A real estate agent with a business on the ground floor of one of Sydney’s historic landmark buildings ended up agreeing to spend over $1 million of the block’s communal funds on legal bills in a bitter stoush over a faulty awning.
In what’s been labelled an urgent warning for investors who don’t pay enough attention to what’s happening in their strata schemes, lots in one of the two old 1906 Grace Bros buildings on Broadway in Ultimo are now up for massive costs.
The owners of the 27 commercial shopfronts and 586 student residential units that make up the student accommodation managed by UniLodge are in the eastern building, on the other side of Bay Street to the current Broadway Shopping Centre.
“It’s a salutary tale of what can go catastrophically wrong when you get a strata committee that is prepared to spend extraordinarily large sums of owners’ funds,” said barrister Richard Gration, who appeared for UniLodge Australia in the case.
“It was well over $800,000 more than owners had been told by the strata committee would be spent, and it was purely to keep the strata committee in power and avoid the appointment of a compulsory strata manager.”
The dispute involved a number of hearings both at the NSW Civil and Administrative Tribunal (NCAT) and at the NSW Supreme Court. A compulsory strata manager has now been appointed, as the parties wait to hear the last outstanding decision on whether the owners corporation will also be ordered to pay UniLodge’s costs of the final hearing.
The disagreement arose after Alvie Lin, the principal of Raine & Horne Broadway – next door to the UniLodge entrance – and a member of the building’s strata committee, had objected to owners corporation plans to replace an awning around the exterior of the building, over the footpath, at 185 Broadway after the City of Sydney had branded it a public safety hazard.
The council had issued a notice of intention to make an order for its repair, warning of its likely “catastrophic failure”.
But Ms Lin, together with a number of supporters, engineered a leadership coup at the December 2018 AGM, voted off the rest of the strata committee, refused to continue the awning maintenance and repair, and cancelled the contractors undertaking the work.
In June 2019, UniLodge Australia, alarmed by the lack of progress on fixing the dangerous awning, filed an application at NCAT for a compulsory strata manager to take over the strata scheme.
At a series of extraordinary general meetings, however, Ms Lin refused to accept the proxy votes of owners whose apartments were managed by UniLodge, triggering a series of legal battles, and subsequent appeals, fought both at NCAT and the Supreme Court.
The final ruling from NCAT was made in April when principal member Theresa Simon noted that the main area of dysfunction of the strata scheme was the “improper refusal to accept as valid, proxy and corporate owner nominee forms submitted prior to numerous general meetings, disenfranchising hundreds of lot owners and enabling the then-current chairperson and strata committee to gain, and retain, control.”
She also highlighted “the failure to repair a dangerous awning above a public footpath adjacent to the strata scheme, notwithstanding that the need to do so has been known since July 2015; and spending inordinate amounts on legal costs since March 2019”.
Ms Lin, who no longer works for Raine & Horne, but instead operates Dilan Realtors Pty Ltd from the site, says she was only following advice from her solicitors.
“A lot of the owners are quite devastated by all of this,” she said. “They are mostly mum and dad investors who bought what are the cheapest properties in Sydney at about $200,000 a unit. They are now suffering.
“Everything I did, like rejecting the proxies, we were advised to do by solicitors who also advised the then-strata manager. We were also being advised by external builders and consultants on the awning and were working towards a cost-effective solution.”
The new strata managers, now appointed for a two-year term, Bright & Duggan, said they’re now working with the owners corporation. “We’re proceeding with the remedial works under the Tribunal orders to ensure the OC remain compliant with their statutory obligations,” said managing director Chris Duggan.
UniLodge Australia manages 23,000 student beds at 80 lodges in both Australia and New Zealand. The company declined to comment.
Meanwhile, Mr Gration said it illustrated what could go so terribly wrong within a scheme.
“Under Ms Alvie Lin’s chairmanship, the owners corporation spent more than $1 million on litigation resisting the appointment of a compulsory strata manager and unsuccessfully trying to get lot owners’ details from UniLodge so that the chairperson could lobby them directly for proxies,” he said.
“It’s an extraordinary amount of money. For the 613 lots in the scheme, that works out at an average of more than $1600 each in special levies for their own legal costs, or more like $2500 each if the owners corporation is also ordered to pay UniLodge’s costs of the main proceedings.”
The legal costs the owners in the scheme are now up for are in addition, of course, to the cost of fixing the awning which is now understood to be at about $15 million, plus the cost of setting right more than $1 million worth of substandard work done under the previous regime. That works out at an average of around $25,000 per lot owner in special levies to fix the urgent safety issues – on top of the legal costs.
Lawyer Helen Kowal of legal firm Swaab said such expensive disputes could be surprisingly common in strata.
“There’s a common theme to them of people trying to take over strata schemes and it’s definitely an issue.
“It’s the way things can happen, and there’s always going to be people who try and take control and want to run things their way outside of what they should be doing.”