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Manager profits from gas stored in our tank
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deesee2304
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10/01/2017 - 9:30 am
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Hi, I own a lot within a community title which is approved for commercial use where we run a restaurant. All other lots in the scheme are residential, mostly managed as holiday lets.  Below is a bit of the background of our issue explained with two questions at the bottom:

There is a reticulated LPG gas network (also known as an embedded network) installed in the community where gas is piped and metered to all lots.  The property managers are responsible for buying the LPG in bulk and then bill each lot for the usage.

As we run a commercial business, we've done a bit of research into the costs we are being charged and there is a significant difference between the costs we're charged and the rates available on the open market if we were to have our own LPG tanks.  This would reduce our costs by some 25%.  We have approached the property managers and asked if they would be willing to negotiate pricing with us but they declined and have shown no preparedness to even have a conversation about it.

We have approached the Executive Committee about the subject, they have not made any help in negotiating this, merely defending their right to make a profit margin on this as they would be investing large sums of capital to buying the gas in bulk and then on-selling.

Having done some research into this we've come across some potential beaches of Australian Retail Law, and little compliance with the regulations set by the Australian Energy Regulator.  Bringing these to the attention of the EC and the Property managers has only resulted in arrogant defense of their positions. '

We have put a request to have our own LPG tanks installed - as it is a change on the outside of the building, By-Laws state that approval from the EC must be sought.  The EC has voted yes we can do this but that we must have a new By-Law drafted at out own expense.  Little detail has been given to us about what they would like this By-Law to entail and they have refused us commissioning our own solicitor to make a draft due to conflict of interest.  We are deeply concerned about the potential costs we may be up for to simply get a utility supplied at the correct market price.

Question 1:  Do the EC have a right to enforce this and make us pay for the ByLaw where that itself could be in breach of Aust. Retail Law ?

 "Retail Law states that ‘exempt customers should, as far as practicable, be afforded the right to a choice of retailer in the same way as comparable retail customers in the same jurisdiction have that right’. In principle, all customers should be able to choose their energy retailer. We therefore do not support the creation of infrastructure that deliberately reduces a customer’s ability to exercise choice." - This is an exert from the AER guidelines.

Question 2:

Is there a way to enforce that the property managers charge us the correct rates anyway to save the costs of us separating onto our own supply?  I have had no assistance from the Ombudsman or the AER themselves as they claim to not deal with LPG - only Natural Gas or Electricity. 

“Exempt sellers who are selling to small, commercial or retail customers in embedded networks who do not have cost-effective access to choice of retailer are also not permitted to charge those customers more than the local area retailer’s standing offer.” 

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Lady Penelope
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10/01/2017 - 11:50 am
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 deesee2304 - The creation of this By-law will clearly impact on your business and any 'on sale' of your business in the future so it is best to get it worded correctly. You will need to seek your own legal advice on the wording of the By-law. Any owner who submits their own By-law for consideration by the Owner's Corporation organises and pays for any legal advice (if required) themselves. The Flatchat site includes several legal Contacts who would be able to assist you.

Once you and your solicitor have drafted the By-law you will need to submit it to the Secretary of the OC via the Strata manager to be included on the Agenda of the next General Meeting.

Another option to explore .... There are several bulk buying gas operators for strata in NSW. Perhaps you can make inquiries about their pricing and raise this as an alternative to your current provider in a Motion at your next General Meeting.

The powers and functions of an Owners Corporation are conferred on it by statute and are exercised for the ‘benefit of the owners’. You are an owner and have all of the rights with regard to fairness and equity as all other owners. 

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kaindub
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11/01/2017 - 2:09 pm
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Deesee2304

What do you mean the property managers buy the LPG and then bill each lot for the usage. I think it would be a badly worded contract if it allows the property managers to make a profit on the sale of the LPG. Is that the case?

Secondly, if you can buy the LPG at such cheap rates, why do you not point this out to the property managers and ask them to buy from your source? See what their answer is but perhaps there is some cosy 'deal' ging on here between the property manager and the LPG supplier

Robert

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deesee2304
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11/01/2017 - 3:47 pm
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Hi Robert

There is one large LPG tank on the site, the property managers are billed by Elgas to keep it filled and then they on-sell to all lot owners. There is a gas meter on each lot just like for natural gas in a suburban situation.  Being situated on the Mid North coast of NSW there is no natural gas provided in this region, it is all LPG.  It is what is known as an embeded network where they are acting as an energy retailer.  There is some very interesting reading regarding this on the following website.

https://www.aer.gov.au/retail-markets/retail-exemptions

I have raised my concerns of this with both the Property Managers and with the EC but they have failed to even acknowledge any of this! They have blatantly defended their right to make a profit on the on-selling of gas.  

Incidentally I have received quotes of supply from Elgas and Origin, both are very similar and Elgas is the current supplier to the site already.  The rep indicated unofficially that they would be paying the same or similar rates as I am eligible for therefore I would be confident the price difference is simply their margin.

The AER themselves were of little help when I contacted them as they said verbally that they don't deal with LPG, the NSW based energy ombudsman was the same, however they took the details of my complaint and said they would escalate it as it is not the first time they've come across this problem with LPG.  Interestingly all terminolgy within their website and publications there is no reference to LPG not being covered and the blanket term used is just "Energy".  Legally I don't see why LPG would not be covered by the same laws.

I strongly feel that the Property managers are particularly defensive about the topic as they would be making a considerable margin for the whole site and the EC seem to be supportive of this scheme.  There is no disclosure to the owners within the scheme of this which I am not sure is legal?

Any advice or suggestions would be greatly appreciated!

Cheers

D

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Lady Penelope
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11/01/2017 - 5:22 pm
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deesee2304 - See below for a link to info from a legal firm that may be worth reading. It relates specifically to QLD but may also be pertinent to your situation. 

The link states : An important proviso is that the amount charged does not exceed the amount "necessary for reimbursing the body corporate for supplying the services". The amount recovered can include costs of installation, maintenance and operating costs.

Some questions for you: What record does your strata scheme have of any Agreement(s) that may have been entered into? Who was(were) the Agreement(s) between? Was(were) the Agreement(s) correctly made?

There should have been a long trail of EC Meeting Minutes and OC Motions for you to discover how this deal was set up. 

Who owns the LPG tank?

Who has control of the LPG tank - the property manager? or the strata manager? Neither should have this control in my opinion.

Where is the tank located? Who owns the ground upon which the LPG tank sits?

Does the property manager pay a fee to the owner's corporation for the use of the site?

How long does the Property Manager's contract have to run? 

The LPG tank is probably located on common property and unless there is a separate agreement (e.g. a license) which has the endorsement of the owner's corporation via a Motion at a General Meeting then it should be the owner's corporation who owns and/or operates the LPG tank and/or the common property on which it sits.

http://www.gadens.com/publicat.....right.aspx

See also from SSMA 2015 Sections 71 and if you wish to mount an action against the building manager then see 72(3)(f).

http://www.austlii.edu.au/au/l.....x.html#s72

The Energy and Water Ombudsman NSW site states: We can investigate billing disputes about customers’ hot water consumption charges where a gas or electricity common hot water system is installed. Customers should contact their provider to try and resolve the problem first.

 

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JimmyT
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11/01/2017 - 6:13 pm
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And just to add another complication, if it's the Owners Corp that's making a profit, that has a tax implication that may not have been addressed.

I would be putting a motion to the strata committee that the whole question of the provision of gas be examined, including:

  • who owns the tank?
  • who profits from the re-sale of gas?
  • is this legal
  • is there a tax implication?
  • what are the options for all owners and tenants to have their gas bills reduced?

If the strata committee refuses to do this, tell them you will be seeking orders at NCAT compelling them to do so.
It may be that the facilities manager has a cost relationship with the strata committee and you are subsidising them (and everyone else in the block). Definitely worth checking out.

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deesee2304
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12/01/2017 - 6:38 am
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Thank you everybody for your replies thus far - very useful for us.  I can answer some of the questions made to the past two posts to add some clarification:

*The tank is owned/leased from Elgas, The pipes/meters to each lot are owned by common property I think.  The Tank is located on common property

*The Property managers pay for the bulk supply as the tank is filled by Elgas and then bill each lot holder accordingly on usage.  The gas bills are made out under the business name of the property managers.  It is the property managers who are profiting from this as part of their portfolio in the community.

* The property managers are owners of two lots in the scheme and represent one position in the EC.  Their role is twofold - managing the grounds and they also run the accommodation letting business - 35/43 lots are managed as holiday houses as we're in a coastal location.

*Whether this is legal or not is my deepest concern, the Australian Energy Regulator (AER) states that any business or person on selling energy like this example must have a retail exemption registered: see https://www.aer.gov.au/retail-markets/retail-exemptions 

I have looked closely on this site, they are not listed on the register as an exempt retailer and there is very little compliance to the rules set out in the guidelines.  There are 3 main points in the AER guidelines which I have pointed out the the property managers and the EC to which the response is silent:

            Page 6: Under the Retail Law, anyone who sells energy to people for               use at premises must have either a retailer authorisation, or a retail                 exemption.  

            Page 22: Choice of retailer

            Section 114(1)(b) of the Retail Law states that ‘exempt customers                 should, as far as practicable, be afforded the right to a choice of                     retailer in the same way as comparable retail customers in the same               jurisdiction have that right’. In principle, all customers should be able               to choose their energy retailer. We therefore do not support the                     creation of infrastructure that deliberately reduces a customer’s ability             to exercise choice.

            Page 25 “Exempt sellers who are selling to small, commercial or retail             customers in embedded networks who do not have cost-effective                   access to choice of retailer are also not permitted to charge those                   customers more than the local area retailer’s standing offer.”

The EC have maintained that they are agreeable to us separating from the existing network and gaining our own supply provided that we foot the bill of getting a By-Law drafted about it.  We're deeply concerned at the costs of what this could come to as they insist on choosing the Lawyer to do the work and are quite unclear about the parameters of what they want the By-Law to entail other than things around the location of tanks on the lot, visual changes, truck access etc.  All these aspects were provided to them by us in our original submission, there was agreement that there would be no changes to the visual aspects as they will be installed hidden in a utility area where skip bins are already stored.  The only other part of the by-law they intend to include from our knowledge is that no other owners would be permitted to change to their own supply should they intend on doing so.

In the last communication made to the EC, I mentioned that if we cannot come to an amicable resolution then we would have no option but to proceed to NCAT to have the matter heard.  The response was that we have a right to do so and suggested that NCAT would most likely back their side and they now intend to contact the insurers of the community title of our intentions and notify all owners in the scheme.

Cheers

D

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Lady Penelope
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12/01/2017 - 12:13 pm
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I can't understand why the Property Manager (PM) is buying the bulk gas or how the PM became involved. How was this authorised? Did this occur as part of some cozy deal with the Developer and the PM from the inception of the scheme? 

How long has this been going on?  Do you have access to a copy of the PM Contract with the OC - if this deal was part of the original developer's deal with the PM then what does it actually say in regard to this issue?

How long does the PM Contract have to go before it expires? If it expires in the very near future then you could encourage the OC to remove this element from any future PM Contracts and have the OC take over the responsibility of the bulk gas tank. This would cut out the profit making middle man (i.e. the PM) and make it cheaper for everyone. If you are being overcharged then it can be assumed that everyone else is being overcharged. Are other people concerned about possibly being overcharged? 

Is the PM paying their costs for operating this business within your OC? I would imagine that a bulk gas tank would impact on the insurance of the scheme. Who is paying for any additional insurance? Who pays for the repairs of the gas lines to the individual lots? Is the PM operating his business with permission from the OC via a Common Property Rights By-law, and if so what are the conditions? NB: The Tribunal can make an Order revoking a By-law (SSMA 2015 Section 148). Is the PM paying the OC to rent out the site on which the gas tank is situated? 

I believe that your assessment about the AER guidelines is correct. I believe that the PM and the OC know it too and that is why they are being obstructionists. 

From my experience with owning a lot within a scheme in which there was a PM who rented out 75% of the lots to holiday makers these PMs wield tremendous power over the lot owners under their control. The PM usually controls the EC and the OC. Each lot owner who lets their apartments through the PM lives in fear of retributions from the PM - the fear of losing holiday revenue if the PM accommodates holiday makers in other apartment where the owners are more compliant.

If I were you I would take this matter to NCAT. Your issue is complicated and contains references to other statutory bodies and other legislation which may be beyond our capacity to assist you with.  

The EC cannot dictate which legal firm draws up your Common Property Rights By-law (SSMA 2015 Section 142) or whom you seek advice from. It is beyond the power of the OC to do so.

Also, your by-law should not need to include any reference to any other lot owner being precluded from withdrawing from this current arrangement. Your By-law is a personal By-law for your specified lot only.

Try and get yourself on the EC so you know what is going on. You can nominate yourself.

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deesee2304
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16/01/2017 - 10:49 am
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Hi There

Thank you for the replies, 

Being that there is no disclosure of this being a profit source within the community and that there seems to be no compliance with the AER guidelines and the retail laws I am thinking that we should propose a full audit by an independent body as a agenda item in the upcoming AGM.

Would you please suggest any suitable firms you may know of that we could add as suggestions in this submission?

The existing PM bought into the site about 18 months ago, about 6 weeks before ourselves.  The previous owners had both the restaurant and the management rights under the one umbrella and split them in order to successfully find buyers.

My assumption is that the embedded gas system was one of the income sources presented to the current owners when they came in thus their determination to defend their position and keep this as an income source. This is just one example of things that were never set up properly from the beginning of this OC.

We are very concerned that the direction of getting a by-law in place will be a lengthy process, tiresome negotiations and will add up some considerable costs to simply gain a position of saving our business money on a utility bill at the end of the day.  

Thanks again

D.

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Lady Penelope
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17/01/2017 - 2:08 pm
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deesee2304 - What do you hope to achieve from the audit? I am not sure what the audit of your strata scheme books will achieve. If you are searching for the profit margin of the PM in the Audit then in my opinion the profit will not show up there.

From where I sit you have a couple of options - none will have a rapid resolution and all require a vote at a General Meeting with obvious uncertain outcomes:

(1) You propose a Motion to have the OC take over the responsibility of the gas supply for NO PROFIT. This may appeal to all owners as this will lessen the costs to each and every owner. If you have evidence of a comparison of costs with and without the PMs profit added then this should be a powerful argument. The PM will no doubt fight you on this and will send out messages to all of his holiday accommodation owners to affect the vote his/her way. The timing of this option depends upon the Terms of the Contract - and may only be possible towards the end of the expiry date of the Contract. 

(2) You have a by-law created that separates your gas supply from the scheme gas supply. 

(3) You take this matter to NCAT based on all that you have revealed in your previous comments. There could be a Conflict of Interest between the PM being on the EC and voting on any matters that concern his business or his profits. The PM should not vote on any matter relating to the gas supply at your scheme.

As part of any NCAT submission: Has the PM revealed their direct or indirect pecuniary interest as per SSMA 2015 Section 71 or are they refusing to do so?

STRATA SCHEMES MANAGEMENT ACT 2015 - SECT 71

Interests must be disclosed by potential strata managing agents or building managers

71 Interests must be disclosed by potential strata managing agents or building managers

 

(1) A person appointed as the strata managing agent or building manager for a strata scheme who has an interest that must be disclosed under this section must disclose the interest to the owners corporation before the appointment of the person.

Maximum penalty: 50 penalty units.

(2) The following are interests that must be disclosed to the owners corporation by a person:

(a) that the person is connected with the original owner,

(b) any direct or indirect pecuniary interest in the strata scheme (other than an interest arising only from the prospective appointment).

 

The Tribunal can vary or terminate the Building Manager Contract but only on application from the OC, not an individual owner.

72 Strata managing agent and building manager agreements may be terminated or varied by Tribunal

 

(1) The Tribunal may, on application by an owners corporation for a strata scheme, make any of the following orders in respect of an agreement for the appointment of a strata managing agent or building manager for the scheme:

(a) an order terminating the agreement,

(b) an order requiring the payment of compensation to a party to the agreement,

(c) an order varying the term, or varying or declaring void any of the conditions, of the agreement,

(d) an order that a party to the agreement take any action or not take any action under the agreement,

(e) an order dismissing the application.

(2) If the Tribunal makes an order terminating the agreement, the Tribunal may also order the strata managing agent or building manager to return to the owners corporation, within the period specified in the order, any documents or other records relating to the strata scheme that are in the possession of the agent or manager.

(3) The Tribunal may make an order under this section on any of the following grounds:

(a) that the strata managing agent or building manager has refused or failed to perform the agreement or has performed it unsatisfactorily,

(b) that charges payable by the owners corporation under the agreement are unfair,

(c) that the strata managing agent has contravened section 58 (2),

(d) that the strata managing agent has failed to disclose commissions or training services (including estimated commissions or value of training services or variations and explanations for variations) in accordance with section 60 or has failed to make the disclosures in good faith,

(e) that the strata managing agent or building manager has failed to disclose an interest under section 71,

(f) that the agreement is, in the circumstances of the case, otherwise harsh, oppressive, unconscionable or unreasonable.

 

NB: I have owned a property (a town house) in a strata scheme in which each owner had their own gas cylinder and was responsible for their own gas supply. Depending on the physical layout of your scheme is it possible for your scheme to do this? 

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JimmyT
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17/01/2017 - 3:20 pm
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Before you do anything else on this, you need to establish the fundamentals.

Firstly, who appointed the property manager, was it done at a general meeting and what are the terms of the contract? 

If this wasn't done properly at a properly convened general meeting, then the contract may be void.  Owners are entitled to view all records of the strata scheme, so get on to that.

Then also look at the contract for the supply of gas.  Who signed it? Again, was it agreed at a properly constituted general meeting? What are its terms?

If there has been some dodgy dealing, you can run a case at NCAT to do anything from forcing the strata committee to stop making a profit from the gas, to getting the property manager contract torn up, to having the statutory appointment of a strata manager to take over the running of the building.

But first you need to establish who has behaved badly and precisely how.  

By the way, conflict of interest laws only mean that the compromised owners have to declare themselves, then be absent while the committee decides whether or not they can attend the meeting during that specific discussion and vote on the topic.  If the committee is onside with them, they are just going to wave that through. 

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JimmyT
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17/01/2017 - 4:43 pm
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I had forgotten one very important step which may, in fact, hold the answer to this:  Mediation.

Not only do you need mediation before you can take most issues to NCAT, it could provide you with the opportunity to get everything out on the table and reach an amicable solution.

In the first instance, ask the secretary to arrange a mediation with an independent mediator (preferably one who understands strata law).

Failing that, apply to Fair Trading for an official mediation.

Even if that fails, you have ticked the necessary box to allow you to proceed to NCAT. 

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