustrated with the strata management system, with industry practices relating to commissions contributing to that. The issue is complex, but the Government is committed to working with industry to eliminate practices that do not meet consumer expectations while ensuring that industry continues to thrive so that it can provide the key services to consumers that underpin good strata management. The bill will ban terms in strata managing agency agreements that allow an insurance commission to be paid to the agent where the owners' corporation obtained the insurance quote and arranged to buy the insurance itself. That change will also be made to community land management laws.
In light of the crucial changes we are making in the bill, we are also taking steps to ensure that the penalty framework is fit for purpose and that the regulator has the tools it needs to effectively enforce the laws. The bill introduces significantly higher maximum penalties and penalty infringement notice amounts for key agent obligations. The current penalty amounts in the strata laws have remained static for many years and have fallen far below market value. That makes it easier for an agent to think that doing the wrong thing and being hit with a low penalty is just a part of the cost of doing business and making profit, especially when the commissions they receive are far higher than the penalty amount. That is just not on.
The bill makes the maximum penalty for breaches of the disclosure obligations in the Strata Schemes Management Act and the Community Land Management Act 500 penalty units for a corporation, and 100 penalty units in any other case. The penalty infringement notice, or PIN, amounts are also doubling to $2,200 for corporations and $1,100 for individuals. It means Fair Trading can issue an on‑the‑spot fine for breaches and a person who is given a PIN can pay the amount specified in the notice as an alternative to court proceedings. The penalties will serve as a powerful deterrent against agent misconduct. It sends the message that we will not tolerate agents looking to take advantage of consumers and hide their actions.
Further, the bill increases the maximum penalty for agents not complying with the rules of conduct under section 37 of the Property and Stock Agents Act. These rules of conduct include that agents are to act honestly, fairly and in their clients' best interests. To show how seriously we take agents not doing the right thing by consumers, the maximum penalty for corporations for noncompliance with these obligations will be 1,000 penalty units. Higher penalties will be complemented by stronger enforcement powers for NSW Fair Trading to ensure it can take appropriate action to investigate and respond to noncompliance. This includes broadening the enforceable undertaking power in the Property and Stock Agents Act. This will give NSW Fair Trading more flexibility and ensure it can use the power to stop noncompliance where it is the most effective response.
The bill makes important and urgent changes to strata, community land and property agent laws. It looks to restore public confidence in the integrity of strata governance and the fundamental role that strata managing agents play. I thank the many key stakeholders for their valuable input on the bill. Stakeholder input ensures the bill works effectively and achieves the intended goals. I thank the Strata Community Association, the Owners Corporation Network, the Real Estate Institute of NSW, the Law Society of NSW, the Australian College of Strata Lawyers, the National Insurance Brokers Association, the Australian Consumers Insurance Lobby, Australian Apartment Advocacy, Cathy Sherry, John Trowbridge, Steadfast Group, Marrickville Legal Centre, Financial Counselling Australia and the Financial Rights Legal Centre.
The bill is another step forward in the Government's delivery of real, positive change for residents who live in strata schemes and community land schemes. There is more to come as we continue to implement the reforms of the statutory review of the Strata Schemes Management Act and investigate other reforms. The Government is determined to continue improving the lives of those living in strata and community land schemes by making the governance systems fairer and more transparent. I commend the bill to the House.
Debate adjourned.
