This idea would save apartment owners $333m. Strata managers took ‘high offence’

A lucrative system of payments that has driven up the cost of apartment living in NSW is facing an overhaul as the state government considers becoming the first in Australia to outlaw commissions to strata managers.

A NSW Productivity and Equality Commission report obtained by the Herald before its public release recommends banning strata commissions, finding they have fostered conflicts of interest, eroded trust and inflated costs across one of the state’s fastest-growing housing sectors.

The findings strike at the heart of a long-standing industry model in which strata managers – appointed by owners’ corporations to oversee the day-to-day running of their buildings – can supplement their base fees by receiving commissions from services they arrange, including insurance policies and energy contracts.

The report found these payments, while legal, can create a “perverse incentive” where managers may avoid pursuing better-value deals if doing so reduces their own income.

NSW Productivity Commissioner Peter Achterstraat said the practice can distort decision-making and leave apartment owners paying more than necessary for essential building services.

“These payments can create incentives that do not align with the best interests of owners and renters,” Achterstraat said.

The commission estimates scrapping commissions could create $333 million in benefits to apartment owners over 15 years through lower premiums and more competitive pricing, while also restoring trust and transparency in a sector that has become central to the state’s housing mix.

More than one million people live in strata properties across NSW, and by 2041 nearly half of all homes in Greater Sydney are expected to be strata-titled, placing greater reliance on strata managers as housing density increases.

NSW Treasury director of competition and regulatory policy Tom Carr said a standard strata insurance policy can attract 20 per cent commissions – typically split between brokers and strata managers.

“A $50,000 insurance policy could generate a $10,000 commission which ultimately feeds into the higher premiums [paid by residents],” he said.

Consultation on the report drew more than 550 submissions, with reform proposals receiving strong backing from apartment owners who highlighted concerns over rising costs, opaque pricing structures and perceived conflicts of interest.

Sydney apartment owner Lui Timbano is pursuing action in the NSW Civil and Administrative Tribunal, alleging his strata manager exceeded agreed commission limits.

Timbano said his building had been paying $28,000 a year for insurance that an independent broker later quoted at $21,000. Despite the apparent savings, contractual terms complicated any attempt to change providers.

“Because the agreement allowed the manager to recover lost commissions, we would have been worse off changing. It was a catch-22,” he said.

As secretary of his strata scheme, Timbano has taken on the burden of navigating the dispute himself.

“I’m now having to trawl through email records and prepare legal submissions and affidavits – I basically feel like I’m studying to become a lawyer,” he said.

Experts say such cases are not isolated. Socio-legal researcher Nicole Johnston said commissions can account for 15 to 25 per cent of some strata management firms’ total revenue, in some cases representing their entire profit margin.

Strata lawyer Allison Benson said that reliance has hardened resistance to reform within parts of the industry.

“I attended a meeting with strata managers last year, and some took high offence at the suggestion of banning commissions, insisting it would ruin their business model,” she said.

The report also highlighted broader structural concerns, including the growing prevalence of “vertical integration”, where strata management companies are owned by – or closely linked to – service providers they recommend. While disclosure of such relationships is required, the commission found existing rules are insufficient to mitigate conflicts of interest.

Further tension arises from how strata managers are initially appointed. In many new developments, developers select a strata manager before apartments are sold, effectively locking in arrangements for incoming owners.

“The strata manager often has deep ties back to the developer they are then expected to pursue on behalf of the new owners, if issues such as building defects emerge,” Benson said.

“That creates real conflict of interest.”

Momentum for change appears to be building. The Strata Community Association NSW last year announced members would phase out insurance commissions, describing the move as a step towards greater transparency.

The commission’s report outlines four reform pathways, ranging from a voluntary industry phasing-out of commissions to a full legislative ban, alongside a three-year transition period to allow existing contracts to expire.

It also recommends restricting insurance brokers from accepting commissions for strata-related work, and increased monitoring and compliance checks.

Fair Trading Minister Anoulack Chanthivong said the government would “carefully consider” the recommendations.

“Strata managers play an important role in supporting apartment and commercial buildings across NSW, and it is critical that their remuneration arrangements align with the interests of owners’ corporations and apartment owners,” he said.

“The government will now carefully consider the commission’s findings and recommendations, including the potential impacts on owners, strata managers and the broader industry.”

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