Thinking about a sea change? Beware the unlikely money trap

Thinking about a sea change? Beware the unlikely money trap,Greg Melloy decided to turn his Gold Coast holidays into a permanent escape from the rat race, but had no idea he was buying into a financial nightmare.

Thinking about a sea change? Beware the unlikely money trap

When Sydneysider Greg Melloy decided to turn regular holidays on Queensland’s Gold Coast into a permanent escape from the big-city rat race, he had no idea he was buying into a financial nightmare.

The former engineering business consultant bought an apartment, renting it out for holiday lets before moving in himself, but discovered the 25-year caretaking and management contract on the building turned the sea change dream into a money trap.

Former Sydneysider Greg Melloy is warning sea changers to beware of Queensland’s system of selling management rights on apartment buildings for up to 25 years.Credit:Paul Harris

Now Melloy, 67, has joined a chorus of angry and frustrated voices warning potential Sydney and Melbourne buyers – thinking of joining the pandemic’s mass migration to Queensland – to beware of the state’s system of selling management rights on apartment buildings for up to 25 years.

“The fees were so high I was making a financial loss, and since I was getting tired of Sydney and I was made redundant, I chose to move here instead,” said Melloy, who is on the executive team of the Unit Owners Association Queensland (UOAQ).

“I found the place is in a state of disarray as it’s not being looked after properly at all, but it proved impossible to cancel the management contract.

“After four years in the legal process and $400,000 spent on legal fees [between 124 units], our action was dismissed as we’d demanded remedial action from the manager ‘within 14 days’ instead of ‘within at least 14 days’. We can’t go through that again.”

Such contracts were usually sold by developers of apartment buildings as an extra source of revenue, but it left unit owners with zero input into their terms, no exit clauses and no say in who manages their buildings when the contracts are on-sold.

“It’s a major question of human rights,” said Laura Bos, general manager of the Strata Community Association of Queensland which represents body corporate managers, who said the cost can run to thousands of dollars over the period someone owns their apartment.

“In this state, unlike any other, apartment owners can be saddled with contracts for 25 years for site management services that have been sold to third parties by developers.

“And for unwary buyers, it means they can be stuck with contracts for years and years, paying thousands and thousands of extra dollars for services they might never receive and unable to choose which company they’d like to provide those services.”

The practice of pre-selling rights for up to 25 years – now outlawed in all other states and territories – is worth hundreds of millions of dollars every year and was introduced in Queensland in the 1980s in a bid to boost the tourism market.

It allowed developers to sell the rights to the highest bidder who would then become or install an onsite manager, often at inflated terms on a watertight contract.

The idea was that, with most owners non-resident, there would always be someone to look after the building. In return, they would have exclusive caretaking and, crucially, letting rights.

But now, with more owner-occupiers buying Queensland units, it can be an expensive snare.

About 225,000 Queensland units, mostly on the Gold Coast, the Sunshine Coast and in Brisbane, are under management rightsCredit:iStock

The Queensland government is conducting a review into management rights and is considering a range of reforms, but, even if introduced, they could be too late for people in buildings where long contracts exist.

A spokesperson from the Department of Justice and Attorney-General said: “The Working Group is currently considering issues in stage three of its four-stage work program, this includes consideration of management rights and the enforcement of caretaking duties.”

Currently, about 225,000 Queensland units – mostly on the Gold Coast, the Sunshine Coast and in Brisbane – are under management rights, the Strata Community Association Queensland estimates.

But the representative of the on-site managers, the Australian Resident Accommodation Managers Association (ARAMA), argues the system needs only minor reforms, and cutting back contract lengths isn’t one of them.

Chief executive Trevor Rawnsley said long-term contracts mean long-term efficiencies.

“The concerns about these contracts revolve around power and control, and organisations like the UOAQ (Unit Owners Association of Queensland) say owners feel helpless when they’re in these contracts,” Rawnsley said.

“[But] we maintain the length of the contract has nothing to do with performance. If you had a lousy manager, you wouldn’t even want them there for three years. But you can take actions like workplace performance reviews and tell them what you need. And an on-site manager is much more efficient than one off-site.”

Rawnsley said past controversies over some contracts, like one that included a fee for lift maintenance even though there were no lifts in the building, meant contracts had to be scrutinised better.

Greg Melloy in front of his Gold Coast apartment building.Credit:Paul Harris

But at the UOAQ, president Mike Murray said, “These are almost perpetual contracts, and we consider them such a big rort as the management rights of a building aren’t the developers’ to sell. It’s an arcane model … and we’d like to see a maximum three-year term for contracts.”

Murray said the UOAQ hopes the government will repeal the accommodation module, which turns homes into expensive hotels, gives owners little say in how their building is run, and devalues units.

Meanwhile, Greg Melloy feels trapped. “I can’t really sell as the price I’d get is much less because of how expensive the fees are,” he said. “It can take a tremendous toll on owners.

“I’m a Queenslander originally, and I had no idea this was going on, so other people should be very careful and look at all the contracts before they decide to buy an apartment here.”

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