NSW: Building Management Agreements: Three tips for negotiations

This article offers three key tips for strata and community schemes looking to change their building management agreements in 2025.

The new year (2025) seems to be bringing change for a number of my clients in relation to their building management agreements. Some are very happy with their current managers, some want to test the market and others are very much looking to change managers. This blog considers three key tips when looking to change your schemes management agreement.

The first tip, and this is a no brainer for me but often gets put aside in the rush when the current incumbent’s contract is about to expire: know your dates. This is vital so that you have time to adequately prepare. It really is crucial. One of the very first things a new committee member should ask is when scheme’s strata/community management agreement and when the building management agreement (or facilities management agreement) is due to expire. If you do not know, ask for a copy and diarise key dates such as (a) the commencement date, (b) the date to exercise any option (if any) and (c) the expiration date if an option is not taken up. Then, diarise at least 6 – 9 months before the option term needs to be exercised or the expiration date. The larger or more complex your scheme the longer this lead in time should be. The 6 – 9 months before the expiration or exercise of any option is when you should start preparing. This leads onto my second tip.

Tip 2: Preparation can be painful but doing the leg work will pay off. What should you be considering? Look at:

1. what notice period is required for any option and who can exercise the option. For instance, is it automatic upon the building manager providing a notice to the scheme or does the scheme have to do something to exercise the option?
2. what options are there for the contract to roll over? In NSW the term of a contract is strict. A building manager can only be appointed either up until the end of the first annual general meeting or for a period of 10 years: (s68 Strata Schemes Management Act 2015 & s72 Community Land Management Act 2021).
3. If you want to continue with the same manager, is a new agreement needed? Are the references to the legislation correct?
4. Does the scheme want to provide for an option term in the new agreement?
5. Are lot owners happy with the services provided and the resources provided to undertake these services? If not, what services do they want to change and what services do they want to remove from the contract for instance, do you want a representative on site 24 X 7 or is the building manager only required to have staff on site for a certain number of contact hours, e.g. 40 hours Monday to Friday and then be contracted to be available within set time frames outside of those hours? Are the duties to be performed specific enough in the agreement? Also, does the scheme want a particular key person on site most of the time and what obligation is there on the contractor to facilitate this?
6. What authority does the scheme want to give the building manager to spend money on its behalf? For instance, in an emergency can they engage contractors up to a set dollar value?
7. What rights are required in relation to being able to terminate the agreement or if the building manager wanted to sell their business and transfer it to a new owner?
8. What performance standards are required? Will there be a performance bonus if key performance indicators are met? How often will these be measured and by who? What is the process around this?
9. Price. The services provided and the resources required will be key to the contract price and could be the subject of a tender to determine market price. Whether or not the contract will have price reviews should also be considered. For instance, is a CPI increase preferred over a market review? How often will the price be subject to a review?

Tip 3. This may be contentious. Often a scheme will simply ask the management company to provide a contract. However, if the scheme wants to compare apples with apples and be on the front foot, the scheme should have a draft contract prepared complete with a list of duties and resources required of a manager that it can use for a tender. This does not mean that the contract is set in stone but it does mean that when obtaining pricing from competing building / facilities managers, you have a basis for the pricing and can more easily compare their responses.

Happy negotiating!

This is not legal advice. If you are negotiating a new management agreement, interpreting or considering terminating one then you should seek legal advice tailored to your situation.

Allison Benson
Kerin Benson Lawyers
E: [email protected]
P: 02 4032 7990

This post appears in Strata News #729.

This article has been republished with permission from the author and first appeared on the Thoughts from a Strata Lawyer website.

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