The Pros & Cons of Self Managed Body Corporate

These post about self managed body corporate have been supplied by Lisa Rutland from www.mybodycorpreport.com.au, Allison Benson from Kerin Benson Lawyers and John Fisher from Strata Water Solutions.

Queensland: Can I Manage My Own Strata?

You can’t search records for very long without coming across a self managed body corporate and for me, it’s always a stressful moment. It usually means a more difficult job for me.

Which is not to suggest that there are necessarily issues with the scheme. The problems I experience are more to do with amateurs working in a field dominated by professionals, with the most common issue being access to the records.

In fact, many body corporates self-manage admirably well and have strong, vibrant and above all involved communities.

Others, well not so much.

This article explores the pros and cons of self-management.

What is Self-Management?

A self managed body corporate is one that is managed completely by the lot owners themselves, or more specifically the elected committee.

Can they do that? Certainly.

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Body corporate legislation in Queensland is set up to ensure that lot owners can manage their own affairs. There is a whole structure to facilitate just that: the Chairperson, Secretary and Treasurer, the office holders.

Each office holder has a specific task and area of responsibility which all work together to ensure the body corporates needs and legislative requirements are met.

Body corporates are “allowed” to hire a body corporate manager to undertake some of those tasks for the office bearers, but it is not compulsory.

Even when a management firm is appointed that doesn’t diminish the powers of the committee in any way. Hiring a body corporate manager is more like appointing a personal assistant / accountant / industry adviser.

NSW: A Game of Thrones OR A Game of Knowns? Self Managed Strata Schemes V Strata Managing Agents

What Tasks Need To Be Done?

All body corporates work the same, from the very large to the very small. There are differences dictated by the regulation module applying to each scheme but for the most part, the following tasks must be completed:

• Curate the body corporate records and make them available to “interested parties”
• Issue section 205 Information Certificates and, if desired*, disclosure statements
• Issue levy invoices, collect levy payments and chase overdue levies
• Manage cash accounts including payment of invoices, production of financial reports and tax requirements
• Run general meetings in accordance with legislation including nominations, agenda, running the meeting, collating votes and minutes of meeting
• Run committee meetings in accordance with legislation
• Implement committee / body corporate decisions and follow up works
• Manage all communications and deal with disputes

It’s a lot of work. Why would lot owners take on all this work instead of simply paying someone to do it for them?

The Pros of A Self Managed Body Corporate

There are a number of benefits of self-management, even given the amount of work.

Lower Levies

The biggest benefit of self-managing your own body corporate is lower fees. If you don’t have to pay a manager because you’re self-managing you lower the body corporate’s outgoings and consequently the amount of yearly levies to be collected.

How much lower levies?

For a small building, the cost saving could be as much as 50% of administrative levies, maybe even more. All schemes are very individual so it will depend on how much you’re currently paying for your manager.

QLD: Q&A Calculating Average Levies and Sinking Fund Amounts

Residual Revenue from Documentation

All body corporates are required to provide section 205 Information Certificates to purchasers and allow strata searches. They may also issue disclosure statements*, all tasks that generate small amounts of revenue.

Most management agreements direct those revenues to the body corporate manager since they are actually producing the documents. If the records are self-managed then someone on the committee will be responsible for producing documents and the revenue generated is paid to the body corporate.

Issues Resolved Quicker

One of the most common complaints about body corporates is how long it takes to get anything done. Unfortunately, it’s one of the key drawbacks of managing by committee.

In practice, those time frames are extended because in effect everything is funnelled through the body corporate manager. It’s a boon for capturing information and ensuring compliance but a drawback for speed.

If the people making the decisions are also the people actioning those decisions that extra layer of communication is removed. The end result; quicker decisions and actions.

Less Red Tape

Body corporate managers have strict codes of conduct they must adhere to when undertaking work on behalf of a body corporate.

Self managed body corporates are not subject to the same codes of conduct. They still need to meet legislative requirements however without the extra requirements of service providers.

Combine that with fewer communications and the end result is less to record.

More Effective Project Management

If you’ve arranged, communicated, corresponded and discussed all aspects of a project then you’re the person in control of the project. You’re also more in a position to make changes, eliminate extraneous steps and catch problems due to familiarity.

Having a “point person” in control of a project is one of the most powerful ways of ensuring the success of a project which is why the role often falls to the Building Manager if the scheme has one.

Self-managing the body corporate automatically puts project management in the hands of the committee.

More Control

Body corporate managers exercise a fair amount of control over body corporates through control of the money, the advice they give the committee and tasks they simply won’t undertake.

Taking out that layer devolves that control back to the committee and lot owners who’re now in a position to make their own decisions based on what they want first and foremost rather than whether it fits legislation.

That last sentence does not fill me with confidence which is why more control is actually as much a con as it is a pro.

The Cons of A Self Managed Body Corporate

More Chance of Disputes

Body corporate managers advise. They are industry professionals and they advise committees based on their understanding of the legislation and regulations.

It’s also a form of control of the body corporate.

Take that away through self-management and the committee is effectively left to their own devices. They make whatever decisions they want regardless of whether or not the decision is legislatively correct.

Potentially it exposes the body corporate to more risk.

Lack of Necessary Advice

Managing a body corporate is not hard. It’s time-consuming and can be frustrating but generally speaking it’s mostly administration.

Whoever is managing the records will need to set up their own minute and agenda templates and so on. They will also need to find help for industry based questions.

Help can be obtained from the Commissioner Body Corporate & Community Management but it’s unlikely to be the laser targeted “yes or no” advice a professional manager would give.

What is a Strata Inspection Report?

Lack of Industry Knowledge

One of the big issues I face is those who self-manage body corporates don’t always know what a search agent is. I find myself in the position of persuading them to let me see the records.

From my perspective, it’s a minor problem that sometimes leads to conflict.

For the body corporate it has wider implications. Not specifically in terms of searching, because a missed search is not the end of the world, but how many other things, legislative requirements, are being missed.

Lack of Levy Increases

Body corporates are entities the same as everyone else and their dollar goes the same distance as yours or mine. For instance, my power bills have gone up considerably recently. The same will be true for a body corporate which means increased levies.

A lot of self-managed body corporates put unnecessary emphasis on keeping levies low or static. Long term it can destabilise the body corporate’s financial position and results in large levy jumps.

What is the Difference Between the Strata Administrative Fund and Sinking Fund in Queensland?

Lack of Record Continuity

Lots are bought and sold in buildings all the time. Lot owners come and go.

Which is a problem if that lot owner just happened to be managing the body corporate records. The body corporate now needs to find someone else to manage the records, or the poor purchaser finds they’ve inherited a job.

Owners come and go but the body corporate endures and the body corporate records are an important part of that longevity. Unfortunately being self-managed puts more emphasis on the need for adequate record keeping.

Committee Dominated By One Person

This is something that all body corporate’s face but is particularly a problem for those who are self-managed.

Body corporates are managed by the lot owners for the lot owners. Sometimes situations arise where one person is on the committee and manages the records and they just become “the body corporate”. Management becomes less about communal good and more about what this one person wants or doesn’t want for that matter.

CONCLUSION

Self-management is a viable choice for some body corporates, in my experience mostly smaller schemes. Larger buildings have more complex issues and needs for which a body corporate manager is still best.

That said, self managed body corporate is becoming more and more common as lot owners are becoming more aware of their needs and skills. It’s only a matter of time before the industry will respond with tools to eliminate the cons and help owners self-manage their body corporates.

*Section 206 disclosure statements relate to Queensland body corporates only. Managers do not need to supply disclosure statements. They can but some managers elect not to.

Lisa Rutland
Body Corporate Record Searching & Reports
Email: lisa@mybodycorpreport.com.au Phone: 0415 818 261 Web: www.mybodycorpreport.com.au

NSW: A Game of Thrones OR A Game of Knowns? Self Managed Body Corporates V Strata Managing Agents

I was recently briefed to advise a lot owner in a strata scheme. The owners corporation had been self managed for a number of years. The lot owners had started with good intentions but the strata scheme was a microcosm of the politicking in HBO’s Game of Thrones hence the title of this blog.

While it may sound like a great way to save costs, retaining a licensed strata manager should be seen not as a cost but as a sound investment. Why?

1. Decision Making. What many lot owners don’t realise is that an owners corporation can only make decisions at either a general meeting or an executive committee meeting. Holding a valid meeting is harder than it sounds as there are requirements for meeting notices and notice periods must be strictly complied with otherwise the meeting can be later be challenged and held to be invalid. Competent strata managers have the required knowledge to prepare valid motions and meeting papers and the time and resources to do so. Further, strata managers are also generally empowered to act in an emergency.




2. Knowledge. Managing a strata scheme is technically complex. One of the key tasks of a strata manager is to advise lot owners and the executive committee on their responsibilities and to ensure that all legal requirements are met. Importantly, licensed strata managers must undertake a certain amount of training each year to remain current with legislative changes. Unfortunately, many lot owners and executive committee members are unaware of what they are required to do/not do and have never undertaken any training. As an example, recently an executive committee member told me it was okay to add motions to the agenda at the general meeting and that they had done this for the past couple of years. This is both in breach of the Strata Schemes Management Act 1996 (NSW) and unfair to other lot owners both those who are in attendance who then can’t consider the motion / new information in their own time but also to lot owners who aren’t in attendance.




3. Money & Trust. Managing a strata scheme involves managing the finances of the scheme and handling trust money. How well do you trust your neighbours? Do you trust them to manage your money? Strata managers must be licenced and their trust accounts are regularly audited.




4. Time. Managing a strata scheme is time-consuming and involves keeping accurate records. Do you have the time to prepare meeting minutes, prepare section 109 notices, provide access to the books and records of the scheme when required and to deal with the inevitable tradespeople? This is in addition to answering the queries of other lot owners and the inevitable disputes over the contents of meeting minutes, levy payments and interest contributions. It really is a full time job.




5. Contacts. Strata managing agents are real estate professionals; they will have a network of reliable tradespeople and be able to obtain discounts for services that self managed body corporate can’t.




6. Insurance. Finally, should the worst happen, licensed strata managing agents are insured.

Any one of the items above can cause dissent in a strata scheme and my experience is that where there is already a lot of emotional investment (a home is generally the biggest financial outlay a person will make) the involvement of an impartial third party is often key to a successful, healthy strata community.

Allison Benson
Legal Practitioner Director
Ph: (02) 4032 7990
E: allison@kerinbensonlawyers.com.au

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

The Self Managed Body Corporate: Is it really worth the savings?

I would like to comment from my own business perspective about the choice of some strata buildings to run as a self managed body corporate.

We are involved with many a self managed body corporate. While many are efficient and cooperative, there are issues which threaten even the good relationships.

Continuity – change of roles within the Corporation can be disruptive and do not provide the same stability as a Strata Management Company.

We maintain a good communication and support process with all the recognised Body Corporate/Strata Management Companies. This is a two way relationship.

We find that changes of ownership/changes of address are not generally advised with the same efficiency.

Generally, there is a complete ignorance when it relates to some of the Legislative procedures eg Advising Conveyancers of our own role in water management and failure to request Special Meter readings of sub meters at settlement dates.

We tend to “steer clear” of larger self managed groups because of the inefficiencies described above and the lack of proper administrative support, but those same inefficiencies often apply to the smaller two and three unit self managed body corporate and guess what – often they are in conflict with each other over issues (including water usage) which could well be resolved by an appointed Body Corporate Manager.

I understand the desire to “save a dollar” but it can be counter-productive. I have seen some Corporations engage in what I call the defacto Body Corporate Manager who “masquerades” in his/her duties and is cheap! There is no legislation in some states, such as here in South Australia, which requires them to be registered and that is of concern.

Obviously, I cannot comment specifically on Body Corporate Management. Our business represents a very small (but significant) aspect of Corporation management. What I do notice however is that the Body Corporate Companies who do charge larger fees seem to have an efficient infrastructure and administrative processes in place that complements our business.

Searching for cheaper fees can come at a cost that is not immediately evident.

Finally, I always give an example of an experience I had many years ago where a young lady started her career as a Body Corporate Manager in one of the larger companies in Adelaide. In the first week of her employment a fire occurred in one of the units she was assigned to manage and an owner died in the incident. She had the administration and knowledge of her fellow workers to deal with this situation. How would a self managed body corporate deal with this situation? With difficulty, I suspect.
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This post appears in Strata News #162

John Fisher
Strata Water Solutions
T: 08 8172 0816

For more information about self managed body corporate or strata title information particular to your state or territory, visit our FactSheet: Strata By-laws and Legislation or State FactSheets: Strata Legislation and Information

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