This Q&A about our Strata Manager in Victoria overcharging and not providing good service has been supplied by Jane Giacobbe, Strata Reports Victoria.
Question: We are sick of being overcharged by our Strata manager, with additional billings of all and sundry for their strata management services. They are under a three year term, signed by the developer. What can we do?
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We have quite a bit of unrest amongst our Owners Corporation committee members over the additional billings of all and sundry for management services of our strata. They want to seek an alternative. I’m interested to know a few things:
- Is it lawful for a developer to sign up the strata manager for a three year term? Why would they do that? Are commissions often involved here?
- The agreement was not signed by a witness. Could this void the agreement?
- The strata manager on a previous enquiry told us we did not have rights to the strata roll as it was a Privacy Act issue. This surely cannot be correct? Are they just preventing us from accessing owners contact details in order to block communications about this and/or other issues?
I’m sure there are other strata management companies whose billings are more in line with expectations. Are you aware of other more innovative ways of managing an Owners Corporation’s requirements that don’t involve overcharging like this strata manager?
Answer: The developer may have sold the OC management contact to the OC management company as a way of maximising their return on a project.
We can confirm that it is legal for a developer to sign a 3 year term in a contract of appointment with an Owners Corporation management company.
The developer holds that power as the original owner at the time of the First Annual General Meeting (sometimes also referred to as Inaugural Meeting in VIC) where the resolution is passed and the contract is signed and sealed. The actual term of the contract is also a decision that is made by the OC management company at the time of preparing the draft contract of appointment and relevant motions for the FAGM.
Their reasons for doing this do vary and in the best interest of full transparency for the Owners Corporation, you could present that question directly to the developer and the OC Manager.
We would like to think that the developer and OC manager have set a term of 3 years as they would like a strong long-term working relationship with the Owners Corporation to help establish things and have the building running efficiently.
However, there are sometimes other reasons that contracts of appointments are longer than 1 or 2 years and with some new developments. One reason is that the developer may have sold the OC management contact to the OC management company as a way of maximising their return on a project.
The OC management then needs to recoup the fee they have paid to the developer and one way to do that may include proposing that the term of the contract with the Owners Corporation is set for longer.
Having said all of this, we do not know that this is the case with your current OC management and it would be best to ask them directly so that you have full transparency and disclosure around the term that has been set.
If the contract has not been signed by a witness, it does not necessarily mean that it will be void.
You would need to go back and review the minutes from the First Annual General Meeting and the resolution that was made around the contract of appointment which should state how it would be signed and sealed.
If it is all correct, then my understanding is that the contract of appointment will not be made void without a witnesses signature, however, I would suggest possibly seeking legal advice if you feel strongly around that as there may be something more than what I am aware of.
Concerning the access to the strata roll, each owner does have the right to inspect the books and records of their Owners Corporation and that includes viewing the strata roll (which is known as the owners register in VIC). The owners register must include each lot owner’s name and address as a requirement under the Owners Corporation Act 2006 and as such that information is not subject to the privacy act.
The OC management may request that you complete the “Request to inspect Owners Corporation register and/or records” form which can be found on the Consumer Affairs Victoria’s website and you may need to pay a fee for any copies that you would like to take.
Should the owners corporation members feel uncomfortable in attending the OC management’s offices, you could also engage an independent company such as Strata Reports Victoria or Strata Reports NSW, to carry out an inspection of the books and records on behalf of the members within the owners corporation and obtain documents and information that you require.
We hope that our responses have been helpful and please feel free to reach out if you would like to discuss things further as we would be delighted to assist where we can.
Please note that the above is based on my knowledge and experience but if you would like to obtain actual advice it would be a good idea to seek that from a specialised Owners Corporation lawyer.
Have a question about strata managers overcharging in Victoria or something to add to the article? Leave a comment below.
Jane Giacobbe
Strata Reports Victoria
E: [email protected]
P: 0402 341 848
This article is for reference purposes only and is not intended to be a comprehensive review of the developments in the law and practice or to cover all aspect of the subject matter. It does not constitute legal or other advice and should not be relied upon this way. Readers should take legal or other advice before applying the information containing in this publication.
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- Records – owners corporations
This post appears in Strata News #294
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Jeanie, on the contrary, if a strata manager’s service agreement doesn’t list insurance renewals and management of insurance claims as a service they provide within their strata fee scope of work, then it is reasonable that they exclude themselves from claims administration and annual insurance quoting once the committee eliminates their insurance policy commissions or kick backs. The owner’s corporations I have led down this path (three to date) have fully understood this quid pro quo and don’t hold that against the strata manager at all. The annual quoting / renewal is done by our independent brokers at nil cost and they by definition provide at least three quotes from three insurers each year (instead of jus blindly rolling over the existing insurer with the commissions in place). When claims happen (as they have with these new arrangements), the committee does need to take more individual and prescriptive responsibility for managing the claims and settlement process (but again the broker assists and the insurer invariably appoints a loss assessor to work through the issues and negotiate the settlement deal).
I’ve had an insurance renewal situation where the strata manager (taking a commission) said they would not be prepared to deal with a different insurance broker that they didn’t appoint and if the committee went down that path then the committee would have to liaise on all matters relating to insurance claims. I found this all rather odd. Aren’t the strata managers supposed to be working for us?
From an Owners Corporation Management Companies point of view, it is not worth taking on new developments if you are only going to receive a one year Contract. For all the work that it takes to set up a new building, enter all the information into the system, manage the move in process, hold an SGM to appoint a Committee, push to get a defect report completed amongst others, by the time all of this is completed, you have hardly enough time to get your feet under the desk and have the real possibility of losing the Contract to a tender process.
Whilst there is little doubt that some Developers will seek compensation from some Owners Corporation Management Companies as a ‘sweetener’, it is foolish to tarnish all Developers and likewise all OC Management Companies with the same unethical brush.
Also, reading some of the comments from others regarding insurance commissions, it would seem there is a sincere lack of knowledge as to what is involved in the insurance process. Whilst we are advocates for this to change across the board, we propose no insurance commissions and increase the management fee so there is greater transparency within the industry. The lack of understanding of what an OC Management Company does for their commission leads to generic statements like some above.
It is also extremely difficult to incorporate an all inclusive contract cost due to the flexible nature of the industry and building make up. For example, how does an OC Management Company know how many meetings the Committee will hold throughout the year and how long they go for. Some want monthly, 2 monthly, quarterly, 6 monthly or none at all. If an all inclusive cost, the one OC could request attendance by the manager on site for hours on end. This is evidently not suitable for any business.
Disbursements vary so dramatically, how many Owners are going to receive their notices via post compared to email.
Building defects, dispute resolution, VCAT attendance, breach notices, access device requests, insurance claims, quote requests, work orders, debt collection follow up, all of this is variable. The above comment promotes all inclusive Contracts but in reality this is extremely difficult to measure without knowing all of the above, which you never do.
Strata Fair is a broker we have used that doesn’t accept insurance commission. Taxes also get reduced when no commission is taken which makes for some pretty compelling savings.
Interesting point you make about the tax return cost vs interest earned – particularly considering the meager rates at the moment. I’ll have to look into that one.
At a point in the development cycle, the developer owns all the units and hence all the votes ( this is technically called the developer control phase). Contracts made in this period should be carefully scrutinised as part of due diligence as there is an obvious scope for conflicts of interest. This is where developers may do sweetheart deals for management and caretaking with their associated firms.
Hopefully there isn’t an option to renew!
This can be a common problem in new developments in my investment experience – only surpassed by developers appointing caretakers on multi-year, gratuitous contracts that are even more outrageous than the strata manager appointments. Until purchasers get savvy enough to critically evaluate these strata mgt and care taking arrangements as an element of their purchase decision, developers will continue to get away with this somewhat dishonourable (but rarely illegal) conduct. If purchasers said to the selling agent that they weren’t interested in a unit because of these peripheral arrangements and that impacted the developer’s sales, the practice would eventually start to improve? However once you are in the mire as an owner, so to speak, you probably need to wait out the 3 years and then have a much more rigorous approach to selection and appointment of the next strata manager. We have transitioned strata management agreements for properties in NSW, QLD and the ACT to new contracts that are ethical, all-inclusive strata management agreements that eliminate all disbursements, fees, third-party charges and the like. If you would like a copy of a typical all-inclusive agreement, I can send one on request. You also need to be savvy about some of the additional costs. For example paying hundreds of dollars a year for the strata manager to supposedly lodge a tax return for the body corporate is ridiculous if the strata has minimal investment earnings from its capital works / sinking fund account. Your committee might instruct the strata manager to shift the funds into a non-interest bearing account so as to avoid this liability and sham fee? Similarly, for the dodgy practice of insurance commissions retained by strata managers, you can now find independent brokers who will not accept commissions or rebate any received to your body corporate.