OCN

CHAIR: I noted an article in the Australian Financial Review on Tuesday, 4 June 2002, at page 64 I believe, which indicated that today's hearing was a special hearing of the Committee. I just need to make it clear that there is nothing particularly special about this hearing, other than we have got some very interesting and important witnesses, but this is not a special hearing of the Committee. The Committee has scheduled a number of hearings over the time it has been doing its work, and the issues to be debated today were always in the Committee's draft of hearings and it was a matter of timing hearings when members of the Committee were available. So just to make sure that everybody knows that there is nothing particular about today, other than it is part of the work of this particular Committee. Indeed, there were other witnesses who were expected to appear later in the morning but they are unable to appear for their own particular reasons. I just wanted to make that point.

In regard to some of the issues that we are going to hear about this morning, there is, I understand, some legal action pending around a particular building, the Regis Towers building, and I just want to place on the record also that I am a little concerned for some of the conventions of the Legislative Assembly in regard to sub judice. The Committee is very keen to ensure that information is available to it in open session and publicly, but if there is concern from witnesses or their advisers, or indeed concern from members of the Committee, then we have the option to go into an in camera session. If we are all sensible about those issues, then I think we can move forward and make sure that the information that is important information is available to the Committee.

STEPHEN MURRAY GODDARD, Chairman, Executive Committee, Regis Towers, Suite 453, 311 Castlereagh Street, Sydney,

MARK ANDREW SILBY, Member, Owners Corporation Network, Apartment 710, 50 Burton Street, East Sydney, 2010, and

REX BROOKE WOOD, Member, Owners Corporation Network, 14/1 Grafton Street, Balmain, affirmed and examined:

CHAIR: Did you each receive a summons issued under my hand to attend before this Committee?

Mr GODDARD: Yes.

Mr SILBY: Yes.

Mr WOOD: Yes.

CHAIR: I understand that your organisation or you as individuals have made a submission to the Committee. Is it your wish that your submission be included as part of your sworn evidence?

Mr GODDARD: Yes.

Mr SILBY: Yes.

Mr WOOD: Yes.

CHAIR: Could I invite you now to talk to the submissions we have received, and, as I understand it, Mr Wood is going to lead off.

Mr WOOD: Mr Chairman, ladies and gentlemen, my colleagues and I are here representing the Owners Corporation Network, as you have heard, or the OCN. The OCN is made up of Owners Corporation Executive Committee members representing Sydney's larger strata title developments, somewhere in the vicinity of 5,000 individual property owners.

The role of the OCN is to facilitate the ongoing improvement of living in and/or investing in large strata title buildings. The OCN's focus is on facilitating necessary changes to Government policy and legislation. Furthermore, the OCN strives to educate Owners Corporation Executive Committees and individuals through sharing of experiences and disseminating information from relevant documentation and related organisations.

We regard the issues covered in this Committee's terms of reference to be extraordinarily important to all those involved in any facet of the property market. It has significant impact across the board, from developers, builders, subcontractors and especially home owners in every single part of the State. We are here to address specifically the impacts of these on home owners who purchase and/or live in strata title developments.

Our presentation will essentially take three parts. I shall begin by speaking about the OCN submission, which you have received, relating to building certification codes, standards and the part that licensing plays in that. My colleague Mark Silby will speak about the second part of the OCN submission that you have also received, focusing on other building related issues, specifically defects rectification and strata title legislative changes that require immediate and urgent attention. Stephen Goddard will speak about a very relevant, topical and extremely serious current example of the effect of the complete lack of adequate consumer protection. He will speak from personal experience about the very real impact these issues that you have been charged to investigate are having on him and within his development.

All of this will bring into very clear focus what all of the information presented to this Committee is really about at a personal level. We will put a human face on this issue. This is not about rules and regulations. This is about the drastic impact that the sad and sorry mess is having on people, people's property, property values, individuals' peace of mind, and indeed, as you will hear, their life safety. I stress again that albeit we will be addressing these issues from the prospective of strata title property and from our collective experiences, the issues that we shall speak on today are relevant to all home owners, all purchasers in every corner of the State in every type of dwelling and construction.

The members of the OCN and their respective executive committees are currently working diligently to resolve the problems that we face, with varying degrees of success. We understand this Committee's terms of reference do not include making good past mistakes or existing problems. We are, however, here and we believe that the OCN and moreover this Committee does have a responsibility to ensure that recommendations are made from this inquiry to provide for a manageable, safe, competent framework for all future property owners, and, more importantly, that these recommendations are enshrined in law.

We come here today not just on behalf of 5,000 odd property owners, not just on behalf of some $2.5 billion worth of property, not just on behalf of $1 million plus in stamp duty reaped from the purchase of that property that has ended up in the Government coffers, which alone I believe gives us a voice that demands to be heard, but we are here to put a human face on this debacle that continues to wreak havoc on property owners across the State.

I would ask you to remember three things throughout this presentation. One is responsibility, one is accountability and one is liability.

I go to the Holden dealer down the road and I buy a new car. It cost me $25,000. I drive out of the showroom. On the first corner the steering fails. I crash into a power pole and I am killed. Questions, I would suggest, would immediately be asked about how could this happen. How could this vehicle be allowed to be on the road with defective steering? Litigation may well ensue; criminal charges could well be laid if negligence were suspected. After several of these incidents, there would most likely be a recall of the vehicles for inspection. I would suggest that no stone would be left unturned to bring those responsible to account.

How is it then that people spend ten times, even a hundred times that amount, with, in practical terms, less accountability and virtually no recourse. If that accountability and recourse currently exists in some legislation, regulation or standard, the mere fact that we are here today is testament to the fact that to all intents and purposes it is not working. In the interests of expediency no‑one is responsible, no‑one is accountable and no‑one is liable, except the owner.

The entire matter of defect rectification exists only because of poor substandard building practice. The substandard building practice can only exist for one or both of two reasons: the people involved in undertaking the work are not trained correctly and are therefore unaware that the work does not meet the minimum specification; the people involved in undertaking the work knowingly produce work that is not up to minimum standards. Remembering that these people have been licensed as being competent, trained professionals by a Government department, two people have responsibility ‑ the trades people concerned to ensure that they know what they are doing and the licensing body to ensure that a standard of competency is maintained. And which of those two groups is responsible and liable for the lack thereof?

In either instance the check that should stop this in its tracks is the process of certification. We must be able to begin from a standpoint that there is one basic standard or code that clearly defines a minimum standard for every facet of the building process. The minimum standard is clearly defined, objective, measurable and irrefutable. The code creates a foundation for all building processes. Adherence to this minimum standard must be an expectation and a requirement, not an option. All persons who undertake work that falls under this code must be responsible for ensuring they meet the code, accountable for ensuring adherence and liable for non‑adherence.

Checking on adherence to this code is the work of a certifier. They must be accredited and audited. They must be responsible for ensuring that what they certify and sign off on meets the code, accountable for ensuring they certify adherence and liable for providing certification where there is non‑adherence. Were this to occur, substandard building work would fade into insignificance, defect rectification would become a non‑issue, insurance claims would almost disappear.

The simple fact that buildings can be built, completed, certified and sold today and still not meet basic building codes means that the entire system does not work. Nowhere is anyone taking responsibility, making themselves accountable, assuming liability. On the contrary, everyone is leaving that in the hands of the purchaser, and, in the case of a strata title building, in the hands of the Owners Corporation.

There is little point in bolting the stable door long after the horse has bolted. Yet that is exactly what is happening. Worse still, the trainer, the strapper and the stablehand are all denying responsibility and disclaiming any liability, even though it was one of them that allowed the horse to escape.

We are not here talking about minor, cosmetic defects, a badly hung door, a patchy paint job. I wish that we were. We are talking here about major, structural flaws, about the complete disregard of safety regulations, about the blatant covering up of appalling breaches of the building code, let alone the common sense of construction. The sorts of defects that appear post‑construction, post‑local government authority sign‑off and certification and sale are: rooms built with no or inadequate ventilation; walls that do not meet basic building code requirements; external balcony and decking areas that have no or inadequate drainage; inadequate or no sound proofing between floors and common walls; bathroom and laundry drainage that continually leaks and floods, causing severe water damage. The list is endless, and I am sure will be graphically evidenced by Stephen Goddard. Much of it requires substantial reconstructive work to be carried out. Some can only be fixed with a complete rebuild.

Throughout this entire process the owner is at the mercy of all the parties involved, the developer, the builder, the council, insurance company, often all providing absolutely no help to the owner, rather trying to frustrate the rectification process, denying any responsibility, passing the buck, delaying it for months or even years, with no recourse other than the owner taking the matter to the courts in the hope of some resolution.

What needs to be done? Number one: Make readily available and accessible to the public minimum standards required of all building processes; make readily available to the public all details of licence holders in the building industry; a licence held by organisations must be for that organisation only; and all licence holders working within the organisation to be listed under that organisation with individual licence numbers; make the licensing body responsible and accountable for ensuring that their licensing process is adequate, audited and meets the necessary standards. The Department of Fair Trading states:

The Department of Fair Trading is responsible for setting and maintaining standards of competence for builders and trades people in the New South Wales home building industry.

The question begs asking: Are they then commensurately responsible for the failure to meet and maintain those standards and competencies? Again, we should ensure the publicly promoted process for choosing a builder, trades person or organisation begins with or includes a review of the entire licensing data base. All licence certifiers should be registered in the same way with the same level of information and detail; all certifiers should undertake ongoing, mandatory re‑licensing and at set intervals; no‑one should be able to certify any work where they have been involved in its completion, i.e. self‑certification. At completion of any/all building works the following information must be retained and copies provided to the owner and or the purchaser: as built drawings signed and stamped by the qualified certifier; a register of all licensed operators who work on every and all parts of the building process; that register should also show that the certifier was responsible for signing off on every component or stage of the building process; sign‑off of the local government authority, acknowledging and taking responsibility for completed work. Any person purchasing a property should be able to access information that will at a glance show who worked on the project, at what stage, who certified the work, who completed, and therefore is responsible if the documentation is fraudulent. The information would exist for new buildings and all work undertaken to existing properties, regardless of the type of construction.

The current state of defect rectification has a great deal more to do with shortfalls in the basic structural construction and adherence to building standards than it has to do with minor, cosmetic defects. The buck must stop with someone. Someone must be accountable. If the standards are of sufficient quality, if the building work is undertaken and meets the required minimum standards, and if it is certified as such, then wherein lies the need for remedy? The three things that are missing completely from the current model are responsibility, accountability and liability. The buck does not stop anywhere at this point. It just keeps on getting passed around between builders, certifiers, local government, State Government, insurers and so on.

Mr Chairman and ladies and gentlemen, the time for bandaids is over. The buck has just landed fairly and squarely in your lap. The question is: What are you prepared to do about it?

Mr SILBY: Mr Chairman, ladies and gentlemen, I would like to provide some more specific solutions or what the Owners Corporation Network sees as solutions in order to solve the problem of somebody taking responsibility, somebody being accountable or somebody being liable. We see the legislation, being the Home Building Act of 1999 and the Strata Schemes Management Act of 1996, as probably the key documents that need some changes. The Owners Corporation Network recommends that some important changes be implemented. Specifically, the Home Building Act of 1999 should be amended to state that the developer and builder are jointly and severally liable for building defects. Secondly, the developer and builder should be held liable for rectifying all defects that are discovered within the building within the period of 36 months after initial settlement for non-structural defects and seven years after initial settlement for structural defects. Sometimes these figures come into play, but they are not written into legislation, therefore the question of responsibility always comes up, and the flow-on effects from these two changes will, in turn, rectify many of the problems that are encountered, which have been described by Rex.

A couple of more minor points which are in the submission: The builder and the developer should assume responsibility for all subsequent owners. At this stage there is only a contract to assume responsibility for the initial owner, so that in an off-the-plan project or on sale prior to the warranty period the second owner has no recourse to the developer. Also, where appropriate, the owners corporation may represent all owners in a class action. For example, when a defect presents itself throughout the building but is not classified as common property, getting the defect rectified can be very difficult. Each individual owner must approach the Department of Fair Trading, individually, and we propose that the owners corporation could, in some cases, where appropriate, take responsibility for all owners in a class action.

Some further key changes which will ease the initial period of occupation for anybody going into a new strata title development: We propose that you limit the developer's ability to appoint or enter into a building management agreement with a building manager to not more than 12 months after first occupation; limit the developer's ability to do the above with an associated entity; limit the developer's ability to enter into a strata management contract to not more than 12 months after occupation also. There are two key areas there, the building management agreement and also the strata management contract or agreement. Importantly, we require that effective dispute resolution and termination clauses be contained within all contracts. Dispute resolution and termination clauses are important in all contracts. Ensure that the owners corporation voting proxies cannot be sold or negotiated by way of sale of contract where a conflict of interest may arise. We require that all candidates for election to executive committee declare any financial links to the developer, builder or any other contractors working in the building before any AGM or EGM occurs. That would include, for example, being a shareholder or having the developer as a business client or any other financial link with the developer or builder.

The issue of corporate governance came up when we spoke as a committee. We suggest - and we are not providing the whole solution here - that separate corporate governance regulations be considered for buildings that raise revenue above a nominated figure, for example, $500,000 or $750,000 perhaps. We also suggest that the constitution of the executive committee for buildings with revenue greater than this figure must meet some specified criteria. This may require that individuals elected to executive positions meet certain competencies. In other words, we are perhaps looking for a layered implementation of corporate governance for that building. Back in 1961 when the Strata Titles Act was written the highest building in Sydney was approximately 40 storeys, perhaps the AMP building, which was a corporate or commercial building. We now have buildings like the Horizon, fully residential strata title; World Tower going up in the centre of our city which will be even larger, and residential strata title assets worth millions and millions of dollars. In some cases the old Company Title buildings are doing things better than a lot of Strata Title buildings in Sydney.

The last section is building documentation and I will not go through this in detail because it is in the submission. We require visibility on builders' documentation. For instance, a full set of building approval and as built construction documents, including a list of warranties and the length of warranties and building certifications, to be left with the owners corporation.

I would just like to draw your attention to a public document which we have which is the Review of Strata Schemes Management Act of 1996. The Department of Fair Trading produced this document, through the minister I assume, to the Government in November 1999. It does us a huge favour in that it amplifies our submission quite vividly and it makes it pretty obvious to us that we have in fact reinvented the wheel here in complete isolation. We did not see this document before we wrote our submissions. The question I have for you is: Will this happen again in three years' time? Will a new group of people be sitting here in front of you asking the same questions, putting forward the same proposals? The work in this area has already been done by the Department of Fair Trading. Will our submission also be buried? I draw your attention - I do not know if you have a copy of this or not - to part 2, significant emerging issues, in particular the remedies on page 25. Some of the issues there that we have covered have already been thought about in a lot more detail by smarter people than us and laid down. For instance, time limits on period management agreements; a statutory right to terminate a management contract in cases of non-performance or improper conduct; mandatory disclosure requirements about management arrangements and, very interestingly, limiting the proxies which an on site manager can hold or use, and there is a whole section devoted to priority of voting rights and proxies.

That is all I have in presentation this morning.

Mr GODDARD: Mr Chairman, ladies and gentlemen, if Government has any function in our social structure it must be to nurture and preserve the public interest. Regis Towers is an example of how Government has failed to discharge that responsibility on not one but three separate levels.

The self-certification issue is a failure by Government to ensure that a building is built safely and in accord with the Building Code of Australia. Regis Towers has created for us, because of its critical mass, its 653 lots, a size and proportion that enables us to dramatically see how everybody in that development is a victim: An owner, an occupier and even the developer. In 1998 New South Wales introduced private certification as a means of imposing the minimum building standard. The problem with the statutory amendments in 1998 was that somehow we forgot to introduce accreditation for certifiers. If we did have an accreditation process, we forgot to audit it. The other thing we forgot to do was provide adequate penalties for lying. There is not a penalty for providing a certification that something does meet the minimum standard when it does not.

The truth and evidence of what I say is the fact that Regis Towers has an order issued against it by Sydney City Council for breach of significant life safety issues: Fire isolation between sole occupancies. The Building Code of Australia is meant to provide a minimum standard where, if a fire occurs in one apartment, it cannot spread to the next. Sydney City Council is of the view that that minimum standard was not reached in our building. How can that happen in New South Wales? It happened because the man who did the work issued a certificate confirming that the work complied with the building code. That man gave his certificate of compliance to the builder-developer, Meriton. Meriton gathered all of the certificates of compliance from all of its subcontractors and gave them to Sydney City Council, who was given the new description of "principal certifying authority". Sydney City Council, after it gathered all of those sheets of paper, ended up issuing a certificate of occupancy. You can hear what is missing in this story, can't you? Nobody went and looked because the man who issued the first certificate of compliance did the work.

We live in a community that has now embraced the concept of competitive tendering. I live and work in a building that was built by the man who provided the lowest quote. It is reasonable that the developer might in fact look for the man who would even quote to do it below cost, because that is cost-effective, the only rule that matters now.

What happened next in our building, I suspect, because that is what Sydney City Council tells us, the man who did the work did not do all that he was supposed to in order to get the job done, but he was able, because of the way the legislation now reads and the way the Department of Planning and the principal certifier does not go back and audit, to issue a certificate of compliance that the work was done. The builder-developer had no other burden or responsibility to the public than to give all of those certificates to the principal certifying authority and that is what happened. What I want you to do - and the people we represent - is to stop that. I want you to impose proper accreditation and re-establish responsible behaviour because, somehow or other, the economic mechanism is not going to do it. You exist for the purpose of making sure that people are safe. Remember that the consumers we are talking about here are investing in their largest asset: Their home. They have a reasonable expectation that their home will be a safe place in which to live. They seem to believe at the moment that if they live in New South Wales that is a no brainer. Well, Regis Towers indicates that may not be true. That is the self-certification story. That is what we want you to do.

I understand, as a member of the business community, that private certification is a cost-effective and logical thing to do. We do not need to go back to the days where local government was the only certifying authority and they did it in their own sweet time and as long as there were enough slabs of beer involved. We do not need to do that. But, ladies and gentlemen, what we do need to do is, if we have independent certifiers, we have to know that they are accredited people, certified themselves by someone who is responsible, and we need to have them assume responsibility for the certificates they issue; we need to have someone check that the certificate is valid and not a lie and we need to then know that there are serious penalties involved for issuing fraudulent certificates. That, ladies and gentlemen, is what Regis Towers, because of its critical mass, constructed after 1998 - and there is an interesting point: We are a three stage development that started a little before 1998 and was completed in 1999-2000. It is no accident that Pitt Tower, our first tower, is the better constructed of all three because it was built before 1998. The worst are the self-certification buckets called Castlereagh Tower and Campbell Tower.

The second element that is introduced in my own submissions is the sale of building management rights. When you have 653 lots in a scheme, the Strata Schemes Management Act does not work to nurture and preserve the capital value of the asset. It is terrific for a walk-up of 12 in Hurstville, but when you get to 653 lots in one scheme you have to have an on site building manager who becomes the corporate memory. Unfortunately, in New South Wales, developers have treated that as a new way of developing a new saleable asset because New South Wales does not impose any due diligence on developers in the sale of building management rights.

In the case of Meriton, they applied the market mechanism. They assumed that the best building manager would be the person who paid the highest price for securing building management in our development. No due diligence appears to have been undertaken as to the qualifications of that person to preserve the structural and investment integrity of a vertical village, neither is he required to. What happened is we have an unskilled building manager who was sold management rights bundled up with a rent roll. The outcome of that has been that that building manager entered into an agreement with Meriton, the total value of which was $2.2 million, being the bundled up rent roll and the bundled up building management rights. That bundling immediately creates a conflict of interest, because the man who is going to manage the property, as opposed to the man who is going to maintain the building, somehow has become confused at Regis Towers. I observe that if you buy a business for $2.2 million, ordinary commercial expectation is that you will have your capital value back in no more than two years. Our building manager is doing everything he can to get back $2.2 million in two years, and he has only one source of revenue - the levies that proprietors pay, the people whose assets this man is supposed to be preserving. The arithmetic on that proposition is quite disgraceful.

What the owners and occupiers of Regis Towers want you to do is to prevent the sale of building management rights for a term of 25 years and allow a developer to control the first meeting of the owners corporation to ensure that agreement is ratified by an owners corporation that did not know of its existence until they went to that first meeting, bright eyed and bushy tailed, having just purchased their new home. That is the level of responsibility we want you to assume for us. We want you to prevent developers from not caring, from applying market mechanism opportunity to create a new asset called the sale of building management rights. We want them to be responsible.

The way to prevent the obvious tragedy of Regis Towers would have been to prevent an owners corporation from entering into any performance agreements for a period of time greater than one or two years. It is not rocket science. We have not done that. We have allowed these vulnerable purchasers to walk into their first meeting and be corralled into the execution of a 25 year document. Meriton did nothing wrong. It may not be in the public interest, it may not be illegal, but that is what happened, and if you do nothing it will continue and the number of people you hurt will continue.

The third element that was part of my own submission, and accepted within OCN, is the fact that the Strata Schemes Management Act assumes that in a block of 12 we will not want to be bothered, that we will employ a strata manager who will gather the levies and fix the light bulb on the landing when it blows out. The complexity of strata scheme living today has left that 1961 concept behind. The major development in our community now rarely goes below 50 lots. The World Tower was 770. Owners cannot afford to abdicate responsibility to a strata management who cannot accept it. When we moved into Regis Towers our strata manager was paid $48,000 per annum. What is he going to do for $48,000 per annum, other than gather the money, write up the cash book, draw the cheques and keep a few statutory records on the side? He is not going to change a light bulb. He is not going to be able to preserve the capital value of an asset between $300 and $400 million. We doubled his fee, gratuitously, at the last AGM. He is now paid $90,000. He still cannot change light bulbs.

The degree of complexity that comes with these larger strata schemes needs us to almost, I suspect, revisit the concept of company title. Now, I do not mean give up a certificate of title to your land, absolutely not. All of those reasons for the strata legislation in 1961 are as right now as they were then. Financiers need to know that there is the security of a certificate of title guaranteed by the State, and people need to be able to lease out their home to whom they choose, but within the company title structure you have the sort of things that you and I are accustomed to when we are preserving the value of assets. We have a board of directors, and we call them that, who are responsible to shareholders for strategic planning decisions in the best interests of the collective. I am suggesting to you that we need to review the Strata Schemes Management Act legislation to provide for a vehicle that deals with, not the block of 12 at Hurstville because we have done it, but with the block of 200 and more we have to find a way of dealing with strata schemes.

In my case we turn over $3.2 million per annum in levies. That to me is a lot of money. It needs to be stewarded in a more direct way. We need to have a board of directors who are responsible for the strategic planning of what is happening in this vertical village, who are elected by the shareholders or lot holders. We need to have not so much a strata manager after the style of section 28; we need a financial controller that writes up the books, draws the cheques. We need an on‑site building manager, not one who paid $2.2 million to asset strip us to death. We need a building manager who will be operationally responsible for the implementation of strategic planning undertaken by that board of directors elected by the lot holders. This is what I have learned at Regis Towers. That is not a model that is applicable in Hurstville. It is a model that works with an increasing degree of complexity that strata schemes are introducing to our lifestyle as they get larger, and I have got news for you, they are not getting smaller. The major developers very rarely build anything under 50 lots. Meriton cannot start counting until it hits 200 as a starting point, because of the economic pressure, the value of the land, the need of everybody to want to live closer to the centre, all of the things you know.

We are failing these people, we are failing to protect them. People are walking into apartments actually swallowing the urban myth, initially, that living in an apartment is cheaper than living in a house. I am here to tell you that it is not. There are members of our strata team present who will affirm that when they bought their lot at Regis Towers the developer told them that the strata levies would be within their affordable fixed income. They have more than doubled in less than eighteen months, because we could not run the building on $1 million a year. At one stage the lights were going to be turned out because the power bill had not been paid, and if you live on the 35th floor it is a long walk. That is why the levies went up, because the cost of the development, to operate it has enormous dis‑economies of scale. The bigger they get, the more expensive they are to run. At Regis Towers, I remind you, we are three towers on top of a podium, three 35 storey residential towers. We have three sets of lifts, three swimming pools, three gyms, a driving range, a squash court, all of the resort lifestyle that does not exist in the modest bungalow on a quarter acre lot, and it costs money to operate.

We have to get these corporate governance issues into place or these assets will turn into things you do not want to own and your urban landscape will require more than a mere pattern book, because we are building developments and we are not implementing the strategies to nurture the assets, and Regis Towers delivers all of that. It has life safety structural threats within it; it has a building manager who should not be there; it has resort lifestyle costs that innocent people did not realise when they moved in there were going to outstrip their fixed income; and that is where we are. Thank you.

CHAIR: I have got a particular question to Mr Silby. I think you suggested that there is a need to make the builder and the developer jointly and severally liable.

Mr SILBY: Correct, yes.

CHAIR: I have paraphrased it close enough, have I?

Mr SILBY: That is right, yes.

CHAIR: I have actually, during some earlier hearings, asked similar questions of witnesses and suggested that we have to bring the certifiers in and hold them liable or accountable, or whatever term you want to use, at a fair trading process, when it has all gone wrong, accepting that the whole aim of this is to prevent. What has been put to me, though, is that the more people you put in at that point the more difficulty for the owner or the consumer to chase different people, that it is better to maintain a contractual link between the builder and the purchaser and then somehow have the builder co-join these other people. Do you want to comment on that? I guess I am saying I have some sympathy for this notion of having more people liable at the end of the day, hoping that they will have done the right thing earlier on, but it has been put to me that that will complicate things for the consumer. That is the thrust of the question.

Mr SILBY: I think when we discussed this issue we thought about the fact that, as has happened more than once or twice in Sydney, a developer has, as soon as a building is completed, become a one dollar company and moved on, leaving perhaps the builder who is continuing his business, which is why we put the word "builder" in there as well as "developer". In a building that we are currently purchasing there is a good case of the developer and the builder working together or pitting the developer against the builder, if you like, to get our rectifications. That was the reason we discussed putting the developer and the builder in there and limiting it to those two key entities, the builder and the developer, not the subcontractors.

CHAIR: Do any of the other gentlemen have a comment on that?

Mr GODDARD: It is the ducks and drakes story. If a purchaser moves into an apartment that has been completed, or the strata scheme was registered 18 months ago but this is the first sale, the question arises when you move into the apartment and there is a defect: Who is responsible? Is it the developer from whom you purchased the land or is it the builder? What happens is this constant shifting of responsibility. At Paddington Green, for example, you will have Stockland say, oh, it's a Kell and Rigby issue and Kell and Rigby will say, oh, we've finished doing that now. But this is someone's brand new home, never before lived in. The defects that are in it are not known until somebody moves in. The way to stop the ducks and drakes is to have them both jointly and severally liable and then we don't care, you work it out yourselves, just fix it.

The Hon. AMANDA FAZIO: I was interested, from your comments on the appropriateness for the new types of development that we have of the Strata Schemes Act, if you had found any conflicts between the trend now to have more commercial use in the lower floors of these high-rise stratas and residential use above, whether you think that the current strata system takes into account perhaps the conflicts that might arise between the desires of commercial operators versus residents?

Mr GODDARD: It is almost too early to tell. At Regis Towers we have had so many other big problems, like fire safety and defective building management and what is the cost to run, we have not got to those important issues yet of knowing how that mix works. I want it to work. I believe in it. I can see how having a commercial and retail mix at a level in a development where people would not choose to live because there is not light or view and I can imagine how in a healthy building there could be commercial and retail use that would be of benefit to the people residentially above. We have not identified the conflicts yet to work them out.

The Hon. HELEN SHAM-HO: Mr Goddard, I was really impressed with your oral submission. One point you made related to no accreditation of the certifier. Would you like to elaborate on this, because you seemed to imply it was a problem with the council as well.

Mr GODDARD: I have trouble with all of them.

The Hon. HELEN SHAM-HO: How would you improve the system?

Mr GODDARD: In Victoria they have a commission, I understand. It works down there.

The Hon. HELEN SHAM-HO: Do you think one big commission will take care of everything?

Mr GODDARD: I believe whatever accreditation we think we are doing now is crazy. When I went to get a building surveyor to use for Regis Towers I was referred by the fire brigade to a fax machine in South Australia who was the only identifiable accredited authority by the Minister for Planning. That is what happened. He faxed to me a list of people they had given accreditation to from his Adelaide office. That is what happens now. What I believe we should have is someone who owns the accrediting process. That can only be either Government or an instrumentality or a commission created by Government and charged with a statutory responsibility to accredit certifiers and have a transparent set of requirements to be accredited by that statutory commission or authority. I understand that that is what they do in Victoria and that commission or authority that has accredited these certifiers actually goes out and makes sure they are doing their job and, if they are not doing their job, they remove their accreditation right with, hopefully, some other penalty. What we failed to do in 1998 was introduce that additional layer of external commission or authority.

The Hon. HELEN SHAM-HO: The other question I wish to ask relates to the strata management. I am very sympathetic to what you said, but I am not shocked. These are commercial activities. For clarification, if there is a defect, isn't your building management to rectify that as well? I am talking about common property, common areas and all those things. I actually thought that that is what they were there for.

Mr GODDARD: Yes, you've got it.

The Hon. HELEN SHAM-HO: Who is the manager?

Mr GODDARD: The Regis Towers Building Management Pty Limited purchased the building management rights from Meriton. The original agreement has the most appalling performance criteria. They were the subject of amendments, tortuously over a 12 month period, which in the life of the building, three years, gives you an idea. Every day has been a struggle. The owners corporation is currently in proceedings in the Supreme Court to terminate that building management agreement as illegal. When Meriton sold him these building management rights, the building manager acquired the belief that he would be the sole real estate agent for the letting and sale of strata lots in the development. That is nonsense because we all know that individual proprietors have their own unfettered legal title, but Regis Towers Real Estate, being a subset of the same group, actually commenced Supreme Court proceedings for injunctive relief to prevent an owner from instructing an alternative real estate agent in the sale of their lot. Those proceedings were unsuccessful, of course, but the intimidation that went on on three previous occasions against proprietors gives you an indication. This building management real estate agency individual is our next danger after Meriton goes.

Meriton currently holds a significant block of proxies which it utilises as a result of its mortgagee position.

The Hon. JOHN RYAN: Could you explain how that works?

Mr GODDARD: Meriton is an unusual developer, of course. They offer vendors a finance package. I have one myself. For 10 percent down, I can purchase my lot and I have 90 percent interest only finance for three years. As a result of the mortgage, the lender receives a proxy to vote at all owners corporation meetings.

The Hon. JOHN RYAN: That means you cannot vote?

Mr GODDARD: Yes. Now the lender cannot act in any way that is a fraud against the equity of redemption, I mean he cannot - should not - possibly be allowed to use that proxy contrary to my interests, but I ask you to consider the conflict of interest that is created in a situation during the first three years of a development where you have the builder holding 60 percent of the voting rights of the building during the warranty periods. Meriton has done nothing illegal, but it is contrary to the public interest.

The Hon. JOHN RYAN: To put this in normal language, what essentially happens is, because the builder holds 60 percent of the voting rights in the building, anybody who has a complaint about the structure or the building integrity is unable to make a complaint.

Mr GODDARD: Because the owners corporation executive committee is controlled by the developer.

The Hon. JOHN RYAN: So he would be complaining to himself.

Mr GODDARD: Yes.

Mr ANDERSON: Did you not sign up for that? Did you get legal advice on that before you signed the document.

Mr GODDARD: I advised myself.

Mr ANDERSON: I understand you are a lawyer.

Mr GODDARD: What I did, Mr Anderson, was refuse. I was asked to sign a proxy assignment and I refused to do so and, to the credit of Meriton, I have never been denied my voting rights at meetings - never ever - and neither has my fellow committee person, Gail Meredith, who is also a solicitor whose practice is in our building. We have always demanded and received our voting right; Meriton has never taken it.

The Hon. JOHN RYAN: They hardly need it, do they?

Mr GODDARD: They don't.

The Hon. HELEN SHAM-HO: You are taking them to court, but you would know that for non-performance of building management the contract is rescinded.

Mr GODDARD: The building management agreement I did not know about when I entered into the agreement to purchase my lot. It was not disclosed to me and, in truth, I did not attend the first meeting where that agreement was ratified, as many did not.

The Hon. JOHN RYAN: Is there any information provided by the Department of Fair Trading for home unit purchasers that assists them in finding out what are their rights and responsibilities when they purchase a home unit?

Mr GODDARD: I cannot answer that. I do not know what documents are available. I do not believe the Department of Fair Trading would even touch upon the issues we are talking about here because Meriton has done nothing illegal.

The Hon. JOHN RYAN: A couple of the submissions that have come from Regis Towers have in fact said that they have approached the Department of Fair Trading for assistance. Can anybody explain to me why they would go to that department or what they are expecting from the Department of Fair Trading? How do they get involved?

Mr WOOD: They are essentially held up as being a port of call that people should go to when there is a dispute with tenancy or building issues.

The Hon. AMANDA FAZIO: They provide an information service for strata management and for owners in stratas, but to my knowledge they do not have information about people buying into stratas. I think one of the more important issues here, though, is the striking of levies and the issue that was raised I think in a couple of the submissions that we have been looking at today in terms of what seemed to be quite reasonably low quarterly levies quoted to people buying into these high-rise apartment buildings, only to find out that that quoted levy is not going to be enough to manage the outgoings. For example, in Regis Towers, can you outline to us what the process has been for the levy rates to go up from $600 or $900 a quarter to $2,000 a quarter?

Mr GODDARD: Real estate agents quote expected levies before the strata scheme is registered. I wasn't at the first meeting of Regis Towers, but at the first meeting a levy was struck not terribly different to the advertised or quoted rate, and it assumed an operational budget that is only a third of the operating costs. Developers get away with that, you see, because it is a brand new building and it is under warranties from suppliers and nothing should go wrong in the initial period. What caused a problem with Regis Towers is that our operational costs are so great that that initial quote ‑ they ought to have known better.

The Hon. AMANDA FAZIO: Do you think that is a requirement when you are striking levies on a strata building, to have an operational budget that reflects ‑

Mr GODDARD: Reality as opposed to a marketing fantasy.

The Hon. JOHN RYAN: But in any event, the developer is able to vote using proxies to strike whatever levy they want and if they have a financial relationship with the managing agent, then they have a significant conflict of interest when they do so?

Mr GODDARD: That is true.

The Hon. JOHN RYAN: They appear to have you game, set and match. Does the Department of Fair Trading have any responsibility towards home unit owners? As I understand it, they do for residential buildings for single dwellings. Do they have any responsibilities with regard to home units in terms of resolving building complaints or not?

Mr WOOD: They stand behind us essentially as the last port of call, and they would usually point in the direction of resolving it with the builder, resolving it with the developer, resolving it with whomever else first.

The Hon. JOHN RYAN: If you have a conflict, I take it it cannot go to the Consumer Tenancy and Trading Tribunal because invariably the amount of money involved will be beyond that tribunal's jurisdiction, so it will be a District Court action by the ‑ what is the name of the body corporate?

Mr GODDARD: The strata scheme.

The Hon. JOHN RYAN: The strata scheme has to take the action on behalf of everyone, does it?

The Hon. AMANDA FAZIO: No, individual owners can take action. I am cutting in here, because about 25 years ago I helped manage a strata scheme in the small block in which I lived, but I must say it was an adversarial relationship through the entire period, so I became quite familiar with the remedies available to body corporates and individual owners in terms of the strata plan, which is why I am very sympathetic to the issues that you have raised in terms of the inadequacies of the current strata scheme in respect to larger developments.

The Hon. JOHN RYAN: If your complaints about the fire safety of your building prove to be correct and the developer or the builder has some responsibility in that regard to rectify them, one imagines that it is going to be a considerable cost.

Mr GODDARD: Yes.

The Hon. JOHN RYAN: Where does that money come from? Is there an insurance policy to cover that or does the developer have to find the funds?

Mr GODDARD: Mr Ryan, we are working our way through that as we speak.

The Hon. JOHN RYAN: Is there an insurance policy covering your building?

Mr GODDARD: I believe that there is, and I cannot tell you who the insurer is. I hope ‑ well, if it was HIH, I suppose we have access to the Government bucket. We have notified the Department of Fair Trading of the possibility of a claim. I anticipate that what the owners corporation will do at Regis Towers is commence common law proceedings directly. So far the executive committee has allowed other people to commence proceedings. Those proceedings may or may not be successful.

What we will inevitably do is commence proceedings in the Supreme Court for our own damages recovery, and that is going to, by the way, be our next special levy, because when the owners corporation commences these proceedings we will be running on a significant budget, let us say $500,000, which for each of our proprietors would run out at, say, a $800‑$900 levy and that will start the thing rolling. So I had to sidestep the inadequate babble in all of the other places because our problem was so big.

The Hon. AMANDA FAZIO: Have you got any comments, Mr Goddard, on the fact that there is no requirement at the moment for competitive quotes to be obtained for any major works required in a strata building?

Mr GODDARD: Your inquiry is on all fours with my view that we need to introduce corporate governance measures, run ourselves like a business to nurture the asset.

The Hon. HELEN SHAM‑HO: Can I go back to the question of rectification. You were saying with the PCAs if there is a breach of the certifier in the certification that there should be a penalty. Can you comment on what kind of penalty? You were saying that the builder and the developer should be responsible. What is the certifier's liability or responsibility?

Mr GODDARD: Ms Sham‑Ho, the penalty should run with the breach.

The Hon. HELEN SHAM‑HO: Obviously, there is no court action involved?

Mr GODDARD: In the case of Regis Towers, where you have life safety, where fire collars are missing, where bricks do not go to the slab and there is no sealant present, I suggest to you that that sort of lying is criminal, because it involves life safety. So a $500 fine is not good enough and deregistration is not good enough. In thinking through legislatively ‑

The Hon. HELEN SHAM‑HO: That is why I ask the question, as a legislator. You think there should be change. How do you change it?

Mr GODDARD: How do you change it? I think for little lies you do little fines, for medium sized lies you deregister and for life safety issues there should be criminal proceedings.

The Hon. HELEN SHAM‑HO: If the certifier is the council, what do you do?

Mr GODDARD: Isn't it a tragedy that at Regis Towers the principal certifying authority is Sydney City Council, who itself has a responsibility to preserve the public interest. And what did they do? They gathered pieces of paper. The good news is that when proprietors complained, council responded. Interestingly, they responded slowly. It this is my opinion that they responded slowly because a year ago, sitting on the executive committee of Regis Towers, the greatest concern of the greatest number was not to affect property values. I had an executive committee which declined to advise proprietors of the existence of a fire order because it would affect property values. They could not get their head around life safety. Sydney City Council I think suffered from that same problem.

The Owners Corporation Network is important because groups of buildings are coming together and working together, rather than being singled out and having their property values affected by bad publicity. Sydney City Council was slow to move because it did not want to be held responsible for adversely affecting our property values and allowing some of our proprietors to on‑sell the problem to some other unknowing purchaser, except eventually the music stops and eventually there aren't enough chairs. They had to act, because Sydney City Council did not want to have done nothing if somebody burnt.

The Hon. HELEN SHAM‑HO: You didn't answer my question. You were saying if it was a private certifier you would penalise them, but here it was Sydney City Council. We have a majority of PCAs, not the local council, as you know. Private, we have I believe 30 percent. So what do you do?

Mr GODDARD: How do you punish Government for not acting?

The Hon. HELEN SHAM‑HO: Well, that is the question.

Mr GODDARD: I do not know. Our system assumes an electoral outcome, that you will replace the people who do not act with people who do.

The Hon. JOHN RYAN: When you say Sydney City Council was the PCA, was it Sydney City Council acting as the council or did they have one of these private certifying groups operating within the council competing with other private sectors, similar to Sutherland?

Mr GODDARD: Sydney City Council assumed the role of principal certifying authority. What caused that to happen I do not know, only that is what they did.

Ms HOPWOOD: Is the Home Unit Owners Association involved in any of this anywhere or effective or ineffective in their activities?

Mr WOOD: In terms of what?

Ms HOPWOOD: In terms of what you are talking about?

Mr WOOD: No.

Ms JUDITH HOPWOOD: Nobody is a member of that association?

Mr WOOD: No, not that I am aware of.

Mr GODDARD: And neither are the strata managers.

Mr ANDERSON: The class action that is currently before the Supreme Court, is there any timeframe on that?

Mr GODDARD: There is no class action.

The Hon. JOHN RYAN: Sydney City Council is taking the developer to court, is it not?

Mr GODDARD: Sydney City Council has commenced proceedings against Meriton and Regis Towers Owners Corporation, and the orders they seek are that the builder comply with the conditions of the development approval, namely, that the building be constructed in accord with the Building Code of Australia, and those proceedings are in hand.

CHAIR: Perhaps the class action that Mr Anderson was asking about is, as I understood from your earlier evidence, the owners corporation has taken action to try and terminate the management.

Mr GODDARD: The owners corporation has filed a cross‑claim in proceedings in the Supreme Court against Regis Towers building management to end that agreement, and it is in the list for July, and we will be leading evidence in July to terminate that agreement.

Mr WOOD: If I may just make one response before you close in answer to Mr Anderson who raised a valid point earlier, and that was that the buyer should be aware, and I agree with you the buyer should be aware. The challenge we face at the moment is that most buyers are not aware of what they should be aware of, and hence the reason for our existence.

Mr ANDERSON: Don't get me wrong. I totally support the difficulties you are facing. It doesn't just happen in Sydney. The very issues you have raised happened also in my electorate and there were cases which were just as horrendous as the cases that you bring before us, but sometimes people have also got to be responsible and take good advice, but you obviously acted on your own good advice, your own initiative, your ingenuity, but you don't sign those sorts of things and retain your rights. It is essential that you do have some protection in the future and some come‑back in the future if things do go wrong, but once you sign them away you are asking for severe trouble.

CHAIR: Mr Wood, you read from a prepared statement, do you want to table that?

[Document tabled]

(The witnesses withdrew)

(The Committee adjourned at 11.00 a.m.)