Question: What disclosure is required if our body corporate manager part-owns the company put forward for a new contract? They ticked “no commercial arrangement” on the Form 35.
Our grounds maintenance contractor resigned, and the committee put out an EGM asking owners to vote on a replacement. The process wasn’t advertised, and only two companies were listed as options. An ASIC search revealed the cheaper option is half owned by our body corporate manager through a holding company. None of this was in the voting pack. A Form 35 appeared a week after the notice went out and only after I raised the matter. On the Form 35, they ticked “no commercial arrangement, commission or other benefit”, which is hard to swallow when you own 50% of the company. The committee responded that he disclosed to them during quoting (not in minutes) and did not evaluate the tenders, but their own minutes confirm he was asked to coordinate other bids.
Additionally, no contract or terms were attached to the EGM vote, just price on a $100k contract.
Should owners have been told of the manager’s ownership before the ballot, not just the committee? Is that Form 35 declaration defensible? Are owners entitled to proper contract documents before voting on something of this size?
Answer: Ticking “no commercial arrangement” while owning half the tendering company is, at best, sterile compliance that may not satisfy fiduciary duties.
It’s normal for a maintenance contract not to be ‘advertised’, but nothing else about your new contract is, or should be regarded as, normal…
First, the body corporate manager (BCM) must give a written notice to the body corporate, before the EGM, disclosing the relationship between the BCM and the related maintenance company (Related Company); see section 154 of the Standard Module. Failure to do so is an offence, punishable by a fine of up to 20 penalty units ($3,338) for an individual and 5 times that amount for a company ($16,690). Handing over a Form 35 before the vote at the EGM is likely to satisfy the timing requirement, because the notice is sent before the EGM at which the decision was made. However, note that the Form 35 is given to the body corporate and not the owners, which in my view is a failing in the legislation, that ought to be remedied by the committee, acting in the best interests of the lot owners, circulating a copy of the Form 35 to all lot owners before the vote (and in enough time to be considered before votes are cast).
A BCM who is being open, honest and forthright about their dealings would give the Form 35 to the body corporate ASAP once the quote from the Related Company is received. The BCM may well have done this… but the BCM obviously did not insist on the Form 35 going out with the voting pack, which is concerning in my view.
Next, the BCM has to disclose whether under the new contract ‘or under another contract or arrangement’ the BCM is entitled to receive, other than from the body corporate ‘a commission, payment or other benefit that is associated with the’ new contract, including with entering into the new contract; see section 156 of the Standard Module. What the BCM has said by ticking ‘no commercial arrangement, commission or other benefit’ is what we in the legal profession call ‘sterile compliance’. In other words, it’s arguably a true statement if the wording of the legislation is read narrowly, instead of being read to address the mischief that Parliament was trying to address with the legislation. It’s farcical to suggest that if you own half of the Related Company and you won’t receive at least ‘another benefit’ under an ‘arrangement’. For example and obviously, dividends on shares held in the Related Company arising from profits made on the new contract.
Finally, lot owners cannot make a sensible decision and thus a lawful and enforceable one, about entering into a contract if they don’t know what the contract is and what the contract’s terms are. This is probably the strongest ground for seeking to have the result of the vote on entering a new contract set aside.
Compliance with section 154 and section 156 of the Standard Module will avoid prosecution under those sections, but it does not ‘cure all’. A lot of BCMs and lot owners don’t understand that there is a large body of law outside the Act and Modules that applies to these sorts of issues. It’s called the law of fiduciaries, and sterile compliance is not enough to get a fiduciary off the hook. Disclosure has to be timely, meaningful and delivered to the right people. Otherwise, it won’t be effective. Further, sometimes disclosure cannot cure a breach of fiduciary duties, for example, when there is a conflict between the duties of the fiduciary (BCM) to their principal (body corporate) and the fiduciary’s own interests.
In my view, BCMs should avoid these situations whenever possible. This sort of thing undermines public trust and confidence in BCMs and in the sector. Vertical integration may be a successful business strategy in other sectors, but in the strata management sector, vertical integration is so fraught with compliance, fiduciary and ethical issues that professional BCMs should avoid it altogether.
This post appears in the September 2026 edition of The QLD Strata Magazine.
Michael Kleinschmidt Bugden Allen E: michael.kleinschmidt@bagl.com.au P: 07 5406 1280
