Question: If the body corporate manager does not arrange the insurance for the scheme, should they still be entitled to the commission? This clause is regularly included in management contracts.
A lot of body corporate contracts include a clause that says if the body corporate manager doesn’t arrange the insurance for the scheme, the body corporate manager is entitled to claim back from the scheme any potential commission that they might have received as a result of not doing the work. It’s quite a controversial cause. What is your opinion on this clause?
Answer: Is the insurer going to pay and subsidise the performance of the manager or is the management company going to have to increase the fees to make it commercial to operate?
Todd Garsden, Mahoneys:
This very controversial clause causes a lot of discussion, particularly with the recent reforms to the modules that required the dollar amount of commissions to be disclosed.
It does seem extraordinary that a manager can charge a fee for effectively, missing out on an opportunity of an insurance commission. However, sometimes insurance commissions are up to a third of the revenue of managing a contract. That’s important because we want our body corporate managers to be able to make a fair profit. If you’re cutting a third of their revenue out, they’ve got to make that up somewhere else and it’s only going to come back to the agreed fixed fee services, because they’re probably undercutting on those fees knowing they’ll make some money back from an insurer.
So is the insurer going to pay and subsidise the performance of the manager or is the management company going to have to increase the fees to make it commercial to operate? It’s a very loaded question and there’s no right or wrong answer. You can see it from both sides.
William Marquand, Tower Body Corporate:
Any body corporate that is activating that cause is probably doing so knowing the relationship with the body corporate they’re representing is going to end fairly soon. I can’t imagine any body corporate would be happy with the body corporate manager using that cause. They would see it as taking money without doing any work.
It effectively works as an exclusivity clause, which you can’t really have, to force the body corporate to get insurance through the body corporate manager.
Todd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753
William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924