by SMH | Aug 31, 2022 | Announcements, General Management Rights, Management Rights
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.
by SMH | Oct 9, 2021 | General Management Rights, Management Rights, NSW Management Rights, QLD Management Rights
NEW DISCLOSURE REQUIREMENTS FOR NSW SALES
and
WHAT QLD BODY CORPORATE RECORDS CAN BE ACCESSED
- New Disclosure Requirements for NSW Sales
Real Estate agents in NSW should be aware of a recent change to the Property and Stock Agents Regulation 2014 in relation to agents’ material facts disclosure obligations.
From 1 September 2021, agents must disclose any order that is in force under the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (the RAB) to prospective purchasers.
These orders can include a:
- Building work rectification order – requiring the developer or builder to carry out or refrain from carrying out building work to eliminate, minimise or remediate serious defects or potential serious defects, or
- Prohibition order – prohibiting the issuing of an occupation certificate for the apartment building, or its registration as a strata plan. The Building Commissioner may make such an order when:
- an expected completion notice was not given or was given less than 6 months before the application for the occupation certificate was made;
- an expected completion amendment notice was not given or was given less than 6 months before the application for the occupation certificate was made;
- a serious defect in the building exists;
- a building bond has not been given.
- Stop work order – to ensure building work stops due to the likelihood of significant harm or loss to the public or occupiers, or significant damage to property.
Agents who are aware of a material fact set by the regulations, or ought to reasonably know, and fail to inform prospective purchasers (whether intended or not), face a maximum penalty of $22,000.
NSW Fair Trading is introducing these changes to restore confidence in the residential construction industry and to make sure that apartments being built are trustworthy. The Department will continue its compliance and enforcement role to ensure real estate agents are meeting their disclosure obligations to buyers. This will include targeted audits of agents who are selling properties where RAB orders have been issued.
- Qld Body Corporate Records that may be Accessed
What constitutes a “record of a body corporate” is much broader than the compulsory list of documents set out in the Queensland regulation modules, and has ramifications for the duties of a body corporate and the breadth of access allowed to an owner or prospective purchaser.
The Three categories
Consistent with the approach of department adjudicators, the Queensland body corporate legislation in effect creates three categories of records:
- records that must be kept;
- records that should be kept;
- records that are
‘Records’ are defined to include the rolls, registers and other documents kept by the body corporate under the Body Corporate and Community Management Act (Qld) 1997 and applicable regulation module. They include paper and electronic documents.
What records must be kept?
The body corporate regulation modules set out a long list of documents that a body corporate must keep, with varying requirements about the length of time each document must be kept.
Examples of these documents are:
- accounting records for each financial year;
- insurance policies;
- orders made against or in relation to the scheme or body corporate;
- correspondence received and sent by the body corporate;
- minutes of committee and general meetings.
These are however, not the only documents that form part of the records of a body corporate.
What records should be kept?
A body corporate has a statutory duty to act reasonably in anything it does in carrying out its function given to it under the body corporate legislation and community management statement.
Acting reasonably, a body corporate would be required to keep:
- additional maintenance records;
- records relating to its obligations under workplace health and safety and fire safety legislation;
- any other document retained by the body corporate for the purpose of discharging its functions.
If records are not kept that are records that a body corporate, acting reasonably, should have kept, then a department adjudicator may find that the body corporate has not acted reasonably in responding to an owner or prospective purchaser’s request to access records.
Records that are kept
There are often records that are kept by a body corporate that are beyond the scope of records required to be kept under the body corporate legislation.
These records also form part of the records of a body corporate and an owner or prospective purchaser may be allowed to access these records.
However, there are ways that a body corporate may withhold access to records under certain circumstances, and if a body corporate is unsure as to what documents constitute body corporate records or how to withhold access its records, it should seek assistance before or during the seven day turnaround time for record requests.
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.
by Col Myers | May 26, 2021 | General Management Rights, Management Rights
PROS AND CONS OF POOLED LETTING
When an owner lets out their unit through an on-site letting agent, there are two ways that the owner’s letting income is typically calculated. These can be described as the “direct income” method or the “pooled income” method.
The method to be used is set out in the letting appointment (i.e. the agreement between the letting agent and the owner of the investment unit).
The majority of letting appointments pay an income to owners using the direct income method, where the income collected from the unit bookings is paid directly to the owner, after deductions of all expenses.
The pooled income method is used predominantly for short term lettings in a hotel style business. When using pooled income, the combined income and expenses for all units in the letting pool are aggregated and then a share of the profit is paid to all the owners in the letting pool.
In a perfect world, the pooling of income would seem the fairest way for Managers to operate their letting businesses. By pooling the income, owners can’t accuse the Manager of favouring certain owners over others when allocating bookings, and all owners rise and fall together with the success of the letting business. However, as we all know, we don’t live in a perfect world!
There are a number of common issues that can arise when operating a pooled letting business. The types of questions you will encounter include:
- How to fairly determine the income ratio? Do you allocate based on the number of beds, unit entitlements (which are designed to reflect value), quality of the unit, sea views or some other unique quality? Or do you divide everything equally regardless?
- How to share expenses? Do you share any or all expenses across the letting pool? Do you share expenses only up to a certain cost? Do you use the same ratio for sharing income to also sharing expenses?
- How to determine who authorises significant expenditure? Do you ask a committee or one or two owner representatives, or should you be asking all owners – as all owners are sharing the costs?
- How to operate a maintenance fund? Do you deduct a maintenance levy each month or just withdraw expenses as and when incurred?
- What happens when an owner leaves the pool or has only just joined the pool? Should part of the retained maintenance funds be returned to the leaving owner? What if an owner leaves the pool after the general maintenance fund has just paid out for a new hot water system or installed new carpet in their unit?
- How to adjust income when the owner uses their unit? Do you make no adjustment, or do you pro rata adjust for the days used?
- How to change the terms of the letting appointment? What do you do if not all owners agree to your proposed change?
If you elect to go the pooled income route with your letting business, all of the above questions need to be thoroughly considered and appropriately addressed in your letting appointments with your owners. Unfortunately, we see a lot of letting appointments providing for pooled income where the issues raised above are not sufficiently answered.
When these issues are not suitably addressed we see unfair scenarios arise where owners are not receiving an income that truly reflects their unit’s contribution to the letting pool income. For example, if two bedroom units are in demand far more often than three bedroom units, the owners of the two bedroom units are effectively supplementing the income of the owners of three bedroom units. To add insult to injury, if the distribution of the pooled income is based on unit entitlements (i.e. the value of the units), the three bedroom units will also receive a higher return from the pool than the two bedroom units.
When you look at the questions and examples above, you can see there are many situations where a disgruntled owner could easily start asking some difficult questions. Questions that will be uncomfortable to answer if the terms of your letting appointment are either vague or silent on the issue.
If you operate a letting business that pools the income given to owners and your letting appointment doesn’t have the answers to these questions, it’s definitely recommended that you prioritise a revision of your letting appointments, as it only takes an issue with one owner to be an issue with all owners.
Article Written by Col Myers (June 2021)
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.
GET IN TOUCH
Tel: +61 7 5552 6666
Fax: +61 7 5528 0955
Office: Level 2, 17 Welch Street, Southport Qld 4215
Postal: PO Box 1876, Southport QLD 4215
OFFICE HOURS
Open: 8:30am – 5:00pm Monday to Friday
by Ben Ashworth | May 7, 2021 | Body Corporate, General Management Rights, Management Rights, QLD Management Rights, Strata Law
WHAT IS GALLERY VIE?
What is Gallery Vie, and why is the caretaker wanting to vary the caretaking agreement?
Gallery Vie is the name of a strata building which was involved in a 2015 Queensland Civil and Administrative Tribunal (QCAT) decision that significantly changed how Body Corporate legislation was interpreted going forward. In particular it changed how termination clauses in caretaking and letting agreements are applied when the caretaker has taken out a loan and used the caretaking and letting business as security for that loan.
In the Body Corporate legislation, when a bank has provided a loan to a caretaker, the bank is granted a special ability to step in and take control of the caretaking and letting business in the event the Body Corporate intends to terminate the caretaking and letting agreements. This special right is intended to prevent disruption to the services being provided to the Body Corporate and provide comfort to banks to encourage them to invest in the caretaking industry. Without bank investment, the vast majority of caretakers would not be able to operate.
Prior to the Gallery Vie QCAT decision it was widely understood that a Body Corporate could not terminate a caretaking or letting agreement that was secured by a bank for any reason without first allowing the bank the opportunity to rectify the breach or step in and take control of the business. The Gallery Vie decision however came to the conclusion that if the caretaking or letting agreement included additional termination rights over and above the rights granted in the Body Corporate legislation, it was possible for a Body Corporate to terminate an agreement without allowing the bank the option to step in first. This outcome severely undermined the protections the banks thought they held under the legislation and immediately led to banks cancelling or limiting lending to caretakers who were affected by the precedent set by the Gallery Vie decision.
To address the banks’ concerns raised by the Gallery Vie decision and ensure that loans could continue to be offered to caretakers, most caretaking and letting agreements need to be amended to remove termination triggers that deny the banks the option to step in. These are triggers that allow the Body Corporate to terminate the agreements, such as:
- the caretaker becoming bankrupt,
- the caretaker having receivers appointed,
- the caretaker being convicted of a crime, or
- the caretaker becoming physically or mentally incapacitated.
By varying caretaking and letting agreements to remove the ability of these triggers to prevent banks stepping in, it returns the caretaking industry to the position it was in prior to the Gallery Vie decision (as originally intended in the legislation) and gives the banks the comfort they need to continue offering finance to caretakers. If the caretaking and letting agreements are not varied as required by the banks, the caretaker faces the prospect of losing their finance altogether or having to agree to finance on significantly less viable terms.
Article Written by Ben Ashworth (7 May 2021)
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.
GET IN TOUCH
Tel: +61 7 5552 6666
Fax: +61 7 5528 0955
Office: Level 2, 17 Welch Street, Southport Qld 4215
Postal: PO Box 1876, Southport QLD 4215
OFFICE HOURS
Open: 8:30am – 5:00pm Monday to Friday
