Shocking! How owners were ripped off for 3 years by $20,000 strata ‘manager loan’ and had to pay over $5,800 in interest and loan fees

In 2019 we assisted a development of 33 owners to change from a large strata management company based in Port Melbourne. We were shocked to find the previous manager provided the owner corporation with a loan of $20,000 in 2016 and had charged an interest rate of 17% in addition to loan administration fees. 


After reviewing the documents provided at the handoverwe discovered that the previous community manager didn’t seek the proper approval to raise the loans. They also failed to set adequate budgets which led to constant shortfalls and special levies Ultimately there was total breakdown of trust between owners and the strata management company. This was expressed as one of the key reasons why owners voted to change to Resi Body Corporate. 


Following the handover, we provided the Committee with a breakdown of the loan costs below: 

  • 2017: interest & fees of $1,399.17 
  • 2018: interest & fees of $3,374.64 
  • 2019: interest & fees of $1,038.43 

After the previous manager was notified of the change in management, they sought reimbursement for the total loan amount. A Regional Manager claimed the loan was provided by Macquarie Bank and according to the management agreement owners had to pay back the loan.  


Take a look at the contract for yourself: 

The previous manager couldn’t produce any official documents to confirm that Macquarie had provided this loan, and close reading of the contract confirmed that the loan was provided by the management company.  


In effect, the manager was acting as the financial lender It was clear that not only was this loan not approved by owners or the Committee, the loan should never have been provided in the first place! As a result, the owners corporation had no obligation to pay back the loan. 


If a management company can lend money to their owners (and charge thousands of dollars in interest and fees!)this leads to a situation where the manager no longer has the best interests of owners in mind. 


The strata manager is responsible for overseeing the arrears recovery process, proposing a budget at Annual General Meetings and for overseeing the expenditure of the owners corporation. How can a community manager do their job effectively if thecan charge exorbitant interest and fees as a result of poor financial management 


It just doesn’t make any sense and this practice should be banned. We would argue that it is unethical and contrary to the best interests of owners for any strata management company to become a lender to owners corporation as was the case with this property.  


If you are given the option of obtaining a loanmake sure you do your research! You need to make sure you ask for the following information: 

  • Who is providing this loan? 
  • What interest rate and associated fees? 
  • What are the terms and conditions of this loan? A proper loan will always have separate documents and contracts to sign  
  • What clauses are in the management contract that relate to this loan? Are there any agreements between the lender and manager? Does the manager receive any commissions or incentives for taking out the loan?


There are definitely circumstances when there is a genuine need for a loan. There are a number of specialist finance companies that specialise in the provision of loans to owners corporations to avoid any conflicts of interest.