Question: Management rights agreements seem weighted in favour of service contractors, and getting a non-renewal recommendation past owners can be hard. How can a committee plan ahead to build a solid case?
Our experience dealing with what we can only politely describe as difficult service contractors mirrors the problems that have driven legislative change in NSW. We accept there are two sides to everything, but if NSW can make those changes, why can’t QLD?
Management agreements seem weighted in favour of service contractors at renewal every five years. Can you offer any guidance on how a committee can plan to substantiate a non-renewal recommendation to owners?
Closing out a contract seems entirely impractical when it involves forcing the sale of the management rights if the owner does not wish to sell or there is no buyer around.
Disagreements between committees and service contractors are, by all accounts, commonplace. We have even had the meaning of the word “arrange” at the start of a clause disputed. Committee members are invariably unpaid volunteers who may not live locally. Logic dictates that for most maintenance issues, the service contractor should do the hard work. Some are excellent. Others apparently want to sit back and do as little as possible.
Answer: Treat any caretaking agreement extension as a business decision, not an emotional one, and calculate the full financial commitment before owners vote.
Do you mean that Queensland’s legislation is out of date and that body corporate schemes are falling behind as a result? You would find a lot of people who agree with that view.
The bulk of the current legislation dates back to 1997, a decade before the first iPhone. Since then, the number of people living in community titles schemes has increased dramatically, along with the complexity of those buildings. Other jurisdictions, particularly New South Wales, have recognised this shift and are actively updating their legislation to reflect the practical realities of modern strata living. It remains to be seen whether all those changes are ultimately successful, but at least they are attempting to address the problem.
In Queensland, reform has been much slower. If that concerns you, the most effective step is to raise it with your local member or the Housing Minister. Legislative change tends to follow sustained pressure. Without it, there is a real risk that reform will continue to drift until a major failure forces it. That may sound dramatic, but the likelihood of a serious incident in an ageing and increasingly dense building stock is not insignificant.
Caretaking arrangements are one area where reform would seem particularly warranted, given the volume of disputes they generate.
From a practical perspective, my advice to committees and owners is to approach any caretaking agreement, especially extensions, as a business decision, not an emotional one.
That sounds obvious, but in practice, many decisions are influenced by personal relationships, frustrations, or historical grievances. None of those are particularly helpful when you are asked to commit to a long-term contractual arrangement.
Very few extension motions clearly articulate the total financial commitment being proposed. Owners should calculate this themselves. For example, a contract currently worth $100,000 per annum, increasing at 4% annually, results in a total cost of approximately $4.16 million over 25 years. Extending a contract from 20 to 25 years can represent well over $1 million in additional commitment.
Personally, I think it is worthwhile presenting costs to owners in a table so they can see what is really at stake. Using the example above, this is what the cost projection would look like.
25-Year Contract Cost Projection (4% Annual Increase)
| Year | Annual Cost ($) |
|---|---|
| 1 | 100,000.00 |
| 2 | 104,000.00 |
| 3 | 108,160.00 |
| 4 | 112,486.40 |
| 5 | 116,985.86 |
| 6 | 121,665.29 |
| 7 | 126,531.90 |
| 8 | 131,593.18 |
| 9 | 136,856.91 |
| 10 | 142,331.18 |
| 11 | 148,024.43 |
| 12 | 153,945.41 |
| 13 | 160,103.22 |
| 14 | 166,507.35 |
| 15 | 173,167.64 |
| 16 | 180,094.35 |
| 17 | 187,298.12 |
| 18 | 194,790.05 |
| 19 | 202,581.65 |
| 20 | 210,684.92 |
| 21 | 219,112.31 |
| 22 | 227,876.81 |
| 23 | 236,991.88 |
| 24 | 246,471.55 |
| 25 | 256,330.42 |
Breaking that down further, on a per lot basis, often brings clarity. What might seem like a modest annual cost today can become a materially higher burden over time.
Once the cost is understood, the next question is value. However, this can be a tricky question to answer, as extension motions typically do not ask owners to assess the value they receive from the contract today but rather the value they would receive when the extension kicks in. This prompts the question that is rarely asked when considering extensions: why is the body corporate being asked to decide this issue now?
Most decisions made by a body corporate relate to works or services in the near term. By contrast, management rights extensions often ask owners to approve changes that will not take effect for 10, 15 or even 20 years.
That is highly unusual in any other commercial context.
For example, a proposal to extend a contract from 2046 to 2051 may be put to a vote today. Even if the current contractor is performing well, it is worth asking whether it is sensible to lock in that decision so far in advance. There are very few comparable situations where people are asked to make binding commercial decisions that far into the future, yet in strata, it is often treated as routine.
Looking at proposals through this lens can also help cut through some of the friction that often exists between committees and service contractors. The question is not whether the current contractor is “good” or “difficult”, it is whether the proposed contract represents good value for the body corporate over its full term.
That shift in perspective tends to lead to better, more rational decision-making.
This post appears in Strata News #791.
William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924
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