This article discusses committee options when a body corporate manager ignores a debt recovery agreement and the steps available to address the issue.
Question: What can a committee do if a strata manager does not follow the debt recovery process set out in the management contract?
Our management contract requires the strata manager to follow a debt recovery schedule at 15, 30, and 45 days, with set fees of $22 for reminders and $110 for letters of demand. The strata manager has not been triggering these notices or applying the fees for a long term defaulting owner. The defaulting owner has been able to treat the body corporate as a zero interest credit facility.
We changed strata companies three years ago specifically to address ongoing debt issues. The strata company changed owners shortly afterwards, and didn’t notify our committee. The contract itself has not changed.
For the past three years, the committee has had to alert the strata manager of debts. This leads to multiple time consuming emails and long delays before the strata manager takes action and sends letters. The defaulting owner rents out their unit for a considerable fee.
What recourse does the committee have when the strata manager does not enforce the debt recovery steps and financial penalties set out in the management contract?
Answer:Write to the principal of the company requesting a clear explanation for the status of recovery against the lot owner, detailing what action has been taken and what will happen next.
It seems odd that your managers are not enforcing the debt recovery process that they have put in place. If nothing else, they will make money out of the process, so what’s holding them back?
Maybe there is some error in the agreed process or the motions passed, and the company feels that if they went ahead with recovery, it may fail. That’s just speculation, but if there’s a problem, they should acknowledge it.
It sounds like you may have gone through these stages, but I would write to the principal of the company requesting a clear explanation for the status of recovery against the lot owner, detailing what action has been taken and what will happen next. Set out exactly what your expectations are in reference to the management agreement, and motions passed, and ask why they agreed process is not being adhered to. If you can get a reasonable response, it may help clarify matters for you. If you can’t, that response will tell its own story.
An alternative could be to engage a recovery agent outside of using your body corporate manager. Many law firms offer recovery services, and you could speak with one about taking over. They may ask the body corporate to pass motions to permit this or to establish the recovery process. They may need to review how any appointment would conflict with your management agreement. It would be unusual to go down this route, but since you are in an unusual position, it wouldn’t hurt to inquire.
What’s clear is that you feel you are not getting the service you need or expect. That’s usually a sign that you should consider looking for a new manager.
In terms of recourse against a manager for not completing the terms of their contract, this can be tricky. We can’t see your agreement, but it should include a termination clause. Check to see what action you can take.
I’d expect this clause to be fairly neutral and will read something like:
Either party may terminate this agreement in accordance with the Act and/or the Module.
You should consult a lawyer about this, but this broadly means that the legislation classifies the managing agent as a service contractor, and to terminate their agreement, you would need to serve them a breach notice. If they fail to rectify that breach, the contract could be subject to termination.
If that sounds complicated, it’s because it is, and I doubt that there are many real-life cases where termination for breach of contract has been applied. If any readers know about this, please add to the comments section.
More commonly, schemes wait out their contract and change managers when the current agreement expires. Get a copy of your contract and see when it ends. If it is due to run out in the next twelve months, speak to alternative suppliers and put forward motions for their appointment when the time comes.
If you need to exit now, or have a longer waiting period, you could negotiate an end to the agreement with your company or pay out the rest of the contract. If you can mutually agree to end the contract, great. If you are going to terminate early, be prepared to pay the remaining fixed fees under the contract. You can argue the fairness of this and get a lawyer to advise, but being practical, that is what you can expect.
William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924
This post appears in Strata News #780.
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