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A storm of pain is looming

28 Feb 2019

Editorial comment, by Shane Scanlan

The threat of short-stay operators taking over residential towers stems from a failure of government regulation.

Unintended consequences are flowing from ill-considered decisions as well as a general failure to recognise emerging patterns in inner-city living.

The result is a looming perfect storm which will likely result in residents being displaced and wholesale profiteering by an unscrupulous and determined small cohort of opportunists.

The three major regulatory problems are:

The state’s deliberate backing of the short-stay industry by failing to grant owners’ corporations (OCs) adequate control of their buildings. The just-enacted OC Amendment (Short-stay Accommodation) Bill 2016 formalises and legitimises short-stay letting in residential buildings;

The state’s failure to outlaw proxy farming. In investor-majority buildings, it is ridiculously simple for any individual to harvest a majority of votes to control an OC; and

Protection offered to short-stay operators under the Residential Tenancies Act. They are running a business, but the law protects them as if they are vulnerable renters. Some commercial operators are taking unreasonable advantage of this, effectively disenfranchising landlords.

The Victorian Civil and Administrative Tribunal (VCAT) is being clogged with cases brought by real estate agents pursuing unpaid rents by some short-stay operators. The “cat and mouse” games being played out are costing landlords thousands of dollars in legal costs.

In a current case, a landlord who succeeded in evicting a short-stay operator after months of unpaid rent is being sued for $40,000.

Owners’ corporation law is in serious need of an overhaul to reflect the realities of the 21st century. It appears legislators think they are dealing with how a small number of people living in blocks of flats in the suburbs interact.

But strata living will soon overtake detached housing as the default situation in Victoria.

And, in our part of the world, owner-occupiers are a vulnerable minority easily swept aside by proxy farmers determined to take over OC committees.

Take a look at Melbourne’s skyline. Pretty much all of these recent residential skyscrapers are owned by investors (either off-shore or domestic) who are motivated by financial return.

Why wouldn’t they give their proxy vote to someone promising to increase their profits?

These proxy farmers don’t need an actual connection with a particular building to end up in control.

And they don’t need many proxies in investor-majority buildings to achieve this. Low attendance at annual general meetings creates the opportunity.

They only need a relatively easily-acquired list of investor-owners with their addresses to get started. Once acquired, they either convince owners to grant proxies or simply fake their signatures on proxy forms.

Currently, there are few documented examples that this has happened. But that’s no reason to be complacent. A storm is looming and, unless the Victorian Government takes urgent steps to prevent it, the damage will be catastrophic.

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