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PENDING CHANGES TO THE ROLE OF BUILDING MANAGERS IN NSW – PART 1

BACKGROUND

The Strata Schemes Development Act 2015 and the Strata Schemes Management Act 2015 jointly provide the regulatory framework for the creation, governance and termination of strata schemes established in NSW.

Both of these Acts have been recently reviewed by the NSW Department of Customer Service and a report on the outcome of the review was tabled in both Houses of the NSW Parliament in November 2021.

Of particular interest is the section of the report dealing with Building Managers.

The Strata Schemes Management Act defines a Building Manager as a person who assists in exercising any one or more of the following functions of the Owners Corporation:

  • Managing common property;
  • Controlling the use of common property by persons other than the owners and occupiers of lots;
  • Maintaining and repairing common property.

The 2003 and 2015 strata reforms limited Building Management contracts to a maximum of 10 years (including options) and provided that both the entering into and the termination of contracts with Building Managers had to be approved by an ordinary resolution at a general meeting of the Owners Corporation.

The reforms also provided that the appointment of a Building Managers by the developer cannot extend beyond the date of the first AGM, and that a Building Manager must disclose any connection with the developer, or any direct or indirect pecuniary interest that the Building Manager may have in the strata scheme.

The recommendations noted that the current definition of a Building Manager encompasses a wide range of contractors – from concierges, gardeners, handypersons, and cleaners, all the way to facilities managers, who look after the facilities, maintenance and safety (including fire safety) in a complex multi-storey building.

The review noted the difference between strata schemes – small schemes that may simply engage outside contractors as needed to undertake repairs and maintenance of the common property versus large, complex, multi-storey schemes who often engage a person as a Building Manager, whose role is to manage the safety and maintenance of the building as a whole, as well as facilities including gyms, pools, lifts, and carparks.

The position of trust held by Building Managers in large schemes has led to suggestions that Building Managers should be subject to the same controls as strata managing agents. There is a belief that this would guard against conflicts of interest and ensure that schemes are not locked into contracts with Building Managers who are not competent or acting in the best interests of the Owners Corporation.

RECOMMENDATIONS

The report goes on to make the following recommendations in relation to these issues:

  1. Amend the definition of a Building Manager in the legislation to refer to a person who is contracted by the Owners Corporation to manage the overall maintenance, repair, and/or safety of a scheme’s common property. In this regard, they propose to conduct further consultation during the drafting of the new definition to ensure that it aligns with industry practice.
  2. Impose on Building Managers the following conflict of interest measures (that currently apply to strata managing agents):
    • Requiring disclosure of whether any entity seeking to enter into contracts with the Owners Corporation is connected to the Building Manager in some way;
    • Requiring disclosure of any referral fees or other commissions or benefits that a Building Manager may receive in relation to any contract that the Owners Corporation is proposing to enter into, before the contract is entered into;
    • Prohibiting acceptance of gifts or benefits valued at more than $60.00 – except for commissions and training services approved by the Owners Corporation;
    • Requiring reporting at each AGM of any commissions or training provided over the last 12 months and any expected over the next 12 months;
    • Imposing clear obligations to provide the Owners Corporation with disclosures about how any Owners Corporation money is paid out or received.
  3. Redefine other contractors who undertake work assisting the Owners Corporation to manage the common property as common property contractors.

 

TERM OF BUILDING MANAGEMENT AGREEMENTS TO REMAIN UNDER REVIEW

Whilst strata managing agents are subject to limited contract terms of 12 months for the first appointment (at the first AGM) and three years thereafter, feedback provided to the Government has suggested that limiting the initial terms for a Building Manager to 12 months is not practical. This is because the Building Manager would almost certainly not commit to properly setting up the systems and processes to manage the property if they have no security of appointment beyond 12 months. Other submissions argued that the limitation of contract terms for Building Managers to three years is also too short, and that it is in the interests of the Owners Corporation for the term to be longer.

While the Department of Customer Service appreciated these concerns, it also took the view that, as with strata managing agents, the concerns need to be balanced against the need to allow lot owners to reconsider the direction of the scheme in its early life, particularly given the vulnerability and lack of knowledge of lot owners at the first AGM.

Consequently, the review recommended that there be further consultation with the strata sector on what the appropriate limitations on contract terms for Building Managers should be. While the legislation currently prohibits a person connected with the developer from being a strata managing agent for a scheme for the first 10 years, the review does not recommend that this prohibition should apply to Building Managers. Developers often operate their own Building Management businesses, which are part of the overall development package and can offer savings and innovative services to Owners Corporations.

Hopefully, there will be no further shortening of the current 10 year term cap on Building Management Agreements!

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Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.