Imagine moving into a brand-new apartment and 14 months later receiving a $9700 bill for hot water. That is the experience of one of thousands of people living in an apartment building with an embedded network, whose plight was put before a NSW parliamentary inquiry last year.

In theory, embedded networks allow for the bulk purchase of energy with savings being passed on to consumers. In reality, they have meant that apartment residents are paying exorbitant prices for energy and/or hot or chilled water with no prospect of escape. This is because the owners’ corporation is bound to a long-term contract with the embedded network operator.

Chris Minns and development controls for Sydney

The NSW government devised an “action plan”, but whatever they do will be like sticking their fingers in the holes of a disintegrating inflatable dinghy. Every time they plug one hole, another will appear. This is because governments never seem to have understood the legal basis for strata title and its inherent vulnerability.

When you buy a house in the suburbs, or more accurately, a freehold fee simple land title, the only money you pay is the purchase price to the vendor and rates to the local council. You will not find yourself compelled to engage your vendor’s cleaner or energy retailer for decades. This not an accident. It is the result of a fundamental principle of property law that you cannot sell a freehold fee simple and attach obligations to pay money to it. This fantastic rule allows us to enjoy autonomy and security in our homes.

However, it causes problems if you want to sell freehold fees simple in a high-rise building. The building will need to be maintained and that costs money. Enter strata title legislation. This compels people to pay annual levies for the upkeep of the building. Very sensible. However, uncontrolled, it potentially opens the floodgates to an unlimited number of charges. Luckily, as levies are set by owners themselves, they don’t tend to incur costs they don’t need.

Developers have no such qualms. They have consistently taken advantage of the other inherent vulnerability in strata: the owners’ corporation. While made up of all owners, it is a separate legal entity. That means that it can form contracts that owners must pay. Developers have used their power to force owners corporations to enter long-term contracts that benefit the developer and their associates. First it was contracts for strata management, then building management, then utilities, landscaping, stormwater, internet, and now embedded networks.

Many developers sign contracts with energy providers during the build, locking future strata residents into what might be excessively expensive bills.Credit:

These contracts are negotiated by the developer with the service provider, for a kickback. The longer the contract and the more it allows the service provider to charge the owners’ corporation, the more the service provider will pay the developer in cash or kind. The people who ultimately pay the contract, renters and homeowners, are nowhere to be seen because all of this is done before their apartments are constructed.

Governments have repeatedly enacted laws to limit these contracts, but it is like playing whack-a-mole. As soon as one is regulated a different kind pops up.