1305, 12 Glen St, Milsons Point

0434 715.861

scribepj@bigpond.com

 8 Nov 2017                                                            DRAFT   DRAFT   DRAFT  

 Attention Andy Hogendijk
The Pavilion

 

Confidential Report re Owners costs from the Treasurer of the Owners’ Executive Committee for Strata 52560 to another Owner with a banking background

 

I have shared about 20 emails with Lauren Cook at Strata Choice (who is diligent, proficient and enthusiastic) in order for me to better understand –

·         Invoiced Costs upon Owners.

·         What goods or services each service provider's invoice provides?

·         The duties and responsibilities of the primary 'service provider'  -  not limited to Strata Choice, T & M Management Services, Kone Elevators, Energy Australia, Integra Water Treatment Solutions, AGL Retail Energy, Sydney Water, Yates Security, ADT Fire Monitoring, RAM Air-Conditioning, Fitness Equipment Finance, Altech Security Services, iinet, Grace Lawyers, Le Page Lawyers, Oxford Fire.

I summarised below pertinent info on The Dept of Fair Trading webpage Strata Managing Agents re the duties, rights and obligations of the –

·         Owners (referred to as the owners corporation); and

·         their Strata Manager (referred to as the strata managing agent), namely Strata Choice.

"The owners corporation may engage a strata managing agent to help with managing the scheme.

The strata managing agent must be licensed. Owners corporations should check the licence through the Service NSW website, and from time to time check it is still current.

The owners corporation can choose which responsibilities the strata managing agent manages on its behalf. For example, it may delegate arranging meetings but keep control of financial management.

The agency agreement (contract) with the strata managing agent will set out the responsibilities the owners corporation delegates to them, and when these powers may be exercised.

The owners corporation and the strata committee can still carry out their duties even if they have delegated them to a strata managing agent.

A strata managing agent cannot:

  • delegate their powers, authorities, duties or functions to others
  • set levies
  • make a decision on a restricted matter. This includes a matter that needs a special or unanimous resolution or is one that the owners corporation has decided must go to a general meeting."

I also read ‘What Will You Be Paying In Strata Fees?’

Having completed the below review, it surprises me that the decisions re many of the Owner incurred material costs appear to be made by 'agents' of the 60 or so Owners that "do not have skin in the game".  An 'agent' has to always act in the best interests of its 'principals', although some real estate agents can sway from that obligation/responsibility.

For 18 years when working at CBA I managed a growing 'Agency Group' within CBA's Institution Banking where I was an 'agent' to my 'principals' that were generally syndicates of first ranking debt providers. The largest debt syndication that I administered as the Agent had 39 global banks that funded $4.9b to Macq Airports Group that won the tender to purchase Sydney Airport from Federal Airports Corp in 2002.

I believe that Owners would reduce costs if it established a 'triumvirate of three Owners' that shared the worked load on a 'materially lower paid basis' to perform some of the rudimentary tasks (eg. changing batteries in the equipment in the gym, changing light bulbs, booking a service man to replace rollers in the glass sliding doors, arranging repairs to intercom systems, initially chasing-up (via phone calls and by emails) late Qtly Levy Fees. 

But more importantly to review upcoming material costs and the cost-effectiveness of each of them.  This Owner involved approach accords with the above listed comments on the Dept of Fair Trading webpage Strata Managing Agents.

At my behest, Strata Choice’s I.T. resource downloaded (from its Rockend Property Management System data software) an Excel file ‘Payments’ (that listed invoices paid from 1 July to 7 Oct ‘17).  I split up those payments into 20 worksheets (one sheet for each 'service provider' that had invoiced to 7 Oct.) in order to estimate the likely annual costs from each 'service provider' in my 2nd Worksheet titled ‘Costs_Summary’.  Insurance and carpet replacement was not invoiced in the 14 weeks period that I analysed.

After subsequently reviewing Strata Choice’s expense register from 1 July 17 up until 6 Nov 17 on a ''service provider' basis, I have highlighted in Yellow background some of those costs that I believe can be reduced.

The primary areas that I want to target for material cost reductions are detailed in A. to N. below:

 

A.       A.     Cost benefit analysis of the childrens’ heated indoor swimming on the ground floor (9m L  x 3.3m W  x 1.4m D)
           Costs:
           1.  Risk of a very costly repair bill to remove concrete cancer and re-strengthen the 20" slab
           2.  Annual operating costs of the heater, pump and chlorination
           3.  Each seven year replacement of the pump and/or heater
           4.  Availability of an indoor heated 25 metre swimming pool 400 metres down Alfred St
          
Benefits:
           1.  Empirical or intangible evidence to support the perception that a 20 years old childrens’ swimming pool that a few children swim in, adds value to Owners; and
           2.  Utility benefits from swimming in the pool as opposed to swimming in the outdoor 50 metres or indoor 25 metre swimming pools 400m down Alfred St

 

There is evidence (from the garage ceiling in Level 3 immediately below the swimming pool) of water leakage into the supporting slab.  There are two obvious stalactites, as well as surface brown stains on the ceiling (below the swimming pool) and also down the nearby vertical slab.  I understand from talking with fellow Owner, Jeff Fry, that the leakage that resulted in those two stalactites was repaired.  But the waterproof membrane eventually will fail as all membranes fail over time.  This swimming pool is 22 years old.


I have experience firsthand why concrete cancer occurs, both in financing a Greenfield Infrastructure Project in my former job at CBA, a balcony at my former home at Freshwater.  Further, concrete cancer in home unit blocks in the protruding balconies along the Manly promenade is rife and exceedingly costly to attempt to remedy.

Owners in The Trident at Manly expended over $100,000 per home unit to treat concrete cancer and stabilize the balconies.  But will it stand the test of time because it is not always possible to cut out all the weakened concrete and rods from the juxtaposed inner wall slab immediately inside each apartment?

Over two days, I applied a waterproof membrane, Drizoro, on the roof slab of a large double garage that I had constructed in 2009 at my then home at Freshwater under an Owner Builders Permit that I obtained from the Dept. of Fair Trading in 2008.  I spent $400,000 on my refurb as an Owner Builder, engaging about 15 different Tradies.  I sold that home for $2.705m last July.

When water penetrates concrete the steel reinforcing rods eventually rust and then expand.  That expansion in the rusted rods cracks and weakens the surrounding concrete and renders them more susceptible to water penetration.  The repair cost can be very high, with no guarantee of effective long-term rectification.

Slab leak  - Level 5 to Level 3 evidences a break in the 20” slab on Level 3 where water leaked through to Level 5 beneath it on 12th Oct 17 that I evidenced.  These photos that I took are patent evidence of the potential for the swimming pool to leak into the 20” slab beneath and also to the four side walls.  It may have already penetrated well into the supporting slab as it did previously creating stalactites (a tapering structure hanging like an icicle from the concrete roof of a cave, formed of calcium salts deposited drawn out by the leaking pool water), whereupon those two leaks located well apart was repaired by adding more protective membrane and retiling.

My former long term tenant in my unit on Level 13, Scott Song, recently told me that Office Manager, Alex Babic, previously told Scott that when the swimming pool heater needed replacement that it was a major job to access the faulty heater due to the narrow metal encased ladder to the Plant Room which rendered the swimming pool unusable for a few months because the parts had to arrive from the USA and then somehow delivered to the Plant Room up the narrow metal encased stair ladder.  Alex provided to me a site inspection of all the plant rooms this morning which was most beneficial for me.

Integra Water Treatment Solutions chlorination cost is $2,420 per year.  How many chlorine top ups does Integra Water Treatment Solutions make each month, because my understanding is that monthly is inadequate if swimmers rely on the chlorination because small indoor swimming pools harbour germs which can be transmitted to swimmers unless the application of chlorination is precise by testing the water regularly.

Below is an extract of Jeff Fry’s email to me sent 5 Oct 17 in response to my email to Jeff sent 20 Sept:

 

"1. Sinking fund money has also been spent over previous years on the pool heater. So your savings figures are conservative.

 

2. An issue a few months ago had the pool heater, again needed more maintenance, out for many weeks and I am not aware that anyone complained. 

 

3.  I know some owners may think that a pool in the building is be of the tick box items that they looked for when they purchased (new).

This pool is not up to contemporary standards. 

The pool and its maintenance costs are likely not seen as a benefit by current buyers.

 

4. The use as a space including cooking does raise some potential issues as to whether the space would be a management issue.  Allowing suggestions of alternate uses may prevent some objections.  Remember the Australian republic debate- where people wanted a republic but could not agree on which type.  But at least you have a ‘concrete’ proposal.

 

5.  One alternate use to consider is to swap the Gym into what is the pool area.  More inspiring - could be seen by many as adding value.  Andy Hodendijk’s wife, Ainslie, had thought the pool area could become "a more passive reading area with some couches."  

  • Operating costs for the 9m indoor swimming pool seem to include:
    -    Gas heating of the water to 28 degrees x 365 days each year
    -    Electricity to power the pump. 
     
  • Equipment replacement costs seem to include:
    -    Water heater
    -    Water pump
    -    Repairing tiles and eventually removing the tiles to apply a replacement membrane over the surface of the concrete and re-tile the swimming pool 

These Operating and Equipment costs need to be quantified if some Owners are genuine about materially reducing Qtly Strata Levies, particularly for those that believe in human induced 'climate change'.

A timber floor fitted over the pool cavity would enable that ground floor area (toilets immediate adjacent) to be used by unit owners as a ‘social entertaining room’ for birthdays etc with an electric bar-b-que, fridge, sink, microwave, table and a dozen chairs.  An experienced carpenter that built impressive balconies at my former Freshwater home and laid timber floors throughout both internal levels, Steve Wall, is visiting The Pavilion mid arvo this Monday to provide to me a written quotation to build such a timber platform foundation in the pool cavity and lay a timber floor above it.

I cannot source any empirical or intangible evidence that prospective Owners in a home unit complex such as The Pavilion place any economic benefit on a small indoor childrens’ swimming pool, particularly in a unit block 400 metres from the historic North Sydney Olympic Pool, which includes a 25 metre heated indoor swimming pool.

 

B.         The ‘common areas’ in The Pavilion are Lit up like a Christmas tree - 24 x 7

Owners seem to be paying Momentum Energy almost $50,000 pa to light the ‘common areas’.

The lighting is too bright due to too many light fittings and too bright bulbs/tubes.  We cannot remove any of the circular Oyster wall LED lights in the ‘common areas’.

The only way to reduce the brightness in the ‘common areas’ is to explore the use of lower watt LED lights probably as lights fuses snap.

 

Below is an extract from Owner, Brian Adams’, e-mail to me sent 1 Nov 17 re his experiences in reviewing lighting at the apartment block - Stamford on Kent:

 

"1. Residential Corridors

These were initially fitted with 50 Watt Halogen so replacing them with 4 watt LEDs was a “No Brainer" (1/10 of the power and 9 times the lifespan and payback in1.2 years}

However the Owners would not even consider anything but 24/7.  Of interest is that when we redecorated the corridors with lighter colour, we also replaced the LED with 1 Watt bulb and in some darker spot with 2 watts.

 

2. Carparks posed some considerations eg, Flouros were in use, Motion detection switching was strongly opposed, emergency lighting was essential, and we need to introduce LED savings

We found a led light with selectable options eg Battery back-up if power failed and optional motion detection. This was more expensive and a longer pay-back but not too bad when you consider the Flouro life span compared to a LED.  Our model was called a Chameleon."

 

Approx. 8 weeks ago I 'phoned North Sydney Council that acknowledged that Council lighting requirements in ‘common areas’ are not as onerous as previously due to ‘climate change’.

 

C.        C.       Owners are incurring legal costs unnecessarily due to a law firm appointed by Linders Strata Management or T&M Management Services

 

Le Page lawyers has invoiced Owners $1,270.68 in less than a Qtr of the year to pursue late payment of qtly Strata Levies.

 

 

 

 

 

 

Linders Strata Management also levied fees exceeding over $300 upon Owners for debt recovery

 

 

 

 

 

 

Prima facie, Owner apathy/ignorance is proving costly to Owners.

 

Below is an extract of my email to Brian Adams sent 27 Oct 2017, at 5:14 PM:

 

“I am also interested in learning the level of bad debts re Owners paying Qtly Strata Fees.

Interest rates on our bank accounts are understandably very low.

Hence, if an owner is tardy in paying, it doesn’t cost us a lot of interest.

But we seem to be paying lawyers to chase up bad debts unnecessarily.

I would like Strata Choice to provide me a list of one month O/S Qtly Strata Fees and Owner email addresses and ph #s, and I will chase them up.

I do not think that late paying Owners have cash flow problems.  Perhaps rather that paper based invoices via snail mail do not always get posted to where the owner is presently living.”

 

Below is an extract of my email to Brian Adams sent 1 Nov 2017, at 1:26pm:

 

"I am prepared to undertake the bulk of the work, but I want another Owner to understand what costs I am seeking to appraise and how I go about it.

 

 As a starting point:

 

1.      Would any Owner know what bad debts by way of unpaid qtly Strata Fees that the Owners Corp has suffered in the last 5 years?

2.      Are particularly late qtly fee payments due to liquidity issues by the Owners?  Or due to a lack of attention to detail by the defaulting Owners?

3.      Does the Owners accounts receive all late payment interest levied and rec’d by Strata Choice?"

Strata Choice 'Aged arrears list' evidences the Owner of unit #1205, Jai Jit Singh, owes $5,514.62 in outstanding levies of which $3,305.93 is +120 days.  Seemingly, this is three x Qtrs.  Is this because the Owner of #1205 is experiencing liquidity problems, or because the 'snail mail' is going to an old address?  My proposed triumvirate of Owners should be the 'first port of call to determine this' by telephoning and emailing Qtly Levy defaulters such as the Owner of unit #1205, Jai Jit Singh because the legal costs of pursuing payment tat fall upon Owners are material.

2nd Worksheet titled ‘Costs_Summary’ shows postage of $175 and photocopying of $174.  Is Strata Choice delivering Qtly Levy Notices by email?

D.       Can Owners extricate themselves from a four year rental contract with Fitness Equipment Finance on gym equipment that costs Owners almost $3,000 per annum?  We could purchase that gym equipment on Gumtree for less than $5,000.

E.       Why are Owners paying iinet $178 p/m circa?  My internet costs my $50 p/m with Telstra?

F.       Why are Owners seemingly paying Sydney Water $20,000 circa p.a.?

G.      What is the gas bill for less than four months of $5,170.98 (split between AGL and Origin Energy) for?

H.      Malcolm Thompson Pumps charge $803 pa.

J.       I.       Two costs of the Owners Committee seem to be:

                  1st        Intercom system from outside the front entrance in Glen St to the kitchen of each home unit.

                  2nd      The glass sliding doors to the balconies.

 

On 28 Aug Excel Property Maintenance invoice $258.50 to replace worn rollers in the glass doors in Unit 1001.

 

It would be much more cost effective for the Owners’ Executive Committee to –

·         notify all Owners that the Owners Executive would like to have any non-performance of these two Strata costs rectified/repaired ‘in one fell swoop’, rather than one at a time; and

·         request all Owners to notify an appointed member of the Executive Committee if -
*    the rollers in the sliding doors in their unit need replacement; or
*    their intercom does not operate properly, whereby the Owner receives a 'buzz' on their intercom and can enable the 'buzzer' (standing outside the front glass door)
      to access the floor, using the lift, that the Owner resides on.   I do not believe that video screen to see the 'buzzer' standing outside the front glass door is necessary' as the picture quality was never 'flash'.

So that we would not be incurring travelling costs on a per minute basis on a one-by-one job basis.

 

 

 

K.       Yates Security Services invoices that agg. $5,863.50 for less than one third of the year - are Owners 'getting done like a dinner'.

 

 

 

L.       What was done to the garbage constrictor by Ryburn Industries in Oct to charge $1,392.60?

 

 

 

M.       Is Paying $740 per week to clear the bins, put them out for Monday morning collection and vacuuming periodically value for money?  Or are there other duties?

 

At the August AGM after I was elected the Treasurer for the Owners Exec Committee, I commented that I wanted to understand all material Owner incurred costs associated with the 'common areas'.  Our Chairperson, Lauren, then said to the attendees that Strata Choice had recommended (to other Owner Executive groups), a consultant that was adept at identifying cost savings.  Lauren offered to provide that consultant's com details to me.  I told the meeting that I wanted to first understand Owners 'common areas' costs.

 

QUESTION 1.

 

After reading my confidential DRAFT report, could you 'phone me when you are in front of you computer screen to discuss the above for at least 20 mins because i have expended a lot of time preparing it?

 

QUESTION 2.

 

Re B. above, are you available to 'walk all the floors' after dark to better understand the brightness of lighting in the 'common areas' and can that brightness be reduced?  Our Office Manager, Alex, has provided to me a white plastic access pass that allows entry to all floors.  I will return it to Alex once the 'walk the floors' is undertaken.

 

Postscript

 

A lifelong sporting friend of mine, Peter Meers, fondly recalls working with you at ANZ.  Moose and I played a lot of cricket and baseball in the ‘70s and continue playing golf at North Ryde G.C. on Tues and Friday's.  Much to the chagrin of some, hit-off is at Sparrow Fart.  Our group of Oldies is colloquially known as BackNineHackers.  After 9 holes of golf we catch up for b'fast at a nearby cafe, where any Birthday Boy has to buy a b'day cake - easier than putting the hat around.

 

Phil Johnston