Victorian Strata Law Overhaul Amid Allegations of Kickbacks, Class Actions, and Resident Disputes

The Victorian government has announced a package of reforms to the state's owners' corporation (strata) laws, including new penalties and increased powers for regulators. The announcement coincides with the release of a long-awaited independent review of the sector and follows multiple reports of alleged misconduct, consumer disputes, and regulatory challenges.

Summary of Key Developments

The reforms aim to address issues including financial hardship for unit owners, enforcement of building rules, and oversight of strata managers.

These measures come in response to a series of incidents detailed in media reports, including a leaked audio recording of a strata manager allegedly soliciting a kickback, a proposed class action against a major management firm, ongoing resident disputes over noise, and confidential lobbying against a proposed ban on insurance commissions.

Government Reforms and Regulatory Response

The Victorian government announced new penalties and offences for misconduct in the owners' corporation sector. Proposed legislation will grant increased powers to Consumer Affairs Victoria. Key elements of the reform package include:

• Hardship Provisions: Unit owners struggling to pay owners' corporation fees will gain a standardized right to a financial hardship payment plan.
• Rule Enforcement: The threshold for enforcing basic building rules will be lowered from requiring 75% of all owners to a simple majority vote of the appointed committee.
• Building Maintenance: Developers will face fines for failing to independently certify initial building maintenance schedules.
• Proxy Voting: Individuals who illegally stack voting blocs by breaching the statutory proxy cap will face prosecution.
• Licensing: A proactive licensing scheme for owners' corporation managers is planned for introduction next year.
• Regulatory Division: A dedicated owners' corporation regulatory division will be established within Consumer Affairs Victoria, subject to future funding.

The Expert Review

The government simultaneously released an independent review of strata laws, which was led by Marsha Thomson, Karen Chester, and David McKenzie. The review made 51 recommendations. The government stated it supports 17 recommendations in full, 3 in part, and 26 in principle. It will give further consideration to three recommendations and does not support two.

The government rejected a recommendation to mandate a statewide occupancy cap for short-stay accommodation. It also declined to ban third-party broker commission-sharing and insurance kickbacks, citing potential market effects including increased service fees for owners' corporations.

Consumer Affairs Minister Paul Edbrooke stated the changes are necessary to give consumers confidence as the state pursues high-density housing plans. A government spokesperson stated that the review was conducted independently of government.

Allegations of Kickbacks and Confidential Lobbying

Leaked Audio of Ace Body Corporate Management

A leaked audio recording, obtained by The Age, captures a strata manager from Ace Body Corporate Management, Nieraj Sachdev, allegedly soliciting a 10% kickback from a contractor in exchange for rigging the competitive tendering process for a $200,000 contract at a luxury apartment complex in Geelong. Sachdev reportedly stated the payment would be a "referral fee" or "fixed fee" to Ace, not disclosed to the owners' committee.

Following inquiries from The Age, Ace removed Sachdev's name from its website and confirmed he is no longer with the company. Ace Body Corporate Management stated that secret vendor commissions are not part of its franchise model and are prohibited. The company is a subsidiary of PICA Group.

The Strata Community Association (SCA) Victoria referred the matter for investigation and confirmed Sachdev is no longer eligible for membership.

Confidential Submission by PICA Group

Separately, Australia's largest strata company, PICA Group, made a confidential submission to the government-backed review panel seeking to block a proposed ban on insurance commissions. The submission warned that banning insurance commissions would cause 70% of strata management companies to collapse. The review panel published 121 of 159 written submissions; 38 remained confidential, including PICA Group's. PICA Group stated it had been open about its concerns and declined to release its submission.

Consumer advocacy groups and individual owners called for a ban, while industry groups defended commissions. Adam Promnitz, founder of Strata Owners Alliance, said it appeared there had been "classic closed-door lobbying from the strata industry's big end of town."

Proposed Class Action Against Bluestone OCM

Apartment owners in Victoria are preparing to file a lawsuit against Bluestone OCM, a major strata management firm. The impending writ, to be lodged in the Supreme Court of Victoria, alleges misleading conduct, unconscionable behavior, and breaches of the Owners Corporations Act.

The legal action is led by Wilbur Tong on behalf of his family's apartment at Marina Tower in Docklands. It seeks to represent all lot owners in Victorian strata schemes managed by Bluestone since 2020 who may have received misleading fee notices. Bluestone OCM manages over 45 apartment buildings, including Australia 108 and Premier Tower.

Tong's family reportedly fell behind on owners corporation levies during COVID-19. They claim to have paid $24,000 in levies between late 2022 and mid-2024. Despite these payments, Bluestone allegedly pursued an overstated debt of $8,000. A statement issued in November 2024 declared a debt of over $13,400, which Tong states included significant legal and 'recovery' costs, with no levies outstanding at that time.

Tong's family was also issued a "special fee" of about $5,500 for anticipated legal costs, which they interpreted as a deposit for future legal action against them.

Bluestone OCM has denied any wrongdoing. The company stated it is "guided by ethical, transparent and service-focused principles" and maintains "robust policies and oversight processes" to ensure fair and lawful practices.

Potentia Litigation, the law firm representing the plaintiffs, is actively seeking other affected lot owners in Bluestone OCM-managed properties before formally lodging the legal action in late February.

Resident Dispute Over Pilates Studio Noise

Residents in a Melbourne apartment building have reported significant disruption due to noise from a ground-floor Pilates studio, Love Athletica, operating beneath their homes. The noise has been described as "thumping and crashing" from reformer machines and weights, occurring daily from early mornings.

An independent acoustics report, commissioned by the building's owners corporation, found that the studio exceeded regulated night-period noise limits by 6 decibels and best-practice guidelines for gymnasiums by up to 17 decibels. The report concluded that even minor impacts on the concrete floor generated audible noises in the apartments above.

Stonnington Council had initially issued a permit in 2018 for a "Pilates studio only," which did not include the use of weights or heavy reformer machines. The council has since granted the studio multiple extensions for a new permit application, stating that the noise from unpermitted equipment could not be regulated through existing conditions. Council inspections reportedly did not find an "unreasonable impact on residential amenity."

Environment Protection Authority Victoria (EPA) also stated no regulatory breach was found during a single unannounced inspection. The EPA has advised that "structure-borne" noise impacts are a matter for the council, though its investigation is ongoing.

Love Athletica co-founder Caroline Knipe stated the business has faced "no material change to its operations" and "no prior complaints" since opening, a claim disputed by resident impact statements citing informal complaints since 2019. The studio reportedly declined to install soundproof flooring due to aesthetic concerns.

The building's owners corporation issued a formal Notice to Rectify to the ground-floor commercial lot owner, Paul Little, and manager, Nelson Alexander, in January. Efforts to enforce building rules through legal action face a challenge due to a VCAT precedent requiring 75% of all residents in a building to vote in favor, a threshold described as difficult to meet in large developments.

Broader Context and Reactions

Opposition consumer affairs spokeswoman Jade Benham said the government's hesitation on banning insurance commissions raised questions about its commitment to protecting residents. Opposition consumer affairs spokesman Tim McCurdy said the allegations of misconduct show that "weak oversight has allowed such practices to flourish."

Samantha Reece, director of Australian Apartment Advocacy, called for a strata commissioner to address corruption. Adam Promnitz, co-founder of Strata Owners Alliance, called for a royal commission into the sector.

The NSW Productivity and Equality Commission found ending commissions could generate over $300 million in benefits, but Victoria plans its own study.