Terminating Management Rights in Queensland – Strata Snapshot Series featuring Mario Esera
This article and the accompanying video, discussing terminating management rights in Queensland, has been supplied by Mario Esera, now of HWL Ebsworth.
In Queensland, caretaking and letting rights are big business. People pay millions for those rights. Equally, some Bodies Corporate pay millions to their caretaker or letting agent over the lifetime of their engagement. Sadly, not all caretakers are created equal.
So what does a Body Corporate do when their caretaker or letting agent just isn’t up to scratch? Does it simply continue to pay them for services that aren’t being properly performed? Or does it look to get rid of them? Unfortunately for Bodies Corporate, terminating management rights is notoriously difficult. Special Counsel, Mario Esera, discusses why climbing Mt. Everest may be easier than terminating a management rights agreement.
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The First Step: The Remedial Action Notice
A journey of a thousand miles begins with a single step. When it comes to terminating the engagement of a caretaker or letting agent, the first formal step is usually issuing a Remedial Action Notice.
The regulation modules that apply to Bodies Corporate established by the Body Corporate and Community Management Act 1997 (BCCMA) set out the minimum requirements for Remedial Action Notices. Those requirements typically include:
- stating duties the Body Corporate believes have not been carried out (Breach);
- setting out what must be done to remedy the Breach within a stated period (Deadline); and
- a deadline of “not less than” 14 days after being given to the caretaker or letting agent.
It is extremely important that all minimum requirements are met, as any defect could be fatal.
This was a lesson learnt the hard way by the Body Corporate in the case of Peterson Management Services Pty Ltd v Body Corporate for The Rocks Resort [2015] QCAT 255 (21 May 2015). The Body Corporate issued eight (8) Remedial Action Notices which all had a Deadline of within 14 days – rather than not less than 14 days. Because the Remedial Action Notices failed to comply with the minimum requirements set out in the Regulation Module, all of them were deemed to be defective, meaning that all steps taken by the Body Corporate in reliance on those notices were invalid and of no effect.
A journey of a thousand miles begins with a single step. The Body Corporate for The Rocks Resort effectively tripped and fell at the first.
The Ascent: Approving Termination
If a properly prepared Remedial Action Notice has not been complied with by the Deadline, terminating management rights may only be approved by an ordinary resolution of the Body Corporate, decided by secret ballot.
In most situations, this will require the Body Corporate to convene an extraordinary general meeting where lot owners vote on a motion that either approves or rejects termination (Termination Motion).
Unfortunately, neither the BCCMA nor the Regulation Modules provide much in the way of guidance when it comes to the content of a Termination Motion or the explanatory material that accompanies it. The District Court in the decision of Body Corporate for Palms Springs Residences CTS 29467 v J Patterson Holdings Pty Ltd [2008] QDC 300 found that Bodies Corporate owed a fiduciary duty to lot owners to provide such information to “fully and fairly inform members” of what is being considered.
So does that mean that the Termination Motion should contemplate the caretaker or letting agent commencing proceedings against the Body Corporate challenging the termination? Or is it merely enough to inform lot owners that the Remedial Action Notice has not been complied with by the Deadline?
There is no clear answer, meaning that the terrain a Body Corporate must successfully navigate can be uncertain. As with most things, the key is receiving well-informed advice ahead of time from the Body Corporate’s manager and, if necessary, a solicitor.
Nearing the Summit: Reasonableness
Even if a Body Corporate manages to avoid the pitfalls associated with Remedial Action Notices and Termination Motions, there is one final challenge when terminating management rights that must be overcome. The BCCMA states that a Body Corporate must act reasonably in anything it does. Case law confirms that this extends to terminating a management rights agreement.
Therefore, even if a Body Corporate does everything right from a procedural point of view, their expedition can still fail if the act of termination is considered to be unreasonable in all the circumstances. Unfortunately, what is or is not unreasonable can sometimes be difficult to assess.
For example, a Body Corporate issues a Remedial Action Notice to its caretaker for failing to clean a common area. Before the Deadline, the caretaker cleans most of that common area but leaves behind cigarette butts and bird waste. Strictly speaking, the caretaker has not complied with the Remedial Action Notice, but would it be reasonable terminating management rights where they have remedied most of the Breach? Probably not.
Then again, what if this is the fourth time in six months that the Body Corporate has issued that caretaker with a Remedial Action Notice for the same Breach and each time they fail to comply completely? Is a decision of terminating management rights in those circumstances still unreasonable? The answer becomes less certain.
So is Climbing Mt. Everest Easier?
Climbing Mt. Everest is difficult, but at least you have a good idea of how long it will take, how much it will cost and you know that about 4,000 people have done it successfully. By comparison, terminating management rights could take months or years, cost thousands or hundreds of thousands of dollars, and there are only a handful of Bodies Corporate that have ever done it successfully.
Whilst that may justify putting any attempt of terminating management rights into the “too hard” basket, Bodies Corporate and their Committees have a duty to act in the best interests of lot owners. Therefore, if your caretaker or letting agent is receiving substantial payments for services they are not performing properly, action must be taken.
It may be that starting this process does not result in a successful termination, but hopefully, it will at least remedy the Breaches and put your caretaker or letting agent on notice that your Body Corporate will not be taken advantage of.
The key for Bodies Corporate is that they take full and informed advice before embarking on what could be a perilous expedition. You wouldn’t climb Mt. Everest without an experienced Sherpa, and you shouldn’t embark on the process of terminating management rights without an experienced solicitor. Whilst that may not guarantee success, it should at least ensure that you avoid some of the hazards that other Bodies Corporate have succumbed to.
If you or your Body Corporate is having difficulties with your caretaker or letting agent or you simply wish to discuss the matters raised in this article in more detail, please contact Mario Esera.
Mario Esera Partner P: +61 7 3169 4750 E: mesera@hwle.com.au W: HWL Ebsworth
This post appears in Strata News #102
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