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Can a Body Corporate deduct money from a Caretakers remuneration

CAN A BODY CORPORATE DEDUCT MONEY FROM A CARETAKER’S REMUNERATION?

It depends on the terms of the caretaking agreement.

Caretaking Agreement

Some caretaking agreements allow the body corporate to recover the costs of rectifying a default of the caretaker by deducting the costs incurred from the caretaker’s remuneration.

If this type of clause is in a caretaking agreement, the body corporate must usually do 3 things before it can deduct money from a caretaker’s remuneration:
1. Prove that there is a default (eg that the caretaker did not clean the pool or common foyer area);
2. Do something to fix that default (eg hire a cleaner to clean the pool or common foyer area); and
3. Incur costs to rectify the default (eg the cleaner charges $330.00 to perform the cleaning duties usually performed by the caretaker).

In this scenario, the amount that may be deducted would be limited to the costs incurred and not an amount to represent general compensation or damages to the body corporate.

Repudiation

If there is no such clause in the caretaking agreement, the body corporate may breach the caretaking agreement if it decides to deduct the caretaker’s remuneration.

That is because the body corporate has a contractual obligation to pay the caretaker remuneration, and a failure to pay the full remuneration can show an intention to not be bound by the terms of the caretaking agreement.

At law, this is called repudiatory conduct.

This repudiatory conduct, if accepted by the caretaker, entitles the caretaker to sue the body corporate for damages for breach of contract.

Depending on the nature of the caretaking agreement and the repudiatory conduct, the amount of damages that can be recovered from the body corporate can amount to hundreds of thousands of dollars.

What to do?

If your bodies corporate are having issues with their caretaker, there may be other ways to address the problem. Those other avenues should be explored. If deducting the caretaker’s remuneration is desired, the body corporate must only do so within the bounds of the caretaking agreement to avoid the risk of a potentially expensive damages claim.

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

Lessons for Building Managers from a Recent Court Case

WHAT NOT TO DO AS A BUILDING MANAGER

BACKGROUND

A recent decision of the NSW Civil and Administrative Tribunal (NCAT) has provided Owners Corporations in NSW with what is now seen as a more “risk free” pathway to terminate a Building Management Agreement.

Until recently, if an Owners Corporation was not satisfied with the performance of its Building Manager, it has been usual practice that the Owners Corporation would commence legal action to terminate the Agreement, by alleging that the Building Manager was in substantial breach of one or more of the Agreement terms – or failed to satisfactorily perform the building management duties under the Agreement.

The danger however with this approach has always been that if the Court later decides that the Building Manager was not in substantial breach of the Agreement, the Owners Corporation is then liable to pay substantial damages to the Building Manager for the wrongful termination of the Building Management Agreement.

SECTION 72 OF THE STRATA SCHEMES MANAGEMENT ACT 2015
1. an order terminating the Agreement,
2. an order requiring the payment of compensation to a party to the Agreement,
3. an order varying the term, or varying or declaring void, any of the conditions of the Agreement,
4. an order that a party to the Agreement take any action or not take any action under the Agreement, or
5. an order dismissing the application.

The section further states that NCAT may make an order under this section on any of the following grounds:
(a) that the Building Manager has refused or failed to perform the Agreement, or has performed it unsatisfactorily,
(b) that charges payable by the Owners Corporation under the Agreement are unfair,
(c) that the Building Manager failed to disclose that he had a direct or indirect pecuniary interest in the strata scheme, or was connected to the developer, and
(d) that the Agreement is, in the circumstances of the case, otherwise harsh, oppressive, unconscionable or unreasonable.

THE CASE

The strata plan in this matter was registered in January 2001 and covered two buildings in Ultimo, Sydney that were originally developed by Meriton. In October 2000, Meriton sold the caretaker management rights to a building management company which has had control of those rights since that time. However, for whatever reason, the Owners Corporation did not receive a full copy of the Building Management Agreement until 2020!

When the Owners Corporation eventually reviewed the Building Management Agreement, they discovered that the Agreement only provided for annual increases in management fees in accordance with the CPI. The building manager however, had been charging annual increases of 5% – since October 2000.

The Owners Corporation was also dissatisfied with the performance of the Building Manager and ultimately commenced proceedings in NCAT, seeking an order that the Building Management Agreement be terminated pursuant to s72 of the Act. Specifically, the Owners Corporation sought an order on the basis of several parts of s72, including:
• that the Building Manager had performed the Agreement unsatisfactorily;
• that the charges payable by the Owners Corporation under the Agreement were unfair;
• that the Building Management Agreement was, in the circumstances of the case, harsh, oppressive, unconscionable, or unreasonable.

WHAT THE BUILDING MANAGER DIDN’T DO

On my reading of the case, the Building Manager made a lot of mistakes that would have been avoided, if they had read and understood their Agreement.

For example, the Building Manager:
1. refused to provide the Owners Corporation access to CCTV footage;
2. failed to provide keys when requested by the secretary of the Owners Corporation;
3. failed to provide the Owners Corporation with a proper copy of the Building Management Agreement until 2020;
4. had been charging the Owners Corporation based on 5% annual increases, instead of the CPI increases as specified in the Building Management Agreement;
5. allowed the principal of the Building Management company to be a member of the strata committee, although prohibited under the Building Management Agreement;
6. allowed its employee to improperly commence and pursue Supreme Court proceedings in the name of the Owners Corporation, attempting to prevent the 2020 AGM from going ahead, without proper authority or instructions; and
7. had, through the conduct of the principal and employees of the Building Manager prior to the 2020 AGM, falsely represented that the AGM had been cancelled, which conduct was allegedly borne out of a desire to control the Owners Corporation, rather than to serve the Owners Corporation, as required by the Building Management Agreement.

THE DECISION

The finding in this case was that the Building Manager had failed to perform the relevant Agreement satisfactorily, and that the Building Management Agreement, in the circumstances of the case, was harsh, oppressive, unreasonable or unconscionable.

TAKEAWAYS
• This sounds really basic, but always have a 100% understanding of what your duties are under your Building Management Agreement and don’t deviate from the performance of those duties.
• Although not relevant to this case:
(a) Diarise your option exercise dates and don’t miss them. If you are one day late, you lose the ability to exercise the option (and later options) and your remaining term falls away.
(b) Stay in regular touch with your owners by way of a newsletter. Let them know the good things that you do at the complex and remember, you only need 51% of those owners that vote at a meeting of the Owners Corporation (or Body Corporate) to extend the term of your Building Management Agreement.
(c) Wherever possible, maintain good lines of communication with your committee and strata manager.

Article Written by Col Myers of Small Myers Hughes Lawyers

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

COVID-19 Measures for Strata and Community Schemes Extended

NSW COVID-19 MEASURES FOR STRATA AND
COMMUNITY SCHEMES EXTENDED

The NSW Department of Fair Trading has recently announced that the State Government has extended its temporary COVID-19 emergency measures for strata and community schemes to 29 September 2022.

This means that strata Owners Corporations and Community Land Associations can continue, until 29 September 2022, to:

• meet and vote electronically, without passing a resolution to authorise this beforehand;
• validly execute documents, without affixing the seal of the Owners Corporation or Association.

The previous temporary measure of allowing certain documents to be sent by email has not been extended because of changes made by the COVID-19 and Other Legislation Amendment (Regulatory Reforms) Act 2022 (the Act) on 24 March 2022. The changes mean that an Owners Corporation and Association can send documents to an email address nominated by a lot owner, lot occupier or another person on the roll.

The Act makes other permanent changes to the strata and community scheme laws on ways of voting and using an electronic seal. These changes are currently expected to start on 30 September 2022, once supporting regulations are made.

The measures allow Owners Corporations and Community Land Associations to continue operating as they have been during 2020 and 2021, until the permanent changes commence.

NSW Strata Scheme Reporting

All strata schemes in NSW will have to report annually to NSW Fair Trading through a new strata portal by 31 December 2022.

The reporting will make it easier to access key strata information, and it will deliver a range of benefits. For example, emergency services will have access to a dedicated contact for each scheme in the event of an emergency.

The Department of Fair Trading will be implementing the portal’s functions in stages. From July 2022, Owners Corporations can register a scheme, set up a profile and access educational webinars. More features will be added in the following months.

Strata communities in NSW can now start to prepare for the reporting now by:

• knowing what information you’ll need to report and where to find it;
• deciding who will do the reporting and who will be the emergency services contact.

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

2022 08 Aug - COVID-19 Measures for Strata and Community Schemes Extended

Two Common Misconceptions about Withholding Access to Records

TWO COMMON MISCONCEPTIONS ABOUT
WITHHOLDING ACCESS TO RECORDS

Take the following real-life example (and assume that the person satisfies all eligibility requirements):
• An ‘interested person’ or committee member starts, or threatens to start, a legal proceeding against the body corporate.
• Shortly after, the person then requests access to the financial records of the body corporate, including profit and loss statements, bank statements, tax invoices, voting papers approving expenditures, and balance sheets.
• The body corporate believes the person is fishing for information to help them in the legal proceedings.

Can the body corporate withhold access to these records?

Grounds

There are only two recognised grounds on which a body corporate may withhold access to its records.

These are:
• a legal proceeding between the body corporate and the record requester has started or is threatened, and the records are privileged from disclosure;
• the body corporate reasonably believes a record contains defamatory material.

Legal proceedings and privilege

If a legal proceeding (which would include an application to the Commissioner’s Office) between a person and the body corporate has started or is threatened, that alone is not sufficient to allow a body corporate to withhold access to its records.

The records must also be privileged from disclosure.

Unless those financial records in the above example are also privileged from disclosure (which we would think unlikely, although privilege does need to be assessed on the circumstances of each case), the body corporate would not be entitled to withhold access to those financial records.

Defamatory material

The ability of a body corporate to withhold access to its records based on there being defamatory material applies regardless of whether the requester is a committee member or an ‘interested’ person.

If a record, or part of a record, is reasonably believed to contain defamatory material, it does not mean that other non-defamatory records cannot be accessed.

The body corporate must have a ‘reasonable belief’ that a record contains defamatory material. A ‘reasonable belief’ is more than a guess, and would usually be a belief based on:
• legal advice;
• other expert advice.

It could arguably also be a belief based on, at a minimum, the committee members viewing the records and, acting reasonably, resolving to withhold access to certain records on the ground of the records containing defamatory material.

What does this mean?

A body corporate may not withhold access to its records solely because the records are confidential, or legal proceedings have been started or threatened.

The records must be privileged from disclosure, or there must be a reasonable belief that the records contain defamatory material, to entitle a body corporate to withhold access to its records.

Getting this wrong could lead to a dispute resolution application in the Commissioner’s Office, so it is important to obtain early, tailored advice about the obligations of a body corporate to allow access to its records.

Article Written by Brendan Pitman (19 July 2022)

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.