Owners corporations, both residential and non-residential, can mitigate many rising costs, and even potentially reduce them, by actively identifying problem areas and being prepared to implement innovative measures.
With the rising cost of electricity, insurance premiums, building materials, waste management and cleaning labour, inefficient stewardship could potentially lead to an increase in service costs resulting in a fall in the value of a building.
Power consumption can be reduced with the addition of lighting sensors to car parks, bathrooms and corridors. Similalrly, owners with a cooling tower servicing their office building also face significant increases on their energy bills.
Industry savvy operators have been able to circumvent or reduce these costs by retrofitting energy efficient devices together with implementing an after hours user pays system. Smart meters, rebates and ‘going to the open market’ for reduced electricity rates have also proven productive. Measures like this could save owners as much as 30 per cent in their annual energy expenses. Similarly, the industry should be at the forefront when it comes to benefitting from the forthcoming Clean Energy legislation. Managers should be conversant with carbon credits, offsets, and rebates and how they can reduce the impact and even benefit from the legislation.
Another material cost is the insurance coverage that every strata and community scheme must effect. Recent claims due to storms and floods in Victoria, and cyclone and floods in Queensland, have led a number of insurers to increase premiums by up to 20 per cent. In some cases, insurers have simply declined to offer terms on properties that were not deemed profitable or too high risk.
Being able to reduce or eliminate risk for the purpose of making a building more attractive to insurers, comes with technical skills and knowledge. Getting this wrong could mean the difference between owners paying (for example) $70,000 or $100,000 on a property with a building value over $70 million. In some situations, owners have found that insurers have refused to insure their property citing, amongst other things, hazardous and structural material, high-risk usage or a high claims rate. Managers need to be extremely careful when providing information to insurers. Getting this wrong could be the difference between a claim being accepted or owners having to dig into their own pockets. I am aware of one recent example where a lift broke down due to flooding. The insurance policy had coverage for machinery breakdown with a maximum of $5,000. The cost to repair amounted to $35,000. Consequently, the manager had to explain to owners why there was insufficient coverage and had to raise funds to account for the short-fall. The responsibilities that have been contracted out from the broker/underwriter to managing agents is enormous and one that may require industry comment.
It’s vital that the strata industry improve their technical and professional services if they are going to deliver on owners’ expectations. When owners place their property under an agency’s management, they expect service excellence. However, many firms simply do not have the time or expertise and consequently owners may not be receiving the service they think they are paying for. The recently harmonised OH & S legislation introduced on 1 January 2012 places a prescriptive obligation on the industry that requires the controlling authority to be proactive in ensuring that strata and community schemes comply with their obligations to provide a safe work place. The legislation emphasises due diligence and makes it clear that the controlling entity could be liable for breaches of safety without an incident or accident even occurring.
Leading agencies are setting new benchmarks by investing in their human resources, contractors and information technology. This enables them to deliver quality and reliable service. Combined with efficient policies and procedures, they are able to deliver to owners a return on their investment. This is a shift from the past where strata managers acted primarily as bookkeepers and secretaries and had little interest or inclination to provid proactive estate management.
There is no doubt that more and more lot owners are struggling to pay their levies given the wider economic pressures on the household or business budget. While some strategies to reduce costs have an immediate upfront cost, a number can result in immediate cost savings. A savvy owners corporation (or their manager) should be able to take advantage of those. This may allow the owners corporation to reduce levies and/or enable them to save funds for major expenditure items that may crop up in the future. This is indeed an excellent opportunity to top up an under-funded sinking fund.
By Ashley Bassa, Associate Director, Beaumont Strata Management