NSW Committee Members are wondering what their strata manager has to disclose regarding insurance commissions due to the new legislation. Also, is there a way to get out of paying strata management insurance commission? Mario Esera of HWL Ebsworth, Leanne Habib of Premium Strata and Tyrone Shandiman of Strata Insurance Solutions have provided the following responses.
Question: Our Strata Manager is an authorised representative of a Broker. They flatly refuse to admit to receiving any type of insurance commission. If they are receiving a commission, what do they need to report to comply with the new legislation?
I am the Secretary of a Strata Committee which comprises of five members.
Our Strata Manager is an authorised representative of an Insurance Group and Broker.
The Strata Manager insists, at every AGM, that they do not receive any Insurance Commission. Few of us are questioning that as a broker, they do not receive some sort of payback as we know brokers receive a commission or rebate of some kind.
We have also been told that the new legislation refers to transparency around commissions. If the Strata Manager is receiving insurance commission, what do they need to report to comply with the legislation?
In the contract between the Owners Corporation and the Strata Management Company, it states: This agreement has been prepared specifically for use by [this strata management company].
This Strata Management Company is not a member of SCA (NSW), nor use the Property Stock & Business Agents Regulation 2014 (2014).
This Agreement was handed to us to sign at the AGM which we duly did. As this is a lengthy legal document should we not have been given the option to take the Agreement home and read through it?
Answer: The wording of the clause would suggest that there is no offence under the Act.
Section 60 of the Strata Schemes Management Act, 2015 (NSW) sets out the requirements as per the below:
(1) A strata managing agent for a strata scheme must report the following at the annual general meeting of the owners corporation for the scheme:
(a) whether any commissions or training services have been provided to or paid for the agent (other than by the owners corporation) in connection with the exercise by the agent of functions for the scheme during the preceding 12 months and particulars of any such commissions or training services,
(b) any such commissions or training services and the estimated amount or value of any such commissions or training services that the agent believes are likely to be provided to or paid for the agent in the following 12 months.
Maximum penalty: 20 penalty units. It will be an offence for an agent to receive commissions or training services that are not of a kind permitted by the agent’s terms of appointment or approved by the owners corporation (see section 57).
Further, the Property Stock & Business Agents Act, NSW 2002 Section 55 states that a licensee is not entitled to commissions unless there is an agreement in writing which complies with the legislation etc.
While membership of SCA is recommended but not compulsory, the strata manager cannot avoid the operation of the Property Stock and Business Agents Act, 2002 (NSW) because a strata manager cannot manage an owners corporation or its property unless he or she is duly licenced under that Act.
You seem to suggest that the contract was not included in the agenda (which would have afforded you the opportunity to review its contents). This is not likely to be fatal to the legal effect of the contract – in future, we recommend you defer consideration of motions with which you are not adequately acquainted and request a copy of the contract prior to the meeting following receipt of the Notice of meeting.
This post appears in Strata News #240.
Question: Can a strata manager charge higher strata management fees if a committee decides to place the insurance independently of the strata manager? What is the connection between strata management fees and strata manager insurance commissions?
Can a strata manager charge higher strata management fees if a committee decides to place the insurance independently of the strata manager?
After finding a more competitive offer with another provider and advising the strata manager of our intention to place the insurance with this insurer, the strata manager advised “irrelevant of whether you use one of the insurance companies we obtained quotes from or not the commission payable to our office will still apply according to our strata management contract.”
The Competition & Consumer Act 2010 deals with the topic of third line forcing which states “Third line forcing occurs when a business will only supply goods or services, or give a particular price or discount on the condition that the purchaser buys goods or services from a particular third party. If the buyer refuses to comply with this condition, the business will refuse to supply them with goods or services.”
The Act also goes on to discuss other types of exclusive dealing.
Does the contract which requires us to either place insurance with the strata managers insurers, resulting in them receiving strata manager insurance commissions, or pay higher costs to the strata manager breach the Competition & Consumer Act 2010?
The strata manager insurance commissions clause in question:
1.3.1 Insurance Fee and Commissions
The Owners Corporation acknowledges that it has been fully informed by receipt of this appointment of the Manager’s arrangements with the authorising licensees listed in Clause 1.2 (or with various insurers if the Manager, or the Manager’s employee, holds an Australian Financial Services Licence) and that it has agreed that:-
220.127.116.11 the manager may receive or retain as a commission a percentage of the base premium payable by the Owners Corporation on the placing of insurance or the insuring of risk by the Owners Corporation;
Percentage of base premium payable 20% and/or fees disclosed in the applicable Financial Services Guide
18.104.22.168 if the insurance commission is less than 15% of the base premium paid by the Owners Corporation the Owners Corporation will pay to the Manager a fee being the difference between the commission received and the 15% of the base premium.
22.214.171.124 such commission shall be in addition to the fee for service set out in Clause 2.1.
Answer: The wording of the clause would suggest that there is no offence under the Act.
The wording of the clause would suggest that there is no offence under the Act.
The clause is also fairly well drafted, such that it could not be said to be misleading or deceptive.
It also seems unlikely that the clause contravenes the third line forcing provisions in the Competition and Consumer Act 2010 (Cth).
On the face, it appears that offering the discount on management fees is ‘exclusive dealing’ for the purposes of s 47(6)(c) of the Act.
However, the third line forcing prohibition will fail on two grounds as follows:
- It does not appear that the purpose of the clause is offering a benefit on a condition that the Committee acquires services from a preferred provider (and not a competitor). Rather, it seems to merely provide an incentive to take out insurance with the preferred provider in order to reduce management costs and thus fees; and
- The clause does not have the effect of substantially lessening the competition in the relevant market.
This post appears in Strata News #223.
Question: Our building insurance is due mid 2019. Is the Owners Corporation able to renew this themselves or must it go through the Strata Management Company? We would prefer not to pay our Strata Manager insurance commissions.
I am the Secretary/Treasurer for a small, inexperienced Owners Corporation in NSW.
We are one year into a three-year Strata Management contract and have discovered that our Strata Management is very expensive, gives poor service and is charging us unnecessary fees (though they are in the agreement). An example is they have been charging us a monthly defect management fee although we are a new building when in reality, our only defects where ones that required a small amount of carpet re-laid and a door seal replaced.
We have an AGM coming up. Our building insurance is due mid 2019. Is the Owners Corporation able to renew this themselves or must it go through the Strata Management Company? If possible, we would prefer not to pay our Strata Manager insurance commission.
At the moment, the Strata Management Company are receiving a commission on the insurance, which we agreed to. I have asked around other buildings and have been advised that, in some cases, their Strata Management gives the insurance commission back to the Body Corporate.
I brought this up with our Strata Manager who advised that the commission has to be paid to a “licenced person”. Is this correct? If possible we would like to put this commission back to our Capital Works Fund.
Answer: You need to check what your contract states with regard to strata manager insurance commissions.
Tyrone Shandiman: The decision makers, with regard to the insurance, is the Body Corporate committee and the committee are entitled to place the insurance with whomever they choose.
By practice, most strata managers will take a commission for the insurance policy they place and do not give it back to the body corporate as it is a revenue stream for them.
When the policy renews the committee may consider seeking alternative quotes with other providers who do not pay a commission to the strata manager and they may find this provides a saving for the owners corporation.
You need to check what your contract states with regard to strata manager insurance commissions. Although rare, we have seen some contracts state the strata manager is still entitled to a commission if the insurance is not placed with them.
Leanne Habib: If your strata manager uses the standard Strata Community Australia Strata Management Agreement, the commission’s position is outlined in clause 3.3 set out below:
3.3 In addition to the fees and charges in clause 3.1 and 3.2, the agent is entitled to remuneration for its services in the form of rebates, discounts and commissions disclosed in schedule C1 and schedule C2 as follows:
(a) If the first option in item 6 is selected, the agent may retain rebates, discounts and commissions paid to it by the providers of goods and services to the owners corporation described in the disclosure schedule C1 or schedule C2 or as otherwise notified in writing to the owners corporation from time to time and agreed in writing by the owners corporation.
(b) If the second option in item 6 is selected, the agent must pay to the owners corporation any rebates, discounts and commissions paid to it by providers of goods and services to the owners corporation within 30 days of receipt except for any rebates, discounts and commissions described in the disclosure schedule C2 which may be retained by the agent.
(c) If the third option in item 6 is selected, the agent must pay to the owners corporation any rebates, discounts and commissions paid to it by providers of goods and services to the owners corporation within 30 days of receipt.
(d) If the owners corporation:
(i) delegates the agent to arrange insurance cover;
(ii) selects the first or second option in item 6; and
(iii) later takes steps to arrange its own insurance or directs, instructs or passes a resolution that has the effect that the agent does not receive a commission or rebate for the placement of insurance, then the agreed services fee shall be increased by an amount equivalent to the commission the agent would have received had the agent arranged the insurance cover.
3.4 The agent must account to the owners corporation for money received by the agent on behalf of the owners corporation in the manner and with the frequency set out in item 8.
3.5 At any time, by written agreement between the parties, items may be added to or deleted from the additional services rates and/or charges.
So, whether or not the owners corporation or strata manager is entitled to receive insurance commissions depends on which option is selected in Item 6 on the front page of the contract.
This post appears in Strata News #218.
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Leanne Habib Bio: Leanne, co-founder of Premium Strata, is a licensed strata and community manager and a real estate managing agent with more years in the property industry than she cares to admit. Having previously worked in various senior management roles with large strata and community agencies around Sydney, Leanne has cultivated a niche in the Eastern Suburbs and North Shore. Full Bio & other articles by Leanne Habib.
Tyrone Shandiman Bio: Tyrone Shandiman began his insurance career in 2004 working in various roles within the financial services industry. In 2011, Tyrone established an insurance broking practice from his garage providing a wide ranging service offering for general insurance. Since then, the business has grown to service over 500 clients, with a team of three and a strong specialisation in strata insurance making up 80%-90% of all clients. Full Bio & other articles by Tyrone Shandiman.
These articles are not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
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