Why Regulation Alone Won't Fix Strata Management

Australia's strata management sector has had a rough couple of years. A wave of investigations, a landmark Four Corners program, thousands of owner complaints, and a raft of legislative reform in NSW — it's been the most scrutiny the industry has faced in decades.

The reforms are a step forward. But there's an important conversation that isn't happening loudly enough: regulation addresses the symptoms of a broken system. It doesn't fix the system itself.

The diagnosis

The core problem with traditional strata management isn't bad actors — though there are some. It's a structural conflict of interest that's built into the model.

Most strata management companies are owned by shareholders. Those shareholders expect a return. That return comes from the fees, commissions, and margins the company generates — often from the same owners it's supposed to be serving.

When the interests of the management company and the interests of the owners corporation align, this works fine. When they diverge — and they do, regularly — the manager has to choose who to favour. Structurally, the shareholder wins.

This isn't a matter of ethics. It's a matter of incentives. You can have ethical people operating within a flawed structure and still get bad outcomes.

What the reforms actually do

The legislative changes introduced in NSW over the past year are meaningful. They require strata managers to disclose commissions. They ban certain fee arrangements. They give regulators more power to investigate and penalise. They improve transparency around insurance pricing.

All of this makes it harder for unscrupulous operators to exploit owners without consequence. That's valuable.

But here's what the reforms don't do: they don't change who the strata management company answers to. The company is still shareholder-owned. The profit motive is still there. The incentive to prioritise revenue over service hasn't gone away — it's just operating under closer scrutiny.

Regulation, by its nature, sets a floor. It defines the minimum acceptable standard and penalises those who fall below it. It doesn't change the direction of the incentives — it just raises the cost of following them too aggressively.

The structural fix

There is a way to eliminate the conflict of interest entirely, rather than manage around it: change who owns the company.

In a member-owned strata management model, the body corporates being served are also the owners of the company. There are no external shareholders expecting a return. The only interests the company answers to are the interests of its members — the owners themselves.

This isn't a novel idea. It's the same logic behind credit unions, mutual insurers, and member-owned professional services firms. Where shareholder-owned models have a structural incentive to extract value from their clients, member-owned models have a structural incentive to create it.

The conflict of interest isn't managed. It's removed.

What this means in practice

For owners in a member-owned strata scheme, the implications are tangible:

Transparent pricing becomes the default, not a compliance obligation. There's no incentive to obscure fees when the people paying them are also the people who own the company.

Contractor relationships are governed by what's best for the building, not what generates the best referral fee for the manager.

Governance is genuinely democratic. Members have a voice in how the company operates — not just in how their building is run.

Long-term thinking is rewarded. Without the pressure of quarterly shareholder returns, decisions can be made in the interest of communities over time, not just in the interest of this year's profit margin.

A question worth asking

The NSW reforms have done something important: they've made the conflict of interest visible. Thousands of owners now understand, in a way they didn't two years ago, that their strata manager's interests may not align with theirs.

That awareness is valuable. But awareness of a structural problem isn't the same as solving it.

The question worth asking — of your current manager, and of any prospective one — isn't just "do you disclose your commissions?" It's "who do you ultimately answer to?"

The answer to that question tells you more about how your community will be managed than any disclosure document can.

Related reading: What NSW's Strata Shake-Up Means for South Australian Owners →