NSW Fair Trading launches inquiry into strata management company Netstrata following ABC investigation

Netstrata manages more than 1,000 apartment buildings across NSW. (ABC News)

The NSW government has announced an inquiry into one of the country’s largest strata management firms following revelations on ABC’s 730 that it was charging exorbitant insurance fees and taking an untold sum in industry kickbacks.

In March, Netstrata’s managing director Stephen Brell was forced to stand aside from his position as the state’s president of the strata industry peak body after he admitted the conduct of his firm, identified by the ABC, “made me feel really awkward”.

“I’m going to go back and look at our practices and make sure we tidy them up,” Mr Brell told the program at the time.

On Thursday, the NSW strata and property services commissioner, John Minns, released a statement announcing, “a review of Netstrata and its operations”.

“As more NSW residents choose strata living, it is essential they have confidence in the professionals they engage to manage what is often their most valuable asset,” he said.

“NSW Fair Trading is committed to ensuring a trusted and accountable strata sector and this comprehensive response to the issues raised demonstrates the commitment to achieving this.”

Although Fair Trading is the NSW government’s statutory regulator, the agency has appointed what it has described as “a third-party independent expert” to conduct the review.

A spokesman confirmed this expert was McGrathNicol Advisory.

The government’s statement said it would “support the integrity of this process” which would result in “a detailed report”.

The government did not commit to making the report public.

“The independent review will look at business structures, processes and systems, professional practices, fees and charges, commissions and incentives, and third-party relationships,” the statement said.

“Fair Trading reserves the right to take further regulatory action.”

The ABC has reported Netstrata was routinely using its wholly-owned insurance arm to charge apartment owners insurance brokerage fees as high as three times the typical rate – without routinely disclosing it to its clients.

The company’s financial returns show that since 2015, Netstrata has banked more than $21 million in brokerage fees, helping to generate profits over that period totalling almost $50 million.

It has also been taking kickbacks from contractors and suppliers it hires using the strata funds of more than 1,000 buildings, and 35,000 apartments, across the state.

Mr Brell told the ABC that these “referral fees” can be “as high as 15 per cent”.

“Some go higher,” he said.

Despite written pledges to identify these kickbacks in reports to owners, the company had failed to do so.

The ABC checked several annual reports that dated as far back as 2015 and found not a single referral fee mentioned; this failure was among the matters that Brell pledged in his interview with 730 that he would “tidy up”.

To the outrage of owners and advocates, the company’s conduct appears to have been permissible under NSW law.

Following the ABC’s report, Netstrata released an official statement addressing “the allegations made by the ABC which are of concern to Netstrata”.

“We take our relationships with our customers very seriously and understand that transparency is very important for our business and the sector,” it said.

“We do apologise to our customers that may be affected by any lack of transparency to date.”

The company promised “an immediate audit” and invited Fair Trading “to conduct a review of our practices”.

[STRATA FORM EMBED]