Question: To save fees, the other two owners in my three lot scheme want to cancel the strata manager’s contract and self manage. Can they do this?
I am 1 of the 3 Owners of a Strata Complex which is currently managed by a normal full-service Strata Manager.
To save on Management Fees, the other 2 owners are contemplating effectively cutting out the Strata Manager and self managing. I am totally opposed to this.
What are my legal options for stopping this from happening?
Answer: Unless the contract between the owners corporation and the strata manager is terminated lawfully, cutting out the strata manager may not save any fees at all.
Assuming there is a contract between the strata manager and the owners corporation, then the strata manager’s appointment and the contract can only be terminated in accordance with the contract and the law such as the Strata Schemes Management Act 2015.
The other 2 owners wish to “cut out” the strata manager to save on fees however unless the contract between the owners corporation and the strata manager is terminated lawfully, cutting out the strata manager may not save any fees at all.
A party to a contract is not free to terminate it simply for a change of mind to save money unless the contract expressly provides a right to terminate for convenience.
Most strata management contracts in NSW are likely to be based on the standard form contract of Strata Community Association (NSW). If so, then the only way the contract can be terminated and the strata manager’s appointment terminated is if either the term of appointment is coming to an end and the strata manager’s term is not extended or renewed, or the strata manager has breached the contract in a way that permits the owners corporation to terminate (this process requires the owners corporation to give the strata manager a notice requiring it to rectify its breach and if the breach is not rectified within 28 days, then the owners corporation can terminate).
Not every breach of contract allows a party to terminate, so you will need to study the contract carefully to see what process it contains for giving a notice of termination. To terminate for breach, the owners corporation must follow that process strictly.
If an owners corporation terminates a contract when it is not allowed to, then it is committing a breach of the contract called repudiation and it may expose itself to having to pay damages to the other party. The termination of a strata manager’s appointment must be authorised by a general meeting. Please see section 50(3) of the Strata Schemes Management Act 2015. The Strata Community Australia (NSW) standard form contract also requires a termination by the owners corporation for breach to be authorised by a general meeting. Therefore, a strata committee cannot terminate a strata management contract for breach.
If the other two owners in your case cause your owners corporation to terminate the contract with the strata manager when the owners corporation is not allowed to, then you should consider applying to NCAT for an urgent order to stop it from doing so.
The contract with and appointment of the strata manager usually does not prevent the owners corporation and its strata committee from carrying out management functions see also section 53(2) of the Strata Schemes Management Act 2015 which states to the effect that delegation of a function to a strata manager does not prevent the owners corporation exercising the function).
In your case, unless there is an express term in the contract prohibiting it, there is nothing stopping the other two owners from carrying out management and leaving the strata manager with little work to do. However, it is likely even if they do, the strata manager will still be entitled to its full fee even if it is doing less work. The contract may also provide that even if the strata committee or owners corporation itself takes out an insurance policy, the strata manager is still entitled to a commission as if it took out the policy.
Terminating a contract or commencing a case in NCAT concerning termination of a contract can be tricky legal business so before any party contemplates doing either, it should seek legal advice.
This post appears in the November 2021 edition of The NSW Strata Magazine.
Carlo Fini
Lawyer (NSW)
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