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What’s behind the lights?

Towers targeted for takeovers

05 Mar 2019

Towers targeted for takeovers Image

By Sean Car and Shane Scanlan

Apartment towers are facing takeovers by short-stay apartment operators able to turn them into quasi-hotels.

Operators are successfully harvesting owners’ corporation (OC) proxy votes in majority-investor-owned towers – and it’s all perfectly legal.

Unlike NSW, there is no limit to the number, or total proportion, of proxy votes that individuals can harvest in Victoria – and it looks like the flood gates are about to open.

In the past, stories have emerged about OCs being taken over by utility and other contractor-type vested interests. But organised short-stay operators appear to be emboldened by the lack of regulation and oversight.

Professional facilities manager and former Residents 3000 president John Dall’Amico is involved in a draining struggle where an OC is being swamped by representatives of a property company, which has a short-stay apartment division and informal ties to a strata management company.

He said owner-occupier OC members were questioning the possible motive behind having members on the committee with no actual obvious connection with the building.

“They’re neither owners, renters or investors,” Mr Dall’Amico said. “I will leave it to others to determine the motives behind their push for control of the committee. And whether loop-holes in the law make it possible to profit from residential buildings.”

“From my observations as a provider of facility management services it appears there is very little that can be done given the current laws. Most residents are first-time owners of apartments and have very little knowledge or understanding of owners’ corporation matters. They are perplexed and left not knowing what to do, or believe.”

In Docklands, a short-stay operator in November threatened a landlord with a $100,000 lawsuit if he refused to pass over his OC proxy vote. It is understood a number of similar letters were also sent to other landlords.

A lawyer for the operator wrote to the landlord asserting the landlord was in breach of the Residential Tenancies Act because building management allegedly denied the lawyer’s client a right to “peacefully enjoy their residence and access all common property in the building”.

The lawyer complained about “intimidation, physical and racial abuse” of ethnic Chinese staff by building management.

The lawyer then suggested assignment of proxy voting rights to the short-stay operator as a solution to the problem and asked that irrevocable proxy rights be inserted into the lease. Suggested amended lease wording included:

“The landlord may not revoke this appointment during the term of the lease, including any further term/s, except in instances where the tenant refuses to pay rent. The landlord acknowledges that the tenant has entered into the renewal of the lease at the specific rate in reliance upon the powers conferred upon it by the preceding clause and that the tenant will suffer damages and loss in the event it is prevented or attempts are made by the landlord to prevent the tenant from exercising its proxy in the manner set out above.”

Three days later, on November 30, the lawyer again wrote to the landlord saying:

“In not taking action, after our clients have raised their concerns that the OC management is not allowing them to have quiet enjoyment of their property, our client feels that he has no option but to hold you liable as landlord. Our clients estimate that their total loss and damages are in the range of $100,000.”

“If our clients do not receive a response from you detailing the satisfactory steps you wish to take to immediately remedy the situation by close of business on Monday, 3 December 2018, we have been instructed to issue proceedings.”

At the last annual general meeting of the circa 500-unit Docklands tower concerned, only eight people voted, leaving the OC particularly exposed to takeover at the 2019 meeting.

In Southbank, Tiara Towers on Haig St has also experienced the pain of proxy farming in the past. After discovering that the building’s management company had control of all facets of its building under very lucrative contracts, the committee determined that the company was not acting in its best interests of owners.

Resident and former Tiara OC member Jennifer Fletcher said the committee had decided to review and re-tender those contracts, which the management company didn’t receive well.

“Enter proxy farming,” she said. “The committee was hijacked by the management company, their many arms and two real estate agents whose reasons must be questioned. These few individuals were armed.”

“It appears some were gained by trying to discredit existing committee members and others falsified information sent to selected owners, many of them overseas-investors. Many proxies questionably gained, signed and presented.”

Ms Fletcher said it resulted in an outcome where the management company and its subsidiaries resumed control of running the building and rewarded themselves the caretaker contracts.

“Proxy-farming must be stopped,” Ms Fletcher said. “Unfortunately, there are individuals and organisations that can act only for financial gain. They can’t help themselves – they get greedier and greedier and leave us with the crumbs.”

Strata lawyer Tom Bacon said proxy farming was rife in Victoria because the law was inadequate.

“There is little to curb this practice under the current OC legislation in Victoria. Proxy farming is rife in the industry, and this has allowed the rot to set in over many years as sophisticated short-stay operators, managers, real estate agents and building caretakers have exploited the situation,” Mr Bacon said.

“In NSW, the state government introduced sweeping legislative reforms in 2016 to end proxy farming by permitting a person to only hold one proxy vote at a time, made it unlawful for leases and other agreements to include an ‘irrevocable proxy’ clause, and disqualified persons and proxies from voting on certain matters when they had a pecuniary interest in the outcome of the motion.”

Mr Bacon said the Victorian Government had been reviewing OC law since 2016 but secrecy surrounded its intentions.

“The rumour is that the legislation is being re-written secretly because it’s already out of date, and because the reforms didn’t go far enough to improve liveability for residents and owners,” Mr Bacon said. “So, there is no cavalry coming over the horizon anytime soon. Many high-rise buildings in Melbourne are highly exposed right now, and for the foreseeable future.”

The government has committed to releasing an “exposure draft” of an Owners Corporations Amendment Bill by June 30. A spokesperson for Consumer Affairs Minister Marlene Kairouz said: “We’re committed to working with the public to ensure the views of stakeholders and the community are carefully considered.”

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