The Australian Securities and Investment Commission (ASIC) is unfairly hounding managers of strata investments who comply with the Managed Investments Act while allowing others to abuse the system, a Sydney lawyer claims.
Michael Teys, managing partner of Teys McMahon Legal, says the problems with strata investments stem from the exemptions ASIC has granted to three areas of these types of investment.
“ASIC has granted relief from compliance to three types of strata investments in particular. These, ironically, have been the very three areas which have caused most grief for strata investors – residential property investments, management rights arrangements and fixed return leaseback schemes,” he says.
“Despite attempts by ASIC to impose conditions on the relief from the law, these types of arrangements, because they are exempt, are the choice of those afraid of compliance.”
Teys says one of the reasons why ASIC has granted exemptions to the act is because the investment relates to residential property. He argues that if people are losing money through these exempted schemes, then they should be treated no differently to other strata investments.
The management rights arrangements in strata investments often refer to a room in a resort development with has been sold on inflated projects of occupancy.
“The disclosure statements issued for some tourism-related developments in response to the exemption have been farcical,” he says.
“Claims in disclosure statements for management rights like ‘the developer does not make any projection about the earning capacity of the apartment’ does not constitute adequate disclosure.”
Another area of concern is the markup on management services, such as 100 per cent for cleaning costs.
With some leaseback schemes the organisation leasing the strata development has the financial strength to undertake all the services promised which will enhance the investment. Teys says the exemption often means the leasing company doesn’t fully disclose its financial status which can be detrimental to the investor.
“The exemptions are being abused by developers and project marketers Australia-wide,” says Teys.
“Unfortunately all we are seeing from our national regulators at this stage is more regulation of those choosing compliance – and non-enforcement and relaxation of deadlines for those choosing exemption.”
