WA: Q&A Council of Owner’s Conflict of Interest

This article is about the council of owner’s conflict of interest.

Table of Contents:

• QUESTION: Can a CoO member selling their unit remain on the council, and if so, should they be restricted from voting on matters that could impact their property’s value, or is this a conflict of interest?
• QUESTION: In a strata apartment building, can a lot owner who is the building manager and a resident be on the council of owners?
• QUESTION: A member of our council of owners has a handyman business and has offered to take over our gardening contract. How do we ensure there is full transparency and no conflict of interest?
• QUESTION: Is it considered a conflict of interest if a strata committee member is also the insurance provider and receives the strata insurance commission?
• QUESTION: Concerning the council of owners, what is the definition of conflict of interest? Is conflict of interest only concerning finances?

Question: Can a CoO member selling their unit remain on the council, and if so, should they be restricted from voting on matters that could impact their property’s value, or is this a conflict of interest?

If a council of owners (CoO) member decides to sell, is this a conflict of interest? Can the council request that person withdraw from the CoO or not cast any votes? Given that a selling member’s priorities may diverge from the broader interests of the strata body corporate, should there be specific guidelines or procedures in place to manage potential conflicts of interest during this period?

Answer: The member should refrain from voting on decisions where their interest conflicts with that of the broader ownership group.

To the best of my knowledge, the Strata Titles Act 1985 does not specifically mandate the automatic disqualification of a CoO member due to their intention to sell their lot. However, the issue of a potential conflict of interest is indeed relevant. If the selling member has a personal interest that could reasonably be seen as influencing their judgment in matters before the CoO, it is appropriate for the potential conflict to be disclosed.

In such cases, while it may not be necessary for the member to resign, they should at least refrain from voting on decisions where their personal interest conflicts with that of the broader ownership group. For example, decisions related to financial matters or building works that could directly affect property values or ongoing management responsibilities post-sale should be carefully considered.

The CoO may request that the selling member recuse themselves from specific discussions or votes where their interest as a seller conflicts with the interests of the remaining owners. However, any formal request for the member to step down entirely would require the consensus of the CoO or, potentially, the owners at a general meeting.

It is always prudent to act transparently and in the best interests of all owners, ensuring that any conflicts, perceived or actual, are managed appropriately. I recommend consulting legal advice if the matter becomes contentious or if there are ongoing concerns about the impact of any decisions made by the selling member.

Rick Blampey
SVN Perth
E: [email protected]
P: 08 9427 7955

This post appears in Strata News #718.

Question: In a strata apartment building, can a lot owner who is the building manager and a resident be on the council of owners?

Answer: It may be best if the owner was either a council member or the building manager, but not both.

The most immediate thing that comes to mind is “conflict of interest”.

There is no indication if this strata scheme is self managed.

I might add that the question doesn’t indicate whether a strata manager and building manager are employed. In that instance, there could be some overlap on who organises what and who calls which type of contractor.

This would depend on the breakdown of tasks between the two positions.

Let’s break down the individual roles being performed:

A person who is an “owner” – that’s ok to be on the council, has the same input as every other owner on the council.

The council may give instruction to the strata manager or building manager on what task needs to be performed.

A person who is the “building manager” – as a person employed to do specified duties wearing only the building manager hat (and not on the council) – would be under the control of the strata council to direct them on their responsibilities.

This would be further backed up (or should be) by a contract between the strata company (the strata council being the elected representatives) and the building manager.

Such a contract may contain performance indicators on the level of satisfaction of the duties that have been specified.

If you have allowed an owner to be employed as the building manager, what oversight is in place?

The owner/building manager will be present at every decision made at a council meeting.

The scope for conflict of interest is overwhelming.

The Strata Titles Act 1985 (STA) section 137:

137. Council members: general duties and conflicts of interest

1. This section applies to a person who is —
   
   1. a member of the council of a strata company (including when acting as an officer of the strata company); or
   2. an individual authorised under section 136(2) by a corporation to perform the corporation’s functions as a member of the council, or an officer, of a strata company.

2. A person to whom this section applies —
   
   1. must at all times act honestly, with loyalty and in good faith in the performance of functions as a member of the council or an officer of the strata company; and
   2. must at all times exercise the degree of care and diligence in the performance of those functions that a reasonable person in the person’s position and the circumstances of the strata company would reasonably be expected to exercise; and
   3. must not make improper use of the person’s position —
      
      1. to gain, directly or indirectly, an advantage for the person or any other person; or
      2. (to cause detriment to the strata company.
3. A person to whom this section applies —
   
   1. must inform the council in writing of any direct or indirect pecuniary or other interest that the person has that conflicts or may conflict with the performance of a function as a member of the council or, if applicable, as an officer of the strata company; and
   2. must do so as soon as is practicable after the person becomes aware of the relevant facts; and
   3. in the case of a member of the council, must not vote on a matter in which the member has an interest required to be disclosed under paragraph (a).

4. Subsection (3) does not apply to an interest arising solely from the fact that the member is the owner of a lot in the scheme.

It would be advisable that the Owner Council Member / Building Manager excused themselves from the meeting or any discussion on future repair plans and ongoing maintenance.

It may be best if the owner was either a council member or the building manager, but not both.

To make the problem more interesting:

• Does the building manager perform any of the repair tasks themselves?
  
  • Are they qualified to perform those tasks?
  • Do they have the required insurance for the work?

• Does the building manager have any autonomy to call out specific trades to perform repair tasks?
• Does the building manager have an allocated budget to work through?

These may be extreme examples but are worth considering the impact on the quality of repairs and budget expenditure.

I had the misfortune of dealing with a self managed strata scheme where a person was the “volunteer strata manager, council member and self appointed handyman.

Various quotes were obtained by qualified professionals to which the person in question would submit their quote claiming that they could do the job much cheaper and save the strata company money.

One of the many botched repairs was a repair to the concrete stairs where there was concrete cancer.

I had the task of informing the person that as they were not a qualified Engineer, registered builder or qualified tradesperson and, at best, a shoddy backyard handyman, their further services would not be required.

The result of their botched repairs to the stairs required complete removal of their failed attempts.

The big takeaway is to ensure your tradie has the right ticket for the job.

Shane White
Strata Title Consult
E: [email protected]

This post appears in Strata News #698.

Question: A member of our council of owners has a handyman business and has offered to take over our gardening contract. How do we ensure there is full transparency and no conflict of interest?

Our current gardener has just resigned. A member of our council of owners has a handyman business and has offered to take over the contract. We will get quotes from external suppliers but if the member’s business is comparable or better than the competitors in cost and services offered, can we award the contract to their business? They won’t get to vote on the decision, but I still wonder if it’s an issue.

Answer: It’s important to ensure transparency and avoid any conflicts of interest.

In this situation, it’s important to ensure transparency and avoid any conflicts of interest. Since the council of owner (COO) member has a handyman business and has offered to take over the gardening contract, it’s crucial to follow proper procedures to maintain fairness and objectivity in the decision-making process.

Here are steps you can consider:

1. Full Disclosure: Ensure that the COO member fully discloses their interest in this matter. This includes providing information about their business, its services, and pricing
2. Competitive Bidding: As you mentioned, obtain quotes from external suppliers to determine the market rates and services offered by competitors. This will establish a benchmark for evaluating the COO member’s business proposal.
3. Comparison: Evaluate the COO member’s business proposal against the external quotes objectively. Consider factors such as cost, quality of service, reputation, and any potential conflicts of interest.
4. Conflict of Interest Policy: Check if your strata company has a conflict of interest policy in place. If not, consider implementing one to provide clear guidelines on how to handle situations like this.
5. Decision-Making: Ensure that the decision-making process is conducted by individuals who do not have a direct interest in the outcome, such as those who won’t benefit financially from the contract.
6. Documentation: Maintain clear records of the decision-making process, including the reasons for awarding the contract to a particular vendor. Transparency is key.
7. Creditor Compliance: Does the creditor have the appropriate licences and insurances. Depending on the size of the contract and your insurers specific requirements, it may be advisable to seek input from your strata management agent to ensure compliance with any relevant laws and regulations.

By following these steps and demonstrating transparency and fairness throughout the process, you can make an informed decision that minimises the risk of any conflicts of interest and ensures the best value for your strata company.

Rick Blampey
SVN Perth
E: [email protected]
P: 08 9427 7955

This post appears in Strata News #670.

Question: Is it considered a conflict of interest if a strata committee member is also the insurance provider and receives the strata insurance commission?

Answer: A council member must not make improper use of their position to gain, directly or indirectly, an advantage for themselves.

It could be perceived as a conflict of interest in accordance with Section 137 of the Strata Titles Act 1985; Council members: general duties and conflicts of interest.

From what is noted within the question, it would appear that the council member is directly receiving a financial gain from this transaction.

A council member must not make improper use of their position to gain, directly or indirectly, an advantage for themselves. In this case, the council member must, as soon as practicable after the member becomes aware of the relevant facts, notify the council in writing of this direct pecuniary interest that conflicts or may conflict with the performance of a function as a member of the council.

A council member who is required to disclose a conflict of interest must also abstain from voting on the matter in which the member has a direct pecuniary interest.

The council members should ensure they are satisfied the appropriate disclosures have been provided and that selecting this particular insurance provider over any other available providers is in
the best interest of the strata company.

Ashlee Whitwell
Emerson Raine
E: [email protected]
P: 08 9707 3843

This post appears in Strata News #622.

Question: Concerning the council of owners, what is the definition of conflict of interest? Is conflict of interest only concerning finances?

What is the definition of conflict of interest? Is conflict of interest only concerning finances? We had a case where members of the council of owners complained about a tenant and lot owner. Should they be involved in voting on a motion about what action needs to be taken or should they disclose a conflict of interest and be removed from the voting process?

Answer: You can’t make improper use of your position to guide directly or indirectly an advantage for the person or any other person or cause detriment to the strata company.

Conflict of interest, the immediate example that comes to mind is where you have a person who’s on the Council of owners, and the strata council decides ‘we need to employ a gardener.’ Or ‘We need to employ a painter’, and one of the members on the Council says, ‘My uncle is a painter’ and they’re related to them directly or indirectly.

It could be perceived that there is a conflict of interest as a financial gain could be obtained by the council member by undercutting any other known quotes that have been received from other contractors. So the Act says that they should abstain from voting on those matters. The Act does specifically say that about voting and council members.

You can’t make improper use of your position to guide directly or indirectly an advantage for the person or any other person or cause detriment to the strata company. A person to whom this section applies if there is a conflict of interest, Section 137 3 states that a person to whom this section applies;

1. must inform the council in writing of any direct or indirect pecuniary or other interest that the person has that conflicts or may conflict with the performance of a function as a member of the Council, or if applicable as an officer of the strata company, and;
2. must do so as soon as practicable after the person becomes aware of the relevant facts, and in this case, a member of council must not vote on a matter in which the member has an interest required to be disclosed under paragraph A.

Shane White
Strata Title Consult
E: [email protected]

This post appears in the May 2021 edition of The WA Strata Magazine.

Have a question about council of owner’s conflict of interest or something to add to the article? Leave a comment below.

Read next:

• WA: Q&A Procedure for Election or Removal of Council Members
• WA: Q&A Access to Council of Owners / Strata Information

Disclaimer: this article should not be relied on as legal advice.

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